Homeowners Insurance and You – Are You REALLY Covered?

WHY INSURE YOUR HOME
Whether you live in a house, a condo, or an apartment, homeowner’s insurance will protect you financially when your home and its contents are damaged due to things such as fire, theft, and various kinds of storms.

WHAT IS INSURANCE
If you OWN your home you should buy property insurance. Most mortgage providers (lenders) require that you have homeowner’s insurance in place prior to the closing on your home.

What is property insurance:
This will protect your home, belongings, family, and valuables in the event of unexpected happenings/perils. It is designed to replace or rebuild your property when it gets damaged or destroyed.

WHAT ARE CONSIDERED “PERILS”:

  • Fire and lightning
  • Windstorm or hail
  • Explosion
  • Riot or civil commotion
  • Damage caused by aircraft
  • Damage caused by vehicles
  • Smoke
  • Vandalism or malicious mischief
  • Theft
  • Volcanic eruption
  • Falling object
  • Weight of ice, snow, or sleet
  • Accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning, or automatic fire-protective sprinkler system, or from a household appliance.
  • Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioning or automatic fire-protective system
  • Freezing of a plumbing, heating, air conditioning or automatic, fire-protective sprinkler system, or of a household appliance
  • Sudden and accidental damage from artificially generated electrical current (does not include loss to a tube, transistor, or similar electronic component)

WHAT IS YOUR HOME/HOUSE/RESIDENCE:

This is the actual house that you live in, other buildings such as garage or tool shed, and land located at the address that you are insuring.

WHAT IS YOUR PERSONAL PROPERTY:
This is the contents such as furniture, TV, clothing, jewelry and other belongings that are located inside your home or detached buildings on your property.

If you OWN your home, you also should buy liability insurance:


WHAT IS LIABILITY INSURANCE:

This will protect you if someone is injured on your property or your dog bites someone or eats a neighbors favorite flowers and the situation becomes a “legal issue” where you need help defending yourself or paying for the other person’s medical bills or for repair of their personal property.

DO YOU WANT ACV (ACTUAL CASH VALUE) OR REPLACEMENT COST?

WHAT IS ACTUAL CASH VALUE (ACV):

This payment is the depreciated value of each item at the time it is damaged, destroyed, or stolen. Most policies pay for losses to your contents on an actual cash value basis. (Actual Cash Value is an item’s replacement cost minus depreciation.)

WHAT IS DEPRECIATION:

This is the decrease in home or property value due to age or wear and tear since it was built or purchased.

WHAT IS REPLACEMENT COST VALUE (RCV):

This means that brand-new items would be bought to replace or repair your home and/or its contents.
In order to get the replacement cost coverage, usually, you must insure your home for at least 80% of what it would cost to build the home at today’s prices. This coverage is not available on all policies.

NOTE:

Coverage on your contents is usually limited to 50 – 70% of the coverage on your home. (If your home is covered up to $100,000, then your contents coverage limit is $50 – 70,000.) The cost for replacement cost coverage is usually higher; but in most cases, the extra protection is worth it.

Insurance companies generally want proof you replaced an item before paying your claim in full. The company might choose to replace the items instead of paying cash, the choice is the companies.

WHAT ARE THE BASIC TYPES OF HOME INSURANCE POLICIES|:

HO-1: This is the basic or “bare bones” homeowner policy that covers your house and possessions against the first 10 perils listed above.. This policy is no longer available in most states. Coverage to Building and Contents is ACV

HO-2: This is the broad homeowners policy that covers your house and your belongings against all 16 perils. (It costs about 5% to 10% more than an HO-1 policy) There is a version of HO-2 designed for mobile homes also. Coverage to Building and Contents is ACV.

HO-3: This most popular policy is a special homeowners policy that covers all perils except: flood, earthquake, war, nuclear accident, landslide, mudslide, sinkhole and others specified in your policy. Check your policy for a complete list of perils that are excluded. You may be able to buy additional coverage to cover some of the excluded perils. Coverage to the Building is RCV and to the Contents is ACV.

Interesting Note: Floods, earthquakes and poor maintenance cause the most significant damages. You must buy two separate policies for flood and earthquake coverage. Maintenance-related problems are your responsibility, not the insurance company’s responsibility.

HO-4: This is a policy created specifically for those who rent the home they live in. It protects your possessions and any parts of the apartment that you own, such as new kitchen cabinets that you install, against all 16 disasters or perils. This policy covers liability and additional living expenses Coverage is on an ACV basis but may be endorsed to make it RCV.

HO-5: This is an extensive homeowners policy. It covers damage from practically everything except earthquakes, wars and floods. Coverage for Building and Contents is on an RCV basis and is the broadest coverage that can be purchased.

HO-6: This policy is for owners of co-ops or condominiums. It provides personal property coverage, liability coverage and specific coverage of improvements that you have made to your unit, and the structural parts of the building that you own against all 16 disasters. (Insurance provided by the owner’s association normally covers most of the actual building.) The limited amount of Building coverage is ACV and Contents is ACV and can be endorsed to make it RCV.

HO-8: This policy is for older homes. It covers the same perils as HO-1 but pays only for repair costs or actual cash value, since replacement cost could make the policy costly. Coverage to Building and Contents is on an ACV basis.

IF YOU RENT YOUR HOME:

You should buy your own liability and personal property coverage that will cover the contents and personal belongings that you have in your home.

WHO INSURES THE ACTUAL BUILDING (HOUSE, APARTMENT):

The landlord or the owner of the property is the person who is responsible for paying for insuring the actual building in which you are living.

WHAT IS A RENTER’S POLICY:

This will pay for the replacement of your personal belongings such as furniture, clothing, and other things in your home when disaster strikes such as fire, hurricane, theft, and vandalism. It covers liability (injury or damage to property of others while on your property), and it covers additional living expenses.

WHAT IS ” ADDITIONAL LIVING EXPENSES”:

This is what it would cost you if your home is damaged to the extent that you could not live in it and you had to live somewhere else while your home was being repaired or rebuilt. It pays for expenses above what you would normally pay. For example, if your mortgage is $800 per month but it costs $1400 per month to stay somewhere else this coverage would provide the difference of $600. The same is true of your food, laundry costs and any other activity that you could normally do at home and now must pay extra for. This does not include things like entertainment.

CHECK YOUR POLICY
Now is the time, before disaster strikes, to get out your policy and review it with your agent. Make sure you are covered for everything you need. The cost to upgrade you coverage is probably less than you might think.