Home Insurance

Home Insurance: What is Insured?

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Generally, a homeowners insurance policy includes at least six different coverage parts. The names of the parts may vary by insurance company, but they typically are referred to as Dwelling, Other Structures, Personal Property, Loss of Use, Personal Liability and Medical Payments coverages. They are usually presented as policy sections and are often labeled Coverages A through F.

Home Insurance Coverage A — Dwelling
The homeowner policy's first coverage section protects your house and any attached structures, such as garages, decks or fences. The typical policy covers your home when it is damaged by many hazards (also known as perils or causes of loss) including fires or storms. However, the following causes of loss are usually excluded from coverage under the homeowners policy:

• Earthquake
• Flood
• Faulty maintenance
• Damage from insects or vermin
• Wear and tear, gradual damage or deterioration

Home Insurance Coverage B — Other Structures
This coverage section protects structures that are not attached to the home, such as a detached garage, storage or utility shed, playground equipment and swimming pools.

Home Insurance Coverage C — Personal Property
This covers your possessions, whether they are at your home or away with you on vacation. Personal property is often covered on a named peril basis. This means that only the causes of loss listed in the policy section are covered. The coverage is also subject to limitations and exclusions. Types of property having significant value, such as jewelry, fine arts, collectibles, etc., may require special protection. Talk to your agent about scheduling (adding) coverage on a floater which broadens and extends coverage for high-valued possessions.

Home Insurance Actual Cash Value vs. Replacement Cost
Commonly, protection under sections A and B is provided on either an actual cash value or a replacement cost basis. Actual cash value is defined as replacement cost minus depreciation. Replacement cost is the actual cost to replace the structure, regardless of depreciation. Check your policy to see which type of coverage you have. Coverage under section C is usually provided on an actual cash basis. However, your agent may be able to add replacement cost to your possessions just like that found in Coverage A.

Home Insurance Coverage D — Loss of Use
This coverage handles the cost of additional living expenses while your home is being repaired. The coverage also applies if the home is unusable. However, the loss or loss of access has to be the result of an event that is covered by the policy. For instance, if your home were damaged during a war and you had to abandon it, Coverage D would not be available because war is excluded. Additional expenses normally include food, housing, and transportation. However, the expenses must exceed what your family normally incurs.

Home Insurance Coverage E — Personal Liability
This Coverage Part responds if you are legally responsible for causing property damage or physical injury. Protection includes paying for your defense costs and any financial judgment for covered incidents. Naturally the coverage would not apply for excluded situations, such as intentional injuries. Example: Joe is sued by a guy he injured during a brawl at a basketball game.

Home Insurance Coverage F — Medical Payments
This Part provides rapid reimbursement for minor injuries, such as a guest who trips and falls while visiting your home. This coverage does not apply to a family member. For example, if your child and your neighbor's child are both slightly injured while playing and need to go to the emergency room, this coverage will pay for your neighbor's expenses but not for your own child.

This is a brief overview of homeowners insurance. All of the coverage provided by the homeowners policy is subject to limitations such as exclusions, policy limits, and deductibles. It's important that you discuss the details of coverage and any other insurance questions with your insurance agent.

Types of Home Insurance Policies

There are two types of policies: all risks and named perils. A named perils policy covers losses that are due to only those perils listed in the policy. The perils typically covered include fire, windstorm, hail, and other direct physical losses. An all risks policy covers losses that are due to any peril except those specifically excluded in the policy. It is important to note the all risks policy provides broader protection than do named perils policies.

The five types of homeowner packages offered to owners of single family owner occupied homes are HO-1, HO-2, HO-3, HO-3 with HO15 and HO-8.

HO-1 Basic Homeowner:
Insures your property against the following 11 basic named perils: fire/lightning, loss of property removed from premises endangered by fire or other perils, windstorm/hail, explosions, riot/civil unrest, aircraft, vehicles, smoke, vandalism/malicious mischief, theft, and breakage of glass constituting a part of the building.

HO-2 Broad Basic Homeowner:
Insures your property against the 11 basic named perils in HO-1 plus 7 additional named perils: falling objects, collapse of roof due to weight of ice or snow or sleet, collapse of building(s) or any part thereof, bursting of steam/hot water system , leaking of plumbing or heating system, freezing of pipes, sudden and accidental damage from artificially generated currents to electrical appliances or devices or fixtures or wiring.

HO-3 Special Extended Homeowner:
Provides for comprehensive coverage (all risks) on your home and the 18 (HO-2) broad named perils coverage on your contents. This is the most popular of all homeowner policies.

HO-3 with HO-15 Comprehensive Homeowner (all risks):
Covers your home and personal property for everything that is not specifically excluded. This policy usually provides the broadest all risks coverage available, but is not offered by all insurance companies.

HO-8 Modified Homeowner:
Covers homes that have suffered extensive depreciation. Historical or architectural features may make the home more expensive than its market cost. This coverage is more restrictive much like HO-1 but is geared towards older homes.

Other Home Insurance Coverages

HO-6 Condominium Unit Homeowner:
Covers items not insured by the condominium association's policy, such as, property damage to personal belongings, wall, floor and ceiling coverings, and any accessories not originally installed in the unit. An HO-6 policy is basically an HO-2 policy. It also provides additional coverage for personal property, loss of use, personal liability and medical payments.

HO-4 Renter's Coverage:
Insures your household contents and personal belongings against the named perils in HO-2 policy. It also provides coverage for additional living expenses and includes personal liability protection.

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Optional Home Insurance Coverages

You can purchase optional coverage to add to your policy. They are called endorsements or sometimes "floaters". Some common endorsements:

Inflation Guard Endorsement:
Allows your insurance company to automatically change your policy limit. This is done to cover the replacement cost of your home that is increasing with inflation to maintain your coverage at 80% of replacement cost. Not all companies offer this endorsement.

Guaranteed Dwelling Endorsement:
Covers the market value of your home. Often the market value is higher than the replacement cost.

Guaranteed Contents Endorsement:
Covers the cost to replace a personal item even though you might have owned it for a number of years and it has depreciated in value.

Other Structures Endorsement:
Covers larger more elaborate structures (gazebos, guest house etc.) that would exceed the standard 10% limit.

Sewer and Drains Endorsement:
Covers damage to your finished or storage basement in the event of faulty sewer lines or drains. This is not covered by standard policies.

Scheduled Personal Endorsement:
Sometimes called a "personal article floater" covers possessions such as jewelry, furs, stamps, coins, guns, computers, antiques, and other items that may exceed normal limits in a standard policy. Each item is valued, itemized and described. Excluded perils are listed. There is usually no deductible applied to this coverage.

Blanket Endorsement:
Is used in place of a scheduled personal endorsement. There is no itemizing but the Blanket Endorsement covers what the standard policy does not cover such as jewelry, coins, etc.

Increased Limits on Money and Securities Endorsement:
Increases the coverage on money, bank notes, securities, deeds, etc..

Secondary Residence Premises Endorsement:
Applies to a secondary residence.

Home Daycare Endorsement:
Covers any liability claims if you operate a daycare in your home.

Business Pursuits Endorsement:
Extends liability coverage if you operate an at-home sales business or other small "franchised" ventures such as Tupperware and Avon. It does not extend coverage if you own the business.

Home Business Endorsement:
Extends liability coverage in your home if you own and operate a business in your home. It must be a small business.

Personal Injury Endorsement:
Extends liability coverage to you if you are sued for Libel, Slander, and Defamation of Character. This is covered in umbrella policies and may not be needed.

Income Property Endorsement:
Extends liability coverage to areas of your home or premise that you rent.

Ordinance and Law Endorsement:
Extends coverage for additional costs of reconstructing your home under current codes. This usually applies to older homes.

Watercraft Endorsement:
Extends personal liability and medical payments on small sailboats and outboard motor boats.

Theft Coverage Protection Endorsement:
Extends theft protection to the contents of your motor vehicle, trailer or watercraft without proof of forced entry.

Credit Card Forgery and Depositors Forgery Coverage Endorsement:
Covers the loss, theft or unauthorized use of credit cards. It also covers forgery of any check, draft, promissory note etc.. This endorsement has certain exceptions. No Deductible applies.

Flood Insurance:
Should be required by your lender if your home is located in a flood plain. Depending on where you live you may qualify for flood insurance through the National Flood Insurance Program (NFIP). They can be reached at 1-800-638-6620. Flood insurance covers direct physical damage to the main home and its foundation and erosion damage. It does not cover structures extended over water and structures other than buildings such as pools and gazebos.

Earthquake Insurance Endorsement:
Is available through most insurance companies. It is regarded as catastrophic coverage and usually has a deductible of 10% of the home's value.

Windstorm Coverage:
Covers windstorm and hail damage if it is excluded from your standard policy. It usually depends on where you live.

Common Home Insurance Discounts

New Homes:
May enjoy discounts up to 14%.

Security Systems:
Such as deadbolt locks, simple alarm systems and smoke detectors may reap discounts from 1-5%. Sophisticated monitoring services and integrated sprinkler systems may reduce your premiums as much as 20%.

Combined Policies:
If you combine your automobile and homeowner policy with the same carrier you may obtain discounts from 5% to 15%.

Carrier Longevity:
If you maintain your coverage with the same carrier for a number of years they will usually reward you with a discount.

Retired Homeowner:
On average stays home longer and may be rewarded with a 5% discount.

Non-smoker:
Some carriers reward non-smokers a 5% discount.

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