Homeowner's Insurance: What
is Insured?
Homeowner's Insurance Coverage A - Dwelling:
Provides protection for the dwelling
on an all risks basis up to the policy limits. The policy
limit is set by the policyowner at the time the insurance
is purchased. You can choose to insure your home and
belongings for either replacement cost or actual cash
value. The home should be insured for replacement cost.
Replacement cost is the amount it would take to replace
or rebuild your home or repair damages with materials
of similar kind and quality, without deducting for depreciation.
Depreciation is the decrease in home or property value
from the time it was first built or purchased because
of age or wear. Actual cash value is the amount it would
take to repair or replace damage to your home after
depreciation. Most insurers require homeowners to insure
their homes for at least 80 percent of the replacement
cost. If you insure for less than 80 percent of the
replacement cost of your home, any loss payment from
your insurance company will be subject to a coinsurance
penalty. You may wish to insure at 100 percent of replacement
cost so you will have sufficient coverage in the event
of total loss.
Homeowner's Insurance Coverage B - Other Structures:
Provides protection for unattached
structures such as tool sheds, detached garages, houses
and their contents. Coverage B is usually equal to 10
percent of the policy limit on Coverage A.
Homeowner's Insurance Coverage C - Personal Property:
Provides protection for personal
belongings. Items such as clothing, furniture and standard
electronics are covered. Some policies may include credit
card theft and away from home theft. The policy limit
on Coverage C is equal to 50 percent of the policy limit
on Coverage A. Most standard home insurance policies
cover the contents of your home on an actual cash value
basis. Many insurers offer an option to insure your
belongings at replacement cost. The premium will be
higher for this coverage but may be worthwhile. Some
forms of personal property, such as, silverware, computers,
guns, money, expensive antiques and jewelry, have limited
coverage under the homeowner's policy and may be added
to the policy as an endorsement.
Homeowner's Insurance Coverage D - Additional Living Expenses:
If your home is damaged to
the extent of being uninhabitable, this coverage will
pay for the living expenses away from the home while
repairs are being made. These expenses could include
limited motel, restaurant and warehouse storage. The
policy limit to Coverage D is equal to 20 percent of
the policy limit on Coverage A.
Homeowner's Insurance Coverage E - Personal Liability:
This coverage protects you against
a claim or lawsuit resulting from bodily injury or property
damage to others caused by your negligence. For example,
your dog bites someone, your child breaks a window or
a friend or stranger hits his or her head on something.
This coverage applies to you and all family members
who live with you. The amount of coverage is determined
by the policyowner at the time the policy is issued.
Homeowner's Insurance Coverage F - Medical Payments to Others:
Regardless of who is at fault, this
coverage pays for the medical expenses for persons accidentally
injured on your property.
Types
of Homeowner's 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
Homeowner 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
Homeowner 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
Homeowner 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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