Home Insurance: Home owners guide to insurance

by lucy77 » Tue Apr 14, 2009 07:21 pm
Posts: 21
Joined: 14 Apr 2009

You surely must be proud of your home and would like to keep it protected from damages. This is why you need home owners insurance policy. Such a policy not only protects your dwelling but also covers your personal possessions and personal liability.

What is a homeowners policy?

It is a package policy that covers damage to your property and liability that would arise or a legal responsibility for any injury caused to your neighbors or visitors by you or your family members. Homeowner insurance covers several kinds of damage but there are certain exceptions too. Floods, earthquakes and poor maintenance are not covered under a standard home insurance policy.

What does home insurance usually cover?

A standard home insurance usually covers:
  1. The structure of your home: If fire, hurricane, hail, lightning or any other listed disaster destroys your home and you need to repair or rebuild it, this policy pays for it. Flood, earthquake or routine wear and tear is not covered under this policy. You should buy enough coverage that would pay for rebuilding your home if needed.

    Structures like garage, gazebo or a tool shed that are detached from the policyholder's home are also usually covered. However, these structures are covered for 10% of the total value of the insurance that you purchase for your home. Ask your agent for a suitable home insurance quote if you need additional insurance coverage.

  2. Personal belongings: You will find coverage for your furniture, sports equipment, clothes as well as other personal items if stolen, destroyed by a hurricane, fire or any other listed disaster. Since most companies provide 50% to 70% coverage of the total value, the best way to determine the right amount of insurance to buy would be to create a home inventory.

    You may be anywhere in the world, but this policy will provide coverage for any damage caused anywhere. This means that you get protection off-premises, but some companies have limitations. They may provide only up to 10% coverage of the total insurance value for your possessions.

    You may also find coverage for your expensive jewelry, silverware and furs. But in the event that they get stolen, the insurance companies put a dollar limit to your jewelry and fur. If you want full value for such items, then you need to purchase special personal property endorsement or an additional floater policy. Such coverage would include accidental disappearance and comes without any deductible.

    For trees, plants and shrubs, you generally get 5% of the total value of insurance on the house. These will be protected from explosion, vandalism, theft or a falling aircraft but damage by wind or disease is not covered.

  3. Liability: If you or any of your family members including your pet causes any damage to your neighbor or other people, this policy provides coverage. The cost of defending you in court is also covered under this policy up to the limit provided here. The coverage is available not just in your home but also anywhere else in the world.

    Purchasing a cheap liability insurance limit makes no sense. You should purchase enough to cover yourself properly. Moreover, there are umbrella policies for broader coverage like if you have claims made against you for libel or slander. In addition to this the no-fault medical coverage that the policy provides covers you for any injury a neighbor or any outsider may acquire in your house. A liability claim need not be filed against you, but the bill may directly go to the insurance provider instead.

  4. Additional Living Expenditure: If fire, storm or any other listed disaster caused damage to your home and you are not able to live there, this policy pays for the additional costs of staying away from home for a temporary period. Expenses like hotel bills, bills for restaurant meals and other related living costs while your home is being rebuilt will be borne.

    Usually the companies offering homeowner insurance provides 20% coverage of the total value of the insurance on your house under this policy. Some companies may allow you to increase this coverage for an added premium. You may also avail a policy that offers unlimited coverage for loss from certain companies. But this coverage is only for a certain time limit.

    Those of you who have partially let your house may also find coverage that compensates the rent that you would otherwise get from your tenants.

    There are of course certain perils that home insurance does not cover like flood and earthquake. For these you need to get separate policies.

What are the types of homeowner insurance?

There are 4 types of policies in general and depending on whether you own a home or a co-op or a condo, or rent a home.
  • When you own a home, you may choose from:
    HO-2 or Basic Policy: The homeowner insurance covers you against disaster resulting from vehicle caused damage, smoke, vandalism, theft, falling objects, ice, snow or sleet, lightning and fire, windstorm, hail, explosion, any civil commotion or riot, accidental tearing apart, cracking, bulging or burning of steam/hot water system, air conditioner or a fire protective system.

    HO-2 also covers overflow of water/steam from plumbing, air conditioning, heating, fire protective sprinkler system or a household appliance. Freezing of a plumbing, heating, fire protective system, any electronic household appliance is also covered. Besides these damage caused as a result of an accident from electrical current is also a part of such coverage.

    HO-3: This is a special policy under the homeowners insurance that provides protection against all dangers as listed in the policy.

    HO-8 or older home: This policy designed for older homes calculates the depreciation value of the home before settling the claim. The present worth of the home is reimbursed after deducting the depreciation value.

    HO-1 or Limited Coverage Policy: Covers you against disasters from smoke, vandalism, theft and volcanic eruption, lightning and fire, windstorm, hail, explosion, any civil commotion or riot, vehicle caused damage. However, this insurance is almost extinct in most states now.

  • When you own a co-operative or a condominium you may have:
    HO-6 or condo/co-op policy: This policy provides coverage for your belongings in the structural part of the building when you reside in a condominium association. It protects you against all listed disasters. There are 3 levels of coverage that this policy offers:
    1. Actual cash value: This level pays to replace any damage caused to your possession after deducting the depreciation value.
    2. Replacement Cost: This level reimburses the cost incurred for rebuilding or repairing your portion of the condominium association.
    3. Guaranteed or extended replacement cost: This level pays for re-establishing your condominium even if it means exceeding the policy limit. This means you can get protection against sudden increase in the cost of construction arising out of a shortage of building materials.

  • When you rent a house:
    HO-4 or renter policy: Renter policy protects your belongings and also all parts of the apartment that is owned by you when you rent your home.

How an insurer sets your home insurance rates?

You should determine how much coverage will be enough for your home, keeping your financial condition in mind. After you select the insurance company that you find the most appropriate, you'll need to apply for your policy. The company will then try to evaluate your risks through the underwriting process, before allowing you coverage.

The underwriting process for a home insurance determines whether you'll be covered or your insurance application for insurance will be rejected. Your coverage limits and rates are also determined in the same way.

The factors which are considered by the underwriters include:

  1. Type of construction for the building (brick, frame, EIFS etc.)
  2. Size of the house.
  3. Age and condition of the building.
  4. Date and details of the renovations done to the original construction (if any).
  5. Location of the property.
  6. Proximity to the nearest fire station.
  7. Safety devices installed in the house (alarm systems, smoke detectors, sprinklers, security set-ups etc.)
  8. Probabilities of natural perils in the zone (Flood, hurricane, windstorms, earthquake etc.)
  9. Purpose for which the house is used (full-time residence, or seasonal, during vacations etc.) Also, whether the property/house is occupied or left vacant most of the time.
  10. The applicant's preference of deductible, coverage limits and benefits.
  11. Credit history of the homeowner.
  12. Insurance score.

To know more about these factors, click here.


Can you save money with home insurance?

With a little shopping around you can surely save some money with home insurance. The size of your house and the insurance provider are an important factor in determining the cost of your home insurance policy. Here are few ways by which you may save money:
  1. Shop around for insurance:
    When you are looking for a home insurance it is better that you shop around a little to get the best home insurance quotes. Prices vary from one company to another. Hence you must always check the financial health of the insurance provider. You must know that going for a cheap home insurance doest not always help. You must get a policy that covers your home and its contents to its true value.

    Get in touch with insurance agents for best insurance quotes and more home insurance information and the latest trends.

  2. Raising deductible:
    Usually the more deductibles you pay reduces the amount of premium that you need to pay on your homeowner insurance policy. However, insurance companies have separate deductibles for areas that are disaster prone.

  3. Buying auto and home insurance from the same insurer:
    If you buy more than one insurance policy from the same insurance provider, the companies usually offer you a discount on your premium by 5% to 15%. Usually companies selling homeowner insurance also offer auto as well as umbrella liability policies. All that you need to do is calculate that this combined price is lower than what is offered by other companies.

  4. Rebuilding costs and cost of purchasing your home:
    The cost of rebuilding your home and the price at which you bought your home will be different. Do not get confused between the two. Carefully consider the value of your house so that you do not end up paying more premiums than required.

  5. Discounts:
    If you have smoke alarm, dead-bolt-locks and other such devices, the insurance company may provide you with a discount of around 5% at least. Some companies may even give you discounts on your premiums of about 5% to 15%. However, consider all kinds of situations and what your provider will offer before you buy these devices since these are not cheap.

  6. Group Coverage:
    Sometimes alumni and business groups do provide insurance package at a reduced rate. Enquire with your company if they have any option for a group insurance policy.

  7. Loyalty Discount:
    Staying with the same insurer helps. If you have received the services of a particular insurance company for several years before buying your home owners insurance, you may be entitled to a discount.

  8. Other Discounts:
    Your insurance company may have their own discount options. Ask them about the kind of discounts they offer and the conditions under which they offer such discounts.
Your home is your asset and you definitely want to protect it from any kind of harm. Purchasing home owner insurance is possibly the best way to do so. The homeowners insurance covers not just the structure of your home but also the contents provided you purchase the right policy. Have an agent talk to you and give you the details of such kind of a policy. Protect your home while you still can, because once disaster strikes it will be all over. Top

Related readings

Useful calculator

Home insurance purpose is to protects a homeowner against loss from fire and other hazards that may impair the value of their home. But my question is what kind of hazard that can be cover by a home insurance ?

If our house were hit by a falling tree, can we claim home insurance to cover it ?

Total Comments: 5

Posted: Wed Apr 15, 2009 07:22 am Post Subject:

If our house were hit by a falling tree, can we claim home insurance to cover it ?

Yup, you may get coverage for such perils depending on the verbiage of your policy.

Every policy is different from the other depending upon the insurer but all policies would offer coverage against certain standard perils like-theft, vandalism, fire, storm and the like. Normally the policy document would spell out both the covered and uncovered perils. Hence, you may read the policy document carefully to know your rights.


Posted: Wed Apr 15, 2009 07:37 am Post Subject:

Lucy, there are two types of homeowner insurance are available in the market, namely- all risk and named perils.

All risk policies, as the name suggests offer wider range of coverage than the named peril policies, which would only cover the perils mentioned in the policy document. However, the term all risk doesn’t necessarily mean that all events would be covered under it, rather it suggest that it would offer coverage to events that are not specifically ‘excluded’ in it. Therefore, you need to know what type of policy you own ‘named perils’ or ‘all risk’?


Posted: Wed Apr 15, 2009 07:41 am Post Subject:

Hey Rupert, I think its also important for the policy holder to know the events excluded in the policy. Often we just buy the plan and stack it away in the cabinet, not actually reading the terms and conditions of the policy. That is the reason people face problems with their claims, realizing at the time of need that an event isn’t covered in their policy.

What do you say?

Posted: Mon Apr 20, 2009 05:49 am Post Subject:

I agree with Jeorge Rupert,

Consider us a common people in insurance and we need a highly detailed in our insurance plan. The more detailed it is the better, a complicated TOS sometimes confused us.

Posted: Tue Apr 21, 2009 08:19 pm Post Subject: Re: what kind of hazards are covered by home insurance

I should think that home insurance policies vary and usually depend on how much one is willing to pay as premium. While some policies cover just home insurance, some will extend to contents and cover a bicycle.
However, one need to speak to an expert to know what to expect from a policy and if it could be upgraded.

I have seen their website and have recommended their services to a number of people, who seemed quite happy afterward.

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