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Home Insurance
Buying a home is an exciting accomplishment, one with many new responsibilities Not only will you want to protect your
home and its valuable contents, you will also want to shield yourself and your assets from exposure to liability arising from
personal injury or property damage claims. This section provides what you'll need to know to protect your home, from the basics of coverage to filing a claim.
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Why You Need Home Insurance
Your home is your castle, so the saying goes. In order to protect it, people purchase homeowners insurance, one of the
most popular forms of insurance today. Of course, if you have an outstanding mortgage on your home, chances are you
had no choice--your lender required you to secure homeowners insurance before the loan was approved. But if the choice
is up to you, remember that homeowners insurance provides important benefits. A few hundred dollars a year can buy you a hundred times that in peace of mind.
The three benefits to homeowners insurance include:
- Protecting your home.
- Protecting your personal property
- Providing liability coverage.
Your House
The main purpose of homeowners insurance is to protect your home (and other structures, like a shed or detached
garage). This coverage is the bread and butter of any homeowners policy. Your house is often the most important
investment you'll ever make, and even a relatively small amount of damage may set you back financially if you don't have insurance.
Take the following scenarios:
- Lightning strikes a power line leading into your house, causing a fire.
- A delivery truck careens off the road into your house.
- Your hot water heater explodes.
- A tree falls through your roof during a storm.
With the typical homeowners policy, you are covered in each of these situations. You don't have to worry about the
unpredictable. The financial problems created by random accidents and perils will not force you out of your home.
Not only will your policy cover the cost of the damage (exactly how much depends on your policy), but also it will cover
(up to a limit) your living expenses in makeshift quarters while you wait for your home to be repaired.
Personal Property
In addition to protecting your home, the typical homeowners policy covers your personal property as well. Your personal
property consists of the contents inside your home--for example, furniture, clothing, stereo, computer equipment, jewelry,
and sentimental items--as well as outdoor items like sporting equipment and lawn tools. So if a fire damages both your kitchen walls and your appliances, your appliances will be covered.
An important aspect of homeowners insurance is that its coverage is not limited to property damaged on you premises, but
applies to your personal property anywhere in the world. This is known as, "off-premise protection." If you travel now or
intend to travel when you retire, this protection can be invaluable. For example, if your luggage is damaged by the airline
during your vacation, you typically will be covered. Or if you purchase a wooden chest while traveling and want to ship it
home, your policy will provide coverage for this, "named peril," while the chest is in transit, even though it has never been
in your home before. Or if you're robbed on your block, or your prized CD collection is stolen from your car, your policy
may reimburse you (how much depends on the policy). In sum, if you value your personal possessions, the personal property coverage of a homeowners policy can be very important.
Liability Coverage
In addition to insuring your property, the typical homeowners policy includes liability protection that covers you for
damage you cause inside or outside of your home. Unlike the random perils that govern your property (e.g., fire,
explosion, theft), the trigger for this coverage is your negligence and, unfortunately the "I'll see you in court" mentality.
Included here are medical payments to third parties, and your legal costs for any lawsuits brought against you. The
importance of this coverage may not be as obvious as that of property coverage. Nevertheless, it may protect your against
potentially troubling personal injury lawsuits. For example: you invite your neighbor over for coffee, and she trips and
breaks her left on a pair of shoes you left in the middle of your front steps. Your insurance will cover her medical bills and
other costs (the ceramic vase she was carrying) if you're held responsible. Or, away from home, suppose you run over
someone's foot with your golf cart on the way to the clubhouse. Your insurance will cover the injured person's medical bills if you're found liable.
What Is Covered
The most typical homeowners insurance policy in the United States is referred to as the "HO-3" policy. Among other things, it provides coverage for damage resulting from:
- Fire and lightning.
- Windstorm and hail.
- Explosion.
- Theft, vandalism, or malicious mischief.
- Damage from vehicles.
- Sudden and accidental damage from smoke.
- Objects falling from the sky (meteorite, airplane etc.)
- Weight of ice, snow, and sleet.
- Accidental discharge or overflow of water from your plumbing.
- Freezing of plumbing.
- Sudden and accidental tearing, cracking, burning, or bulging of a steam or hot water heating system.
- Your personal property.
- Your negligent act, whether on or off your premises.
In fact, with the HO-3 every calamity is covered except those that are specifically excluded on that policy. The standard exclusions in the HO-3 policy are:
- The land under your house.
- Floods (this insurance must be purchased separately).
- Earthquakes (this insurance must be purchased separately).
- War.
- Nuclear accident.
- Intentional damage.
- Structures used for business (this insurance must be purchased separately).
- Wear and tear on a home, including deterioration, insect and rodent infestation, settling, cracking, bulging, or expansion of pavement, walls, or foundations, or damage from domestic animals.
- Cars, trucks, cans, motorcycles, aircraft, and boats with anything more than a small motor.
- Theft from a house under construction.
- Freezing of pipes in an unoccupied, vacant, or under construction house.
- Vandalism and malicious mischief if the house has been vacant for more than 30 days.
- Freezing, thawing, pressure, or weight of water or ice to a fence, pavement, patio, swimming pool, or dock.
- Property belonging to tenants.
- Animals, birds, and fish.
- Losses resulting from the failure to protect property after a loss.
Keep in mind that you can always add additional endorsements to complement this standard coverage.
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How You Determine The Right Level Of Coverage
Insuring Your Home
Homeowners insurance provides three-pronged coverage. First, the policy covers damage to your home--the dwelling
itself. Second, it provides coverage for the contents of your home. Third, it provides a level of liability protection for claims arising from the actions of your and your family.
Two Methods To Determine Value
Insurance companies use one of two methods to determine the value of property:
- Replacement cost--pays you the cost of replacing damaged property, with no deduction for depreciation, but with a maximum dollar amount.
- Actual cash value--Pays you an amount equal to the replacement value of damaged property minus a depreciation allowance.
Unless a policy specifically states that property is covered for its replacement value, coverage is for the lower, actual cash
value. Check your policy, or ask your insurance agent or representative if your are not sure what level of coverage you have.
Assessing Your Need
Certain factors can affect the appropriate level of homeowners coverage. If, in the event your house is destroyed, you
want to rebuild your home with materials of like kind and quality, and replace rebuild your home with materials of like kind
and quality, and replace the contents, you should insure your home for an amount which may be considerably larger than
your mortgage balance. On the other hand, if your just want to be able to pay off your mortgage and walk away, then your
level of coverage should match the balance of your mortgage Be careful, however, without sufficient insurance coverage, your insurance company may pay only a portion of the cost to replace or repair your home and its contents.
In most cases, you want to insure your possessions for their replacement values. The replacement value is probably different that the market value of your home and the depreciated cash value of its contents.
Determining Your Level Of Coverage--The Building
If you have a mortgage, your lender may require you to maintain a certain level of insurance, and the lender will be named
on your policy as an insured party or copayee. While the level of coverage required by the lender may be enough to cover its exposure, that level may not be sufficient to fully protect you.
To decide how much homeowners coverage you should have, determine the cost to rebuild your home. An insurance
agent can calculate the current cost of construction for a house like yours, or you can hire a professional appraiser. You
might be surprised to to discover that it could cost more to rebuild your home than the price you initially paid for it. this is not something you want to discover after your home has been destroyed and you need to rebuild it.
Determining Your Level Of Coverage--Your Home's Contents
In a standard policy, possessions are usually covered at 50 percent of the value of the structure coverage, and there are
limits for certain items. This level may not be sufficient to cover the replacement of your property. to determine how much
property insurance coverage you need, make an inventory of all your homes contents. Don't forget to include furniture,
appliances, draperies, jewelry, artwork, and the contents of your closets, cabinets, and the toy chest. When possible, list
the serial number, date, and cost of purchase. Include receipts if possible. An easy way to inventory your possessions is to
use a video camera or take photos. When using a video camera, you can talk about the specific items, their cost, and
coverage to replace your possessions if they were destroyed. If the value of your possessions is larger than 50 percent of your structural coverage, don't panic--you can buy additional coverage for your possessions.
Keep a copy of your inventory in a location away from your home--like a safety deposit box, or maybe even with your
insurance agent. This way, if your home is destroyed, your inventory list will be safe at another location. When you make
major purchases, remember to add them to your inventory and check with your insurer--you may need to increase your coverage levels.
Determining Your Level Of Coverage--Liablility Protection
The standard amount of liability coverage in a homeowners policy is $100,000, which covers personal liability, medical
payments, and property damage for damage, or personal injury caused to others. If you feel you need more coverage, talk to your agent about the availability of a higher level of coverage.
Periodically Review Your Existing Coverage
At least once a year, review your homeowners coverage to make sure it is keeping pace with any major purchases or
additions to your home. In addition, consider adding an inflation guard endorsement to your policy, which instructs the
insurance company to automatically raise your policy renewal, according to some predetermined index of local home values.
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Preventing Water Damage
Ninety percent of household damage is the result of water damage and flooding. Broken water pipes are a major
contributor to that figure. Other disasters could be prevented by simple maintenance procedures. Electronic items are
destroyed. Rugs, curtains, and clothes are ruined. Electric shock risk is dramatically increased. At the very least, you'll
spend days cleaning up the mess and cleaning out the resulting mildew smell... and getting your pipes fixed so you can resume your water service. Here's how you can decrease the risk of water damage to your home.
Maintain And Replace Before Damage
- Water heaters should be checked annually. If you need to replace your water heater, which is currently located inside your home, explore the possibility of moving it to the garage.
- Hoses on washing machines should be replaced every five years. Replace with heavy-duty hoses.
- Control valves on washing machines should be checked annually. If they are locked up, remove and replace them.
- Be sure you and your spouse know where the turnoff valve is for the city water going into your home. Both of you should know how to operate it.
- If your water bill is abnormally high for no apparent reason, do a complete inspection of your water system.
- Do not pour grease of any kind down your sink disposal.
When You Are Away
- If you leave your home for longer than two days, turn off the water to the house, if possible.
- At least turn off the control valves to the water heater, washing machine, etc.
Protecting Your Pipes From Cold Weather
In general, the two most important rules for maintaining water pipe safety are:
- Keeping the pipes warm.
- Keeping the water moving with an available outlet (i.e. and open faucet).
There Are Several Ways To Keep The Pipes Warm
Insulate any and all pipes that are vulnerable to cold air. This can be done by using standard insulation material or through
the use of Underwriters Laboratories (UL listed) approved heat tapes. Wrapping your pipes helps keep the warmth in and freezing cold out.
- Keep Your Heat On: It sounds obvious, but many people forget, especially when leaving home for a few days. If
you go on a vacation or will be away, don't turn your heat off. It's not necessary to run it as high as you would if
you were at home, but keeping the heat inside in the 60s will help you keep the pipes warm. Remember this, it may
be 65 degrees outside when you leave on vacation, but autumn and spring weather routinely turn warm afternoons
into subfreezing cold in only a few hours. We've all seen heat waves give way to sudden cold fronts. Don't let it fool you.
- Keep Cabinet And Closet Doors Open: When you leave your heat on to keep your pipes warm, a good way of
helping the interior heat reach your pipes is to leave closet and cabinet doors open. This is especially important if
they are near un-insulated pipes in exterior walls. The more closed doors you have between interior heat and exterior wall pipes, the better your chance of those pipes freezing (since the heat can't get to them).
- Keep Water Moving To Prevent It From Freezing: Keep a faucet or faucets open slightly to keep water moving in pipes. Ideally, the faucet(s) you leave on should be furthest from where the water main enters. That way,
you keep water moving throughout all your pipes. (If you're not sure which faucet is furthest from the water main,
it's probably the one nearest your water meter). When water is moving, it doesn't freeze as easily. And by leaving a faucet open, you give slightly expanding water somewhat of an outlet.
- Cut The Water Supply To Outdoor Faucets: Since you probably won't be needing your outdoor faucets in the
colder months, it's a good idea to cut off the water and completely drain them. If you don't do this, you run the risk of pipes bursting just inside your home.
- Shut Off The Water If You Go Away: If you're simply going to be away from home for a few days or more, you
may want to shut off your water completely and drain your supply by opening the lowest faucet in the house. For toilets, sinks and other pipe sources that don't drain easily, put some antifreeze in them. (Warning: Be certain not to
contaminate drinking water pipes with antifreeze.) It's also a good idea to have a trusted neighbor come into your home periodically to check for water damage.
The preceding methods should significantly reduce the risk of water damage to your home. If you have any questions regarding insurance coverage for water damage, contact your agent.
This contains generally accepted information for preventing water damage. The publishers are not assuming liability for the accuracy or use of the information contained herein.
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