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Homeowners Insurance is designed to protect against a wide range of
potential disasters. These disasters not only take the shape of occurances
such as flood, fire, vandalism and theft of property, but also protect
against lawsuits if someone is injured while on the owner's property.
- Policy Types
and Packages
- What is Covered
- Flood Insurance
- Earthquake
Insurance
- Taking Inventory
Policy
Types and Packages
Homeowners insurance policies vary widely. To obtain a policy that best
serves your needs, you should understand these variations and differences.
There are currently five standard insurance packages designed for homeowners.
As with other types of insurance, consumers may purchase varying degrees
of coverage with each of the packages. As a general rule, the more a
policy covers the higher the cost or premium. The higher the deductible-
the amount the policyholder must pay before receiving benefits- the
lower the cost. Keep in mind that different companies frequently use
different names for each of their packages and that coverage may vary
between seemingly similar packages. It is also important to note that
homeowners insurance frequently insures considerably more than just
a home and its contents. It may, for example, insure you against the
loss or theft of your credit cards, provide considerable personal liability
insurance for someone injured on your property, and even pay certain
medical bills.
- Basic Insurance for
Homeowners (Basic Form) HO-1 Provides coverage for eleven types
of potential losses to both the structure of the house and its contents.
Included are damages resulting from fire and lightning, smoke, windstorms
and hail, vandalism, theft, explosions, riots and civil commotion,
damage by vehicles and aircraft, glass breakage and volcanic eruption
- More Extensive Homeowners
(Broad Form) HO-2 Provides similar coverage for all eleven areas
covered in HO-1, plus six other areas. The additional coverage includes
damage resulting from the weight of snow, ice, sleet, surges or short
circuits in electricity (radio and television tubes are usually not
covered), or problems stemming from improperly functioning plumbing,
heating, and air conditioning systems or domestic appliances.
- Special Insurance
(Special Form) HO-3 Provides maximum protection for the structure,
above what is covered under HO-1 and HO-2. Coverage for personal belongings
is extensive but not as complete as with HO-5, below. Also, while
HO-3 policies should be checked for specific exclusions, most HO-3
plans cover everything except damage resulting from floods, earthquakes,
war, nuclear accidents and similar catastrophes.
- Comprehensive Insurance
(Comprehensive Form) HO-5 Provides the most comprehensive and
expensive coverage available to homeowners. HO-5 is not offered by
all companies. Except for damage resulting from such occurrences as
war, flood and earthquakes, HO-5 covers virtually everything. The
companies that do not offer HO-5 frequently offer similar protection
by adding supplementary insurance to a HO-3 policy. This method of
coverage may be more cost-effective.
- Older Homes Policy
HO-8 Provides basic coverage similar to that available under HO-1.
However, HO-8 differs in that it insures the house for its actual
cash (market) value, not for what it would cost to replace. The cost
to replace many older homes might be prohibitively expensive. Actual
cash or market value is different from replacement value. Market value
represents what you could sell your house for at the time of appraisal.
Replacement cost is what it would cost to rebuild, not including the
value of the land and foundation.
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What is
Covered
Most homeowner policies cover the following:
- Structure - In most cases,
a house is not considered adequately insured unless it is covered
for at least 80 percent of the replacement cost. If cost is no object
the house structure should be insured for 100% of its replacement
cost. Keep in mind, however, that the purchase price of a home includes
the cost of land and foundation which are not destroyed in a fire.
- Landscaping - Generally,
trees and plants surrounding the house are insured up to five percent
of the level of coverage on the structure. Additional insurance is
almost always available at an extra cost. However, do not expect insurance
to replace a 200 year-old oak tree with a duplicate, since that is
impossible.
- Personal Property - Normally,
personal property is insured for up to 50 percent of the coverage
on the house structure. However, there are actual dollar limits on
such items on jewelry, silverware, stamps and coin collections, and
furs. In order to adequately insure these items it is usually wise
to purchase additional insurance coverage by way of a "floater" or
"rider" policy. These policies will independently insure specific
items against theft, damage of any other type of loss in the home
or away from home. Most expensive items must be professionally appraised
before they will be insured under a floater.
- Temporary Home Expenses
- If damage to your home requires that you live temporarily elsewhere,
some or all of the extra cost may be covered.
- Personal Liability - Personal
liability insurance is designed to protect the homeowner against a
claim or lawsuit that could devastate the homeowner financially. If,
for example, a visitor slips and falls on the front porch, the homeowner
could be sued for hundreds of thousands of dollars. The homeowner
also could be liable for damages caused by a tree in his yard falling
and damaging his neighbor's house. In either event, the insurance
company will pay the damages assessed against the homeowner up to
the limits of the policy.
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Flood
Insurance
Flood insurance is never included in a homeowner's policy. The federal
government offers flood insurance for your home that can be obtained
through an insurance agent. The Department of Housing and Urban Development's
Federal Insurance Administration administers a program to make flood
insurance available in designated flood-prone areas at low costs. To
qualify for flood insurance, the homeowner's property must be located
in a community that has agreed to plan and carry out land-use control
measures to reduce future flooding. Your insurance agent can tell you
if the insurance is available where you live. Since the mid 1980's,
the Federal Insurance Administration has permitted private companies
to issue flood insurance. Under a "write-your-own" program, private
insurers can sell new policies under their own names and settle claims.
The U.S. government then repays the insurance companies.
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Earthquake
Insurance
Most homeowners insurance policies exclude damage resulting from earthquakes.
Policies covering earthquakes, however, are generally available from
insurance companies and recommended in areas where earthquakes occur.
These policies, usually, require a deductible of 10 percent of the cost
of the damage.
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Taking
Inventory
Before and after buying homeowners insurance you need to prepare and
maintain a list of personal possessions and their estimated value. A
thorough and up-to-date inventory list can save a significant amount
of money in the event disaster does strike and the homeowner must file
a claim. A good inventory record also can be invaluable when you have
to negotiate a settlement with the insurance company, which will usually
ask for evidence to back up claims.
Some useful tips:
- Make a record of what
you own, when you bought it, and what it cost. This may involve a
lot of leg work, but the results can be useful. Generally, household
and personal possessions are insured for half the amount of insurance
on the structure. This means that if the home is insured for $100,000,
the contents are insured up to a maximum of $50,000. However, additional
insurance coverage for the contents may be purchased.
- Walk through the house
carrying a small tape recorder. As you go through each room, describe
all the furniture and valuables.
- Take photographs of the
goods and possessions and then store the photographs in a safe location
away from the house, preferably in a safe deposit box. Photos are
good proof of ownership in the event an insurance adjuster questions
a claim.
- Use a video camera to
record the contents both visually and with a verbal description that
accompanies the picture.
- Keep sales receipts from
purchases of household possessions - everything from clothing to stereos.
- Keep cancelled checks
and credit card receipts as proof of an item's cost.
By using a comprehensive
inventory of household goods and possessions, you can determine if an
insurer's policies are adequate and whether additional riders are needed
to protect valuables. The list is extremely helpful in the event a disaster
occurs.
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