We all know the saying “your home is your castle” and it is extremely important to know for certain, that it stays safe from life’s unexpected threats. In order to secure it from any kind of financial harm, you may consider buying a Homeowner’s Insurance (also known as Hazard Insurance). From one side, you have to be sure that your house is absolutely protected because life is full of unexpected hazards, but on the other side, this industry has changed a lot, so insurers hiked deductibles, scaled back on coverage, and added new restrictions. Few homeowners take the time to read their policy and, even if they do, may not realize how one phrase, sometimes one word,can mean thousands of dollars.
WHAT IS A HOMEOWNER’S INSURANCE?
Homeowner’s Insurance or Hazard Insurance, abbreviated as HOI, is a category of property insurance that covers a private residence. This type of policy combines numerous types of personal protections, that may include one’s home (dwelling), its contents, additional living expenses, and protection in terms of accidents that may happen at the residence, or at the hands of the homeowner within the policy territory. We buy a suitable level of Home Insurance in order to preserve our place from harm, damage, or any other type of potential risk. It incorporates various personal insurance protections that may include natural disasters, vandalism, burglary, theft (or any similar damage), fire or lightening, wind, hail, freezing of plumbing system, depending on the type of your request.
The residence you want to secure does not necessarily have to belong to you, because many landlords require their renters to have an insurance. Despite on what your motivation to buy a homeowner’s insurance is, it is very smart to have this kind of security.
Many homeowners do not understand properly what exposures are covered under their home insurance policy. Almost 41% believe that a standard homeowner’s insurance covers the mold damage, according to a new consumer survey. In order to avoid the risk of overpaying, let’s eliminate any kind of misconception.
Under most homeowners policies, the major property to be covered is the house or dwelling. The anatomy of this type of policy integrates:
- the home itself
- the contents of the home (personal belongings owned, worn or carried by your family, personal property of your guests on your premises. Coverage for animals, such as birds and fish, is not included.
- loss of use or additional living costs at a hotel or apartment
- other personal possessions of the householder.
Note: Certain types of personal property covered by Homeowner’s Insurance are limited to specific amounts per loss, depending on individual companies and their policies. Namely, there are typical limits:
- Money—limited to a total of $200. This includes bullion, coin collections, bank notes, gold, silver and platinum.
- Securities—limited to $1,000. This includes accounts, bills, deeds, evidence of debt, letters of credit, notes, passports, manuscripts, railroad and other tickets, stamps and stamp collections.
- Watercraft—$1,000 total. This includes boats, trailers, furnishings, equipment and outboard motors.
- Jewelry, watches, furs, precious and semi-precious stones—limited to $1,000 total loss when due to theft.
- Guns—limited to $2,000 total loss when due to theft.
- Business property—limited to $2,500 while located on the described premises and to $250 while off premises.
Insurers used to provide a guarantee that they’d pay to fix your home no matter what. But after so many catastrophes, they’ve pared back. Let’s have a detailed analysis of what a conventional Homeowner’s Insurance protects us from.
Property can be secured in two main ways:
- Open Perils - this side of insurance policy includes all the losses that are not specifically excluded in the policy, such as:
- Nuclear incidents
- Acts of terrorism
- Acts of war
- Named Perils- require the actual cause of loss to be listed. The most common perils are:
You can also buy the following optional home insurance coverages:
- Guaranteed Replacement Cost - Provides the most complete coverage for your home. Over time you may need to increase your home insurance amount on a monthly, quarterly or yearly basis to keep up with the inflation rate
- Scheduled Personal Property Endorsement - a.k.a article floater. With this types of coverage each article is itemized and detailed in the floater, and excluded perils are also outlined (ex. Coins, guns, jewelry, furs, stamps, coins, guns, computers, antiques, etc.)
- Secondary Residence Premises Endorsement - Covers a secondary residence, such as a summer home.
- Inflation Guard Endorsement - This coverage is beneficial if your home’s replacement cost is increasing with inflation.
- Increased Limits on Money and Securities - Covers amounts for money, bank notes, securities, deeds and more.
Note: More Coverage offers more protection.
In case you want to expend the coverage for your home, make an inventory, which includes:
- Documenting every piece that you own that value over $50,
- Taking pictures of documented items, like jewelry, electronics, equipment, furniture, etc.
- Creating a spreadsheet or a list of mentioned items.
TYPES OF PREMIUMS
The cost of homeowner’s insurance often depends on what it would cost to replace the house and which additional endorsements or riders are attached to the policy. The home insurance policy is usually a term contract, i.e. a contract that is in effect for a fixed period of time. The payment the customer makes to the insurer is called the premium. The insured must pay the insurer the premium each term.
The premiums are calculated by the insurance companies depending on numerous circumstances, called rating factors, such as:
- Value of the residential real estate property;
- Location and natural disasters;
- The year when the house was built;
- The way and out of which materials it was constructed;
- Financial stability;
- Type of heating;
- Dependability of the fire alarm system;
- Previous claims history;
- Coverage Issues;
- Your credit-based insurance score;
- Multiple Policies with one insurance;
- Type of fire-fighting equipment used by the local fire department and the efficiency of its personnel;
- Loss experience of your insurance company;
- Proximity of a water supply.
Note! Insurance companies are controlled by individual state agencies. They are meant to secure that insurance companies working in the state have enough finances to pay prospective claims.
TYPES OF INSURANCE AND COVERAGE
Coverage is thinner than you think, so it is extremely important to have a proper understanding of what each type of insurance covers.
The homeowner’s Insurance must have a minimum level of coverage that means enough insurance to cover the replacement of the home.
- Liability Insurance – a type of insurance coverage that can help protect you if someone makes a claim against you for damages after being injured on your property. It provides defense in case of a lawsuit for accidents that may arise at the home or at the hands of homeowner within the policy territory.
More information about What Does a Homeowners Insurance Policy Cover you can find here.
The minimum level of coverage should equal the amount of borrowed money.
For example, if your dog bites a utility worker, or something in your house falls and injures him, or your child throws a baseball through the neighbor’s window, a liability line of your HOI would cover the cost of his medical bills and other damages like lost wages and rehabilitation, up to the policy limit.
- Personal Property Insurance – protects the property contained within the house. Personal property can make a substantial part of your home value, so take inventory of your personal property. Keep the list outside of the home in a safe place.
- Multiline Insurance – involves numerous types of risks in a single policy coverage for all of insurance needs.
- Earth Insurance - covers damages caused by earth movements.
- Storm Insurance - covers damages caused by tornadoes and hurricanes.
- Flooding Insurance – protects your property from flood-risk damages.
- Volcanoes Insurance – covers damages the case of a volcanic even.
- Guest Medical Protection - this type of coverage can help cover the cost of medical expenses for a personal who’s injured on your property
- Minimum Hazard Insurance- assures common type of “hazards”, a basic type of insurance that covers damage from wind, theft, fire and is required by mortgage lenders.
- Additional Protection – protects from any other kind of damage, specifically listed by the consumer
Note! When you’re selecting the coverage you want on your homeowner‘s policy, it can be helpful to know what common claims homeowners near you have filed. Understanding what those claims are, can help you see what types of risks your home might be vulnerable to, so you can consider adding coverage to your policy that can help protect against those risks. The basic home insurance policy doesn’t cover damages from natural disasters. A homeowner living in a high-risk area should purchase additional policies that would cover a natural disaster specific to that area.
A combination of things like elevation and landslide determine your risk. You can determine the risk of your location using this tool.
CANCELLATION OF HAZARD INSURANCE POLICY
The homeowner’s insurance might be cancelled, when:
- The insurer fails to pay premiums;
- Misrepresentation by the policy holder (fraud).
In other cases it can be only cancelled by the discontinuing company by discontinuing it or not renewing the policies.
The policyholder may cancel it any time they want, by a notice to the insurer.
Sometimes financial penalties can be applied for an early cancellation. Generally, once a policy is issued, it can be cancelled only for failure to make premium payments, or for misrepresentation or fraud by the policyholder. Insurance companies can decide to discontinue them or not at the end of the term for any reason that is not prohibited by law.
Do not forget that It is illegal in all states to refuse insurance, based on:
- Nation origin;
- Marital status;
- Sexual orientation;
- Mental or physical impairment;
- Geographic area of the residence.
Amy Bach, executive director of advocacy group United Policyholders said: “It’s easy to think you’re covered when you’re not”. Lack of insurance knowledge puts you at financial risk. Moreover, insurance isn’t the only thing you rely on for security and protection.
If you need legal help, consider coming to Legal Bistro. Here, you can find a lot of Real Estate lawyers who will get through your homeowner’s insurance decision and help you make the best choice without any concerns.
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