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Home Insurance Tips
Why You Need
Homeowner's Insurance
The largest single investment most consumers make is in their home. The consumer can protect their home, possessions, and liability with a homeowners's insurance policy. The Homeowner's insurance policy is a package policy that combines more than one type of insurance coverage in a single policy. There are four types of coverages that are contained in the homeowner's policy: dwelling and personal property, personal liability, medical payments, and additional living expenses.
Property Damage Coverage
Property damage coverage helps pay for damage to your home and personal property. Other structures such as a detached garage, a tool shed, or any other building on your property are usually covered for 10% of the amount of coverage on your house.
Personal property
coverage will pay for
personal property
including household
furniture, clothing, and
other personal
belongings. The amount
of insurance coverage is
usually 50% of the
policy limit on your
dwelling. The coverage
is also limited by the
types of loss listed in
the policy. The coverage
only pays the current
cash value of the item
destroyed, unless you
purchase replacement
cost coverage. Your
homeowner's policy also
provides off-premises
coverage. This means
that the policy covers
your belongings against
theft even when they are
not inside your home.
Personal
Liability Coverage
Homeowner's policies provide personal liability coverage that applies to non-auto accidents on and off your property if the injury or damage is cased by you, a member of your family, or your pet. The liability coverage in your policy pays both for the cost of defending you and paying for any damages the court rules you must pay. Liability insurance does not have a deductable that you must meet before your insurer begins to pay losses. The basic liability coverage is usually $100,000 for each occurance. You can request higher limits that are available for an additional cost.
Medical Payments
Coverage
Medical payment coverage pays if someone outside your family is injured at your home regardless of fault. This includes payment for reasonable medical expenses incurred within one year from the date of loss for a person who is injured in an accident in your home. The coverage does not apply to ypu and members of your household. The medical payments portion of your homeowner's policy will also pay if you are involved in the injury of another person away from your home in some limited circumstances. Medical payments coverage limits are generally $1,000 for each person.
Additional
Living Expenses
If it is necessary for you to move into a motel or apartment temporarily because of damage caused by a peril covered in your policy, your insurance company will pay an amount up to 20% of the policy limit on your dwelling for these expenses. If you move in temporarily with a friend or relative and do not have any extra expenses, you will not be paid any addditional living expenses by your insurance company.
Home Business
If you operate a home business full or part time you might be uninsured and not realize it. Many home business owners believe that their homeowner's insurance policy covers all of their home business needs. You should not assume that your homeowner's insurance policy will cover your home business. Your homeowner's policy may provide coverage but probably only a maximum of $2,500 for business equipment in the home and $250 away from the premises.
The price you pay for
your homeowners
insurance can vary by
hundreds of dollars,
depending on the
insurance company you
buy your policy from.
Here are some things to
consider when buying
homeowners insurance.
1. Shop around
It will take some time, but could save you a good sum of money. Ask your friends, check the Yellow Pages or contact your state insurance department. National Association of Insurance Commissioners (www.naic.org) has information to help you choose an insurer in your state, including complaints. States often make information available on typical rates charged by major insurers and many states provide the frequency of consumer complaints by company. Also check consumer guides, insurance agents, companies and online insurance quote services. This will give you an idea of price ranges and tell you which companies have the lowest prices. But don't consider price alone. The insurer you select should offer a fair price and deliver the quality service you would expect if you needed assistance in filing a claim. So in assessing service quality, use the complaint information cited above and talk to a number of insurers to get a feeling for the type of service they give. Ask them what they would do to lower your costs. Check the financial stability of the companies you are considering with rating companies such as A.M. Best (www.ambest.com) and Standard & Poor’s (www.standardandpoors.com) and consult consumer magazines. When you've narrowed the field to three insurers, get price quotes.
2. Raise your
deductible
Deductibles are the amount of money you have to pay toward a loss before your insurance company starts to pay a claim, according to the terms of your policy. The higher your deductible, the more money you can save on your premiums. Nowadays, most insurance companies recommend a deductible of at least $500. If you can afford to raise your deductible to $1,000, you may save as much as 25 percent. Remember, if you live in a disaster-prone area, your insurance policy may have a separate deductible for certain kinds of damage. If you live near the coast in the East, you may have a separate windstorm deductible; if you live in a state vulnerable to hail storms, you may have a separate deductible for hail; and if you live in an earthquake-prone area, your earthquake policy has a deductible.
3. Don’t confuse
what you paid for your
house with rebuilding
costs
The land under your house isn't at risk from theft, windstorm, fire and the other perils covered in your homeowners policy. So don't include its value in deciding how much homeowners insurance to buy. If you do, you will pay a higher premium than you should.
4. Buy your home
and auto policies from
the same insurer
Some companies that sell homeowners, auto and liability coverage will take 5 to 15 percent off your premium if you buy two or more policies from them. But make certain this combined price is lower than buying the different coverages from different companies.
5. Make your
home more disaster
resistant
Find out from your insurance agent or company representative what steps you can take to make your home more resistant to windstorms and other natural disasters. You may be able to save on your premiums by adding storm shutters, reinforcing your roof or buying stronger roofing materials. Older homes can be retrofitted to make them better able to withstand earthquakes. In addition, consider modernizing your heating, plumbing and electrical systems to reduce the risk of fire and water damage.
6. Improve your
home security
You can usually get discounts of at least 5 percent for a smoke detector, burglar alarm or dead-bolt locks. Some companies offer to cut your premium by as much as 15 or 20 percent if you install a sophisticated sprinkler system and a fire and burglar alarm that rings at the police, fire or other monitoring stations. These systems aren't cheap and not every system qualifies for a discount. Before you buy such a system, find out what kind your insurer recommends, how much the device would cost and how much you'd save on premiums.
7. Seek out
other discounts
Companies offer several types of discounts, but they don't all offer the same discount or the same amount of discount in all states. For example, since retired people stay at home more than working people they are less likely to be burglarized and may spot fires sooner, too. Retired people also have more time for maintaining their homes. If you're at least 55 years old and retired, you may qualify for a discount of up to 10 percent at some companies. Some employers and professional associations administer group insurance programs that may offer a better deal than you can get elsewhere.
8. Maintain a
good credit record
Establishing a solid credit history can cut your insurance costs. Insurers are increasingly using credit information to price homeowners insurance policies. In most states, your insurer must advise you of any adverse action, such as a higher rate, at which time you should verify the accuracy of the information on which the insurer relied. To protect your credit standing, pay your bills on time, don't obtain more credit than you need and keep your credit balances as low as possible. Check your credit record on a regular basis and have any errors corrected promptly so that your record remains accurate.
9. Stay with the
same insurer
If you've kept your coverage with a company for several years, you may receive a special discount for being a long-term policyholder. Some insurers will reduce their premiums by 5 percent if you stay with them for three to five years and by 10 percent if you remain a policyholder for six years or more. But make certain to periodically compare this price with that of other policies.
10. Review the
limits in your policy
and the value of your
possessions at least
once a year
You want your policy to cover any major purchases or additions to your home. But you don't want to spend money for coverage you don't need. If your five-year-old fur coat is no longer worth the $5,000 you paid for it, you'll want to reduce or cancel your floater (extra insurance for items whose full value is not covered by standard homeowners policies such as expensive jewelry, high-end computers and valuable art work) and pocket the difference.
11. Look for
private insurance if you
are in a government plan
If you live in a high-risk area -- say, one that is especially vulnerable to coastal storms, fires, or crime -- and have been buying your homeowners insurance through a government plan, you should check with an insurance agent or company representative or contact your state department of insurance for the names of companies that might be interested in your business. You may find that there are steps you can take that would allow you to buy insurance at a lower price in the private market.
12. When you’re
buying a home, consider
the cost of homeowners
insurance
You may pay less for insurance if you buy a house close to a fire hydrant or in a community that has a professional rather than a volunteer fire department. It may also be cheaper if your home’s electrical, heating and plumbing systems are less than 10 years old. If you live in the East, consider a brick home because it's more wind resistant. If you live in an earthquake-prone area, look for a wooden frame house because it is more likely to withstand this type of disaster. Choosing wisely could cut your premiums by 5 to 15 percent.
Check the CLUE
(Comprehensive Loss
Underwriting Exchange)
report of the home you
are thinking of buying.
These reports contain
the insurance claim
history of the property
and can help you judge
some of the problems the
house may have. Remember
that flood insurance and
earthquake damage are
not covered by a
standard homeowners
policy. If you buy a
house in a flood-prone
area, you'll have to pay
for a flood insurance
policy that costs an
average of $400 a year.
The Federal Emergency
Management Agency
provides useful
information on flood
insurance on its Web
site at
www.fema.gov/nfip. A
separate earthquake
policy is available from
most insurance
companies. The cost of
the coverage will depend
on the likelihood of
earthquakes in your
area.
If you have questions
about insurance for any
of your possessions, be
sure to ask your agent
or company
representative when
you're shopping around
for a policy. For
example, if you run a
business out of your
home, be sure to discuss
coverage for that
business. Most
homeowners policies
cover business equipment
in the home, but only up
to $2,500 and they offer
no business liability
insurance. Although you
want to lower your
homeowners insurance
cost, you also want to
make certain you have
all the coverage you
need.
Common Questions
Asked by Homeowners
about Insurance
If a fire, flood, earthquake, or some other natural disaster were to destroy or damage your home, would you have the right insurance coverage to rebuild your house? Based on the questions consumers most frequently ask, this explains what is covered in a standard homeowners policy and what is not. Where gaps in coverage exist, it tells you how to fill them. To simplify explanations, assume that you have a policy known as Homeowners-3 (HO-3), the most common homeowners policy in the United States. Find out what type of homeowners policy you have. If you have a different policy, you should review your options in question #17. # 1: Am I covered for direct losses due to fire, lightning, tornadoes, wind storms, hail, explosions, smoke, vandalism and theft? Yes. The HO-3 provides broad coverage for these and other disasters or “perils,” as they are called in the policy, including all those listed in the question. You should check the dollar limits of insurance in your policy and make sure you are comfortable with the amount of insurance you have for specific items. Also, if you live near the Atlantic or Gulf coasts there may be some restrictions on your coverage for wind damage. Ask your agent about windstorm/hurricane deductibles. In areas prone to hailstorms, you may have a specific hail damage deductible.
# 2: Are my
jewelry and other
valuables covered?
The standard policy provides only from $1,000 to $2,000 for theft of jewelry. If your jewelry is worth a lot more, you should purchase higher limits. You may wish to add a floater to your policy to cover specific pieces of jewelry and other expensive possessions such as paintings, electronic equipment, stamp collections or silverware, for example. The floater will provide both higher limits and protect you from additional risks, not covered in your normal policy.
# 3: If my
house is totally
destroyed in a fire and
I have $150,000 worth of
insurance to cover the
structure, will this be
enough to rebuild my
home?
If the cost of rebuilding your home is equal to or less than $150,000 you would have enough coverage. The HO-3 policy pays for structural damage on a replacement cost basis. If the cost of replacing your home is, say, $120,000, then that is all the insurance you need. On the other hand if the cost of rebuilding your home is $180,000, then you will be short $30,000.
If you live in an area
that is frequently hit
by major storms, ask you
insurance company about
an extended or
guaranteed replacement
cost policy. This will
provide a certain amount
over the policy limit to
rebuild your home so
that if building costs
go up unexpectedly, due
to high demand for
contractors and
materials, you will have
extra funds to cover the
bill.
If you choose not to
rebuild your home, you
will receive the
replacement cost of your
home, less depreciation.
This is called actual
cash value. You should
make sure that the
amount of insurance you
have will cover the cost
of rebuilding your
house. You can find out
what this cost is by
talking to your real
estate agent or builders
in your area.
Do not use the price of
your house as the basis
for the amount of
insurance you purchase.
The market price of your
house includes the value
of the land on which the
house is situated. In
almost all cases, the
land will still be there
after a disaster, so you
do not need to insure
it. You only need to
insure the structure.
# 4: Am I covered for
flood damage?
No. If you live in a flood-prone area it may be wise to purchase flood insurance. Flood insurance is provided by the federal government, under a program run by the Federal Insurance Administration. In some parts of the country, homes can be damaged or destroyed by mudslides. This risk is also covered under flood policies. Contact your agent or company representative to get this insurance or call the Federal Emergency Management Agency at 1-800-427-4661 or visit its Web site at www.fema.gov.
# 5: A pipe bursts and
water flows all over my
floors. Am I covered?
Yes. The HO-3 covers you for accidental discharge of water from a plumbing system. You should check your plumbing and heating systems once a year. While you are covered for damage, who needs the mess and hassle?
# 6: What if
water seeps into my
basement from the
ground, am I covered?
No. Water seepage is excluded under the HO-3. And if the water seepage is not due to a flood you will not be covered under a flood policy. Seepage is viewed as a maintenance issue and is not covered by insurance. You should see a contractor about waterproofing your basement.
# 7: Am I covered for
earthquake damage?
No. Earthquake coverage is sold as additional coverage to the homeowners policy. To find out whether you should buy this insurance, talk to your agent or company representative. The cost of this coverage can vary significantly from one area to another, depending on the likelihood of a major earthquake.
# 8: A
neighbor slips on my
sidewalk or falls down
my porch steps and
threatens to take me to
court for damages. Does
my policy protect me?
Yes.
The policy will pay for
damages, if a fall or
other accident on your
property is the result
of your negligence. It
will also pay for the
legal costs of defending
you against a claim.
Also, the medical
payments part of your
homeowners policy will
cover medical expenses,
if a neighbor or guest
is injured on your
property. You should
check to see how much
liability protection you
have. The standard
amount is $100,000. If
you feel you need more,
consider purchasing
higher limits.
# 9: A tree
falls and damages my
roof during a storm. Am
I covered?
Yes. You are covered for the damage to your roof. You are also covered for the removal of the tree, generally up to a $500 limit. You should cut down dead or dying trees close to your house and prune branches that are near your house. It's true that your insurance covers damage, but falling trees and branches can also injure your family.
# 10: During
a storm, a tree falls
but does no damage to my
property. Am I covered
for the cost of removing
the tree?
Your trees and shrubs
are covered for losses
due to risks like
vandalism, theft and
fire, but not wind
damage. However, if a
fallen tree blocks
access to your home you
may be covered for its
removal. Decide if you
need extra insurance for
the trees, plants and
shrubs on your property.
You may be able to
purchase extra
insurance, which will
not only cover the cost
of removing fallen
trees, but will also
cover the cost of
replacing trees, and
other plants.
# 11: If a
storm causes a power
outage and all the food
in my refrigerator or
freezer is spoiled and
must be thrown out, can
I make a claim?
The general answer is no. However, there are a number of exceptions. In some states, food spoilage is covered under the homeowners policy. In addition, if the power loss is due to a break in a power line on or close to your property, you may be covered. You should check with your agent to find out whether you are covered for food spoilage in your state. If not, you can add food spoilage coverage to your policy for an additional premium.
# 12: I have
children away at
college. Are they
covered by my homeowners
insurance?
If they’re full-time college students and part of your household, your insurance generally provides some coverage in a dorm, typically 10 percent of the contents limit. If they live off campus, some companies may not provide this limited coverage if the apartment is rented in the student’s name.
# 13: My
golf clubs are stolen
from the trunk of my
car. Does my homeowners
policy cover the loss?
Yes.
The HO-3 covers your
personal property while
it is anywhere in the
world. However, if your
golf clubs are old, you
will only get their
current value, which may
not be enough to
purchase a new set.
Consider buying a
replacement cost
endorsement for your
personal property. This
way you will get what it
costs to replace the
golf clubs, less the
applicable deductible.
# 14: I have
a small power boat. If
it is stolen, am I
covered? What if there
is a boating accident
and I get sued? Am I
covered for that?
Whether or not you are
covered for either theft
or liability depends on
the size of the boat,
the horsepower of the
engine and your
insurance company.
Coverage for small boats
under homeowners
policies varies
significantly. Ask your
insurance representative
whether you need a Boat
owners policy.
# 15: My
house is close to the
ocean. I’ve heard that
if it is destroyed by
the wind, the town's new
building code requires
me to rebuild the house
on stilts. This will add
$30,000 to the cost of
rebuilding my house. Am
I covered for this extra
cost?
No. The HO-3 excludes costs caused by ordinances or laws that regulate the construction of buildings. You can purchase an Ordinance or Law endorsement. This will cover the extra costs involved in meeting new building codes.
# 16: Am I
covered for “Acts of
God”?
Sometimes. The term “Acts of God” is not specifically mentioned in homeowners insurance policies. It usually refers to natural disasters like hurricanes and tornadoes, as opposed to man-made acts, like theft and auto accidents. Some natural disasters, such as damage from windstorms, hail, lightning and volcanic eruptions, are covered under homeowners insurance. Damage from floods and earthquakes is not.
# 17: What
should I do if my policy
provides less coverage
than the HO-3?
Review your coverage with your agent. Some older policies provide less coverage than the HO-3. They may not provide coverage for water damage, theft, or liability. They may also provide coverage for the house on an actual cash value basis, rather than a replacement cost basis.
Actual Cash Value means
replacement cost less
depreciation. For
example, if your roof is
destroyed in a storm,
the insurance will only
pay for the cost of a
new roof less the amount
of depreciation of the
old roof. If your roof
was in great shape, this
deduction will not be
large. However, if the
roof was old and worn
out, the deduction for
depreciation may be
significant. You should
try to get an HO-3.
For the best inspector
in your neighborhood
visit
www.InspectorLocator.com
or call 1-877 FIND-INS.
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George Timmerman CHI - CMIA* 280 Kemp RD * Suwanee GA 30024 * (470) 545-9824 |