A. Homeowners insurance is one of the
most popular forms of personal lines insurance on the market today.
The typical homeowners policy has two main sections: Section I covers
the property of the insured and Section II provides personal liability
coverage to the insured. Almost anyone who owns or leases property has
a need for this type of insurance. And most often, homeowners
insurance is required by the lender as part of the requirements in
obtaining a mortgage.
Q. What is the difference between "actual cash value" and
"replacement cost"?
A. Covered losses under a homeowners policy can be paid
on either an actual cash value basis or on a replacement cost basis.
When "actual cash value" is used, the policy owner is entitled to the
depreciated value of the damaged property. Under the "replacement
cost" coverage, the policy owner is reimbursed an amount necessary to
replace the article with one of similar type and quality at current
prices. The choice of which policy best suits your needs or desires is
up to you when purchasing a homeowners policy, although if you
currently have an actual cash value policy we can upgrade your
protection to replacement cost for additional premium.
Q. What factors should I consider when purchasing homeowners
insurance?
A. There are a number of factors you should consider when
purchasing any product or service, and insurance is no different.
Here is a short list of things you should consider when you purchase
homeowners insurance.
- First and foremost, purchase the amount and type of insurance
that you need. Remember that if your policy limit is less than 80%
of the replacement cost of your home, any loss payment from your
insurance company will be subject to a coinsurance penalty. Also,
determine the amount of personal property insurance and personal
liability coverage that you need.
- Second, determine which, if any, additional endorsements you
want to add to your policy. For example, do you want the personal
property replacement cost endorsement, the earthquake endorsement,
etc..?
Q. What are some practical things I can do to lower the cost
of my homeowners insurance?
A. There are a number of things you can do to lower the
cost of your homeowners insurance.
- One way to lower the cost of your homeowners insurance is to
look for any discounts that you may qualify for. For example, many
insurers will offer a discount when you place both your automobile
and homeowners insurance with the them. Other times, insurers offer
discounts if there are deadbolt exterior locks on all your doors, or
if your home has a security system. Be sure to ask us about any
discounts you may qualify for.
- Another easy way to lower the cost of your homeowners insurance
is to raise your deductible. Increasing your deductible from $250 to
$500 will lower your premium, sometimes by as much as five or ten
percent. However, be careful to make sure that you have the
financial resources necessary to handle the larger deductible.
Q. What are the policy limits (i.e., coverage limits) in the
standard homeowners policy?
A. [Note: this answer is based on the Insurance Services
Office's HO-3 policy.]
Coverages A and B provide protection to the dwelling and other
structures on the premises on an all risks basis up to the policy
limits. The policy limit for Coverage A is set by the policyowner at
the time the insurance is purchased. The policy limit for Coverage B
is usually equal to 10% of the policy limit on Coverage A. Coverage C
covers losses to the insured's personal property on a named perils
basis. The policy limit on Coverage C is equal to 50% of the policy
limit on Coverage A. Coverage D covers the additional expenses that
the policyowner may incur when the residence cannot be used because of
an insured loss. The policy limit for Coverage D is equal to 20% of
the policy limit on Coverage A. The coverage limit on Coverage E —
Personal Liability — is determined by the policyowner at the time the
policy is issued. The coverage limit on Coverage F — Medical Payments
to Others — is usually set at $1000 per injured person.
Q. Where and when is my personal property covered?
A. Coverage C, which provides named perils coverage,
applies to all your personal property (except property that is
specifically excluded) anywhere in the world. For example, suppose
that while traveling, you purchased a dresser and you want to ship it
home. Your homeowners policy would provide coverage for the named
perils while the dresser is in transit — even though the dresser has
never been in your home before.
Q. Do I need earthquake coverage? How can I get it?
A. Direct damages due to earthquakes are not covered
under the standard homeowners insurance policy. However, unless you
consider yourself living in an area that is prone to earthquakes, you
may not want this coverage. If you do live in a part of the country
with high earthquake activity you may want to consider adding an
earthquake endorsement to your homeowners insurance policy. This
endorsement will cover damages due to earthquakes, landslides,
volcanic eruptions and other earth movements.
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