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Homeowners Insurance Answers

What is homeowner's insurance?

Also called "fire insurance" or "hazard, "property", or "casualty" insurance, homeowner's insurance covers your home if it is damaged by disasters that are listed on the policy.

Homeowner's insurance becomes effective as soon as your property transaction closes.

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What does homeowner's insurance cover?

The most basic policy covers your home's structure for limited disasters. Other policies provide more extensive coverage and protect your personal belongings, too.

Some policies also help pay for living expenses (housing, food and other essentials) if you can't remain in your home while it's being rebuilt or repaired following a disaster.

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What's not covered?

All homeowner's insurance policies list disasters that are not covered. Here are the most common:

• flood or underground water
• earthquakes
• mudslides
• birds, rodents, insects, or domestic animals
• settling or deterioration of the home's structure
• lack of maintenance
• mold

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Liability Protection - Is it necessary?

Liability protection is an important component of a homeowner's insurance policy, as it helps pay court costs and medical expenses if you, a family member, or a pet injures someone on your property. (It can also cover damages to someone else's possessions while they are on your property.)

For example: A plumber comes to your home to make some repairs and your playful Doberman lunges, sending him tumbling down the stairs. He fractures two ribs and is out of work for two weeks.

In this unlikely scenario, his worker's comp coverage expired two months ago. You may be liable for both his medical expenses and his loss of income resulting from the accident. Liability protection will help cover these costs.

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What you should know:

Don't assume that you will be fully reimbursed if a covered item is stolen or damaged in a disaster. Policies limit the amounts paid for covered items. Jewelry and computers, for example, have a low limit. As you consider policies, be sure you know exactly what's covered and the coverage limits.

Understand how your policy calculates replacement. There are two ways to do this: actual cash value and replacement value. Standard policies calculate replacement using actual cash value. Here's how actual cash value works:

Imagine that a tree crashes through your roof and smashes your two-year old television. You file a claim with your insurance agency to have your television replaced. You expect to receive a check for the amount that you paid for the television. But the check is for half that amount. Why? Because your television has depreciated since you bought it.

Many kinds of property "depreciate" or lose value over time. In this case, the television set is no longer worth what you paid for it. The insurance company calculates the replacement value by deducting an amount for depreciation. This is called actual cash value.

If you want to insure your home and belongings so that no deduction is taken for depreciation, you'll need to add replacement cost coverage to your policy. This comes to about 10% more than actual cash value coverage, but it will replace your home or belongings up to your policy limit without deducting an amount for depreciation.

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What if I need more coverage?

Sometimes, a standard policy will not meet all of your coverage needs. Here are some common ways to increase coverage.

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How much does coverage cost?

Your policy premium is the amount you will pay for the policy. The cost of your premium is based on how much it would cost to replace your house. An insurance agent will consider these items to determine cost:

• appraised value of your property
• construction type (e.g., brick, wood, concrete)
• age of the building
• natural hazards in the area
• value of belongings (if included)
• any additional coverage requested (riders, earthquake coverage, flood coverage, etc.)

Don't skimp on coverage to reduce your insurance costs. Instead, consider these tips to keep costs down:

• Ask for a higher deductible
• Insure your automobile with the same company and ask for a multi-policy discount
• Talk to your agent about discounts for installing safety features and security devices such as:
  • deadbolts
  • alarms
  • smoke detectors
  • storm shutters
  • fire-retardant roofing
• Tell your agent that you have a smoke-free household, if you do.
• Ask for a senior discount, if applicable.
• Insure your home and contents, but not your land.

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