Homeowners Insurance

Protecting Your Assets

When you’re renting, the costs of repairs and most maintenance are the responsibility of the owner or property management, but when you own a house, it’s all on you. Home insurance does not cover the cost of repairs, but it does cover major repairs caused by damages from events you cannot prevent.

Home Insurance Coverage Basics

Home insurance, or hazard insurance, is traditionally purchased to cover damages to your home for:
Earthquakes • Explosions • Fire • Floods • Theft • Vandalism and civil acts • Weather-related damages

Obtaining Adequate Coverage

Like ordering from a menu, the more coverage you add, the more your policy will cost. A basic plan to cover the requirements set by your mortgage lender may include everything that they require, but not all that you need. You will want to factor in your criteria, such as your home contents and if they include heirlooms or other high ticket items, and ask your agent to help you determine how much coverage is best for your situation.

Neglect is Not Covered

Insurance is not an excuse for homeowner neglect, which is a major factor that insurance companies will look at before paying out for certain damages. The age and condition of the house or area needing to be repaired/replaced are partly on you. If determined by the insurance company that the repair is from misuse or deterioration caused by a lack of maintenance, they may decline your claim. For example, if a water pipe bursts and causes water damage, this would likely be covered by insurance especially if you have rising water coverage; however, water damage from a known issue with a leaky pipe may not be covered.

Coverage Breakdown

Homeowner’s insurance policies breakdown the coverage to actual cash value (ACV) and replacement cost value (RCV).

If you have a mortgage, minimum home insurance will often be required, and all coverage will be predetermined, which takes some of the deciding out of your hands. But for uncovered events and possibilities, adding a rider to your insurance coverage is always an option.

ACV – The value after depreciation is factored in.

RCV – Deprecation is not applied, and current market values determine reimbursement.

Insurance Options for Fixer-Uppers

Buying “fixer-uppers” has become very popular. But many of these properties have significant issues, and it will be difficult to obtain insurance until the repairs are completed.  The insurance company has the right to choose not to insure your property. You have options that will protect some of your investment. It will take research, start by calling insurance companies, and provide honest details about the condition of your home.

With fixer-uppers, ask about the following five insurance options:

1. Conventional insurance is the gold standard or traditional version of homeowner insurance and covers the basics most people expect to be protected from (i.e., fire, theft, weather-related, etc.). If the home you purchased needs basic repairs that can be completed within 30 days of closing, obtaining a conventional insurance policy should not be an issue.

2. Builder’s risk with renovations and new construction, a builder’s risk policy is the most common type of insurance purchased. The coverage in this policy starts small and increases as different levels of construction or repairs are completed that increase the value of the property. If you have a contractor with a firm plan for the renovation, you can quickly obtain a builder’s risk policy.

3. Vacant dwelling if the home you purchased will be vacant for a period of time and mainly needs cosmetic work, you can purchase a vacant dwelling policy. This policy covers the basics of protecting your investment. Usually, it does not include theft, which can be an issue if you have expensive appliances, tools, or other items often stolen.

4. HO-8 policy, also called the modified coverage form, is home insurance for older buildings where the replacement costs could be higher than the actual cash value of the home. It is most often used to cover owner-occupied properties that are more than 40 years old, registered landmarks, and homes constructed of hard-to-replace materials. The policy also offers other important coverages for personal liability, third-party medical expenses, and personal property. HO8 only covers a loss if it’s caused by one of the ten events listed in the policy. These events, or perils, are:

Fire or lightning • Hail or windstorms • Explosions • Riots or civil commotion • Damage from aircraft • Damage from vehicles • Smoke • Malicious mischief or vandalism • Theft • Volcanic eruptions

HO-8 excludes damage caused by a burst pipe or other sudden and accidental events, earthquakes, and falling objects (like a tree branch crashing through your roof, unless you can prove the object fell because of one of the ten covered perils).

When considering an HO8 policy, be sure to tell your agent about your home and the risks you face. They can help you choose the policy that fits you.

5. FAIR plans if the repairs to the home you purchased will take a long time, for example, if paying cash for repairs as you can afford them, you may have trouble getting an insurer to underwrite one of the above insurance policies. Help is available if you research your state’s Fair Access to Insurance Requirements plan. These plans are specifically for situations like these. FAIR plans offer a limited, basic level of insurance that will cover at least some of your expenses.

Additional Considerations

Choose Your Deductible Wisely. As it does with auto insurance policies, with homeowners insurance higher deductibles equal lower premiums and lower deductibles equal higher premiums. Deductibles are the amount per incident the homeowner must pay toward a claim before the insurer pays its part. So, if you have a $500 deductible and damages to your home from a storm totaling $12,000, you would pay $500, and the insurance company would pay $11,500. If your deductible is $500 and your home suffers $500 in damage or less, your insurer won’t pay anything. Instead, you’d pay for all of the repairs. In this case, you shouldn’t even file a claim.

Jewelry and Special Items Riders. A rider is an insurance policy provision that adds benefits to or amends the terms of a basic insurance policy. For an additional cost, riders provide you with options for additional coverage, or they may even restrict or limit coverage. If you have high-value jewelry, perhaps a wedding ring or a family heirloom, talk to your insurance company about adding a jewelry rider. Although a standard policy usually replaces jewelry after a theft or other covered event, the policy only provides coverage up to a certain amount, and the coverage can be as little as $500 or $1,000. Talk to your insurer about the value of your jewelry or special items such as heirlooms, antiques, coin collections, and other high-price items to get adequate coverage for your valuables.

Appliance or HVAC Replacement. Home insurance policies only cover major appliances damaged by covered events such as storms and fire. There are home warranty options that advertise they cover these events. Buyer beware is necessary for this type of warranty as financial guru Clark Howard warns, “don’t waste your money.” Read more about home warranties here.

Consider Additional Liabilities. Some things make your property more of a risk. One is if you have one of the 10-15 breeds of dogs deemed by insurers as dangerous. Check with your insurance company to see if you can have coverage or need an additional policy to protect your assets and keep your beloved dog. Another consideration is if you have a pool pr pond, you will need additional coverage to protect your liability if there is an accident. In the case of drowning, liability is almost always on the homeowner, regardless of fault. If it happens on your property, you have liability.

Ask your agent about these issues and any other concerns you have to make sure you have adequate coverage.

Understand the Specifics of Your Policy

It’s essential to understand the coverage because policies are filled with “not this, but that” scenario, and it’s impossible to predict the likelihood of every need. Reading, understanding your policy, and asking your insurance provider questions is necessary. Take an overview of the area you live in, your assumed risks and worries, and then ask yourself how necessary a particular coverage is to you. If flood insurance is not required, again consider your area, is it an area with a fair amount risk? What if a sewer backs up and water rises into your home? What if a water heater malfunctions and floods your home (that incident is considered rising water and is part of flood insurance)?

The point is that a critical part of purchasing insurance requires exploring what the insurance does or doesn’t cover to meet the needs of your specific situation.

Actual Cash Value (ACV) – The amount of money an insurer will pay in the event of a loss, replacement, or repair.

Annual Maximum  – The most money a dental plan pays for dental care under the terms of your policy within a 12-month benefit period. Any amount over the annual maximum is paid by the insured.

Beneficiary – Any person(s) receiving benefits provided by an insurance policy.

Bundling – Purchasing two or more insurance policies with the same company for a price discount.

Claim – A request for insurance company compensation as part of policy coverage for a covered loss.

Collision Coverage  – Insurance to repair or replace a vehicle damaged in a collision, regardless of who is at fault.

Comprehensive Coverage – Insurance protection for vehicle damages that occur in an event other than a collision. Including theft, natural disasters, vandalism, and most things not covered by collision coverage.

Co-payment – A fixed amount of payment made by a beneficiary (especially for health services) in addition to that made by an insurer.

Coverage – The protection against financial loss provided by an insurance contract for policy specific inclusions.

Deductible – A set amount of money required by you to pay towards care, damages, replacement, or repair costs before your insurance coverage kicks in to cover additional or remaining costs.

Dental health maintenance organization (DHMO) – A structured type of dental plan with provider approved dentists and services negotiated to offer reduced prices to the policyholder.

Dental indemnity plan – A dental insurance plan offering the policyholder a more personal selection of dentists and services, with insurance also paying more of the costs. This plan typically has the highest premiums.

Dental preferred provider organization (DPPO) – A dental insurance plan allowing policyholders to work with dentists that are in or out of the plan’s network, with out-of-network providers costing the policyholder more for services.

Depreciation – A decrease in the value of property (e.g., house, car, roof, water heater, etc.) due to wear and tear or becoming obsolete.

Elimination period – The time period between an injury and the receipt of benefit coverage or payments.

HMO: Health Maintenance Organization – Health Maintenance Organization (HMO). A type of health insurance plan that usually limits coverage to care from doctors who work for or contract with the HMO.

In-network  – Refers to healthcare service providers whose services are contracted with your insurance company, and services are less expensive than out-of-network providers.

Insurance Rider – A rider is an insurance policy provision that adds benefits to or amends the terms of a basic insurance policy. For an additional cost, riders provide insured parties with options such as additional coverage, or they may even restrict or limit coverage. A rider is also referred to as an insurance endorsement. It can be added to policies that cover life, homes, autos, and rental units.

Lapse – The portion of uninsured time between policies caused by the termination of a policy for non-payment or other unmet contractual requirements.

Liability Coverage – A basic level of vehicle insurance where a minimum amount of coverage is required by law.  Often set by each state individually and can vary widely.

Loss – The injury or damage sustained by the insured that the insurance company agrees to cover.

Market Value – The estimation of how much your property is worth if sold today.

Negligence – A lack of reasonable care exercised by a person/party in a given situation.

No-Fault Insurance – A type of car insurance for covering the costs of medical, hospital, and funeral expenses that result from a car accident —regardless of who is at fault.  Also called Personal Injury Protection (PIP) Insurance.

Out-of-network – Refers to healthcare service providers who do not have negotiated rates with an insurance company, with services often costing more than in-network providers.

Personal Injury Protection (PIP) Insurance – See No-Fault Insurance.

Policy – A formal contract of insurance consisting of terms, conditions, and coverage specifics.

Policy Length – Or policy duration is the length of time during which an insurance policy remains valid—ranging from months to years depending on insurance type.

Policy Owner – Person or party named in the policy, having the authority to make policy changes.

PPO: Preferred Provider Organization – A healthcare provider who has a contract with your insurance company to provide services to you at a discount.

Premium – The amount of money an insurance company charges for providing coverage.

Reinstatement – The reactivation of a policy after a lapse in coverage.

Replacement Cost Value (RCV) – Coverage paying for the replacement or repair costs to restore damaged property to pre-damaged condition.

Term – The length of time for policy coverage. Also, see policy length.

Total Loss/Totaled – Property damage determined by the insurance provider to be destroyed or exceeds the cost of repair.

Underinsured Motorist Coverage – Coverage for bodily injury or property losses caused by a motorist with coverage insufficient in covering the full amount of damage costs.

Uninsured Motorist Coverage – Similar to underinsured coverage, uninsured coverage can help pay for damages when an at-fault driver uninsured, so instead of their policy covering the costs, your policy would.

Waiting Period – A period of time an insured must wait before some or all of coverage is available. The insured may not receive benefits for claims filed during the waiting period.