Homeowners Insurance

If you own a home, you need to read this unit. There are a number of issues involved in securing the right kind of coverage that needs to be considered and reviewed from time to time. This information will help guide you through the decisions that need to be made.

Most people do not put a lot of thought into the insurance coverage that they have on their homes. If you have a mortgage, the lender probably requires you to pay an amount each month as part of your total payment that will be sufficient to pay the premium when it comes due. Since it is so automatic, most people do not pay much attention to it and may be paying more than they need to for coverage that is inadequate.

You need to spend a little time in this unit so that you will understand the nature of the coverage that you have and make whatever changes are in your best interest. Homeowners insurance policies usually provide six basic types of coverage: They provide protection for the dwelling itself. They provide coverage for other (detached) buildings and coverage for the contents or personal property of the occupants. They provide “Loss of Use” coverage if your house becomes uninhabitable due to a covered loss. They provide “Liability” coverage and coverage for the medical expenses of others who are injured on your property.

Homeowners insurance policies have become quite “reader friendly” over the years and are usually organized in a way that is relatively understandable. Make sure that you understand exactly what coverage you have in each of the areas mentioned above. This will be impacted by what follows. Exactly what type of policy do you have?

Although it will vary to some degree from state to state, there are basically six types of insurance policies available for homeowners. (There are actually more, but these are the basic types.) HO-1 is also called “Basic Form.” It covers you for a small number of specifically named hazards. If something other than one of the named hazards occurs, you are not covered.

HO-2 is also known as “Broad Form.” It expands on the list in HO-1 and adds several other perils to the list of covered events. Once again, anything else that happens will not be insured.

HO-3 takes a different approach. It names those things that will not be covered. It is sometimes called “All Risk” insurance. For most homeowners, this is the insurance policy that you want. Pay close attention to the fact that water damage caused by flooding and earthquake damage are among those perils that are excluded. You may want to consider purchasing additional insurance for those items if you live in an area where they are somewhat likely to happen.

HO-4 is a renters policy and is covered in another unit. HO-6 is designed for owners of condominiums and recognizes the fact that the dwelling is shared by a number of people who insure their building through their monthly fees.

Finally, HO-8 is designed for owners of older homes or low value homes. It provides basic coverage but should not be considered unless it is the only form that is available for your dwelling.

The best advice is get the best form available for your dwelling and acquire “replacement cost” insurance (as opposed to “actual cash value”) if possible. It will save you a lot of heartache should anything ever happen to your home and its contents. Make sure that the coverage on your dwelling is sufficient to replace it, but take care that you are not insuring your land. Most insurance companies index coverage on your home so that it increases as building costs increase.

To save money on your premium, select the highest deductible that you can afford based on how much money you have in your emergency fund. Higher deductibles mean that you will handle small losses yourself and, in turn, the insurance company charges you a lower premium.

Pay attention to the sub-limits in your policy. These relate to specific types of items (jewelry, coin collections, etc.) that may be lost or stolen. Insurance companies limit their liability by capping the amount of coverage. If you think the sub-limits are inadequate to replace what you have, arrange for additional coverage with your insurance company. Once again, this will save you a lot of heartache.

Find out if you qualify for discounts stemming from safety devices or alarm systems that you have installed. This will normally reduce your premiums, because they provide additional protection against losses occurring.

Finally, start a file that will be your guide should you ever experience a covered loss. Include in the file everything that relates to property: date acquired, original cost plus improvements, furniture and appliances (date acquired and original cost), and lots of pictures or even a video recording of your house. Take pictures of every room from every angle. Take pictures of every closet and shelf. Open the cupboards and take pictures of their contents. Make a visual record of everything!

This file needs to be stored away from your home so that it will not be destroyed but available should you ever need it. (Many people choose to keep this type of file in safe deposit boxes.) Update it once a year or whenever you make a major purchase or improvement to your home. It will prove to be invaluable if you ever need it.

Fast settlements when you suffer a loss are not necessarily in your best interest. Although you want quick attention when you suffer a loss, you should not settle quickly. Use the file (especially the pictures or video) to create the list of what was lost. If you have chosen the right kind of coverage, it should all be covered. Take your time, make the list, use the pictures to jog your memory, and settle on contents when you have created a complete list of what was lost.

There are a variety of ways that you can save premium dollars when it comes to homeowners insurance. The first is to raise the deductible. Insurance companies would prefer that you handle the small losses. It costs them to investigate and handle claims, sometimes more than the claim itself, so they provide incentives for you to handle the small events yourself. The deductible represents the amount below which you will handle things without involving them. Raise the deductible (over time) as your emergency fund grows and can handle expenses that would otherwise be handled by your insurance company.

A lot of policies provide discounts for new homes or for homes that have alarm systems and other safety devices. Find out what discounts are available for smoke alarms, fire extinguishers, etc. Go to a couple of different insurance companies, and—after making sure that the policies are essentially identical—do a comparison of the price. Find out if there is a discount if you also insure your vehicles with the same company, and consolidate all of your insurance with one agency if it is to your advantage to do that.

It makes sense to pull out your policy every few years and see if you cannot save some premium dollars by switching to another company. Try to do it sufficiently far enough in advance of the premium due date so that you have time to shop around and compare. You may end up having essentially the same coverage as before but save money in the process.


WEB SITES
http://www.iii.org/individuals/homei/
http://www.pueblo.gsa.gov/cic_text/housing/12ways/12ways.htm
http://www.usaaedfoundation.org/insurance/hi01.asp