Which Homeowners Policy Is Right

What kind of home? You may not be looking at the correct article. THIS IS THE RIGHT PLACE IF: I own a home (free standing, not rented, not a mobile home i.e.: the home is permanently attached to and part of the foundation).

Or,

I own a town-home (not a condominium or co-op or time share). Perhaps this town home is attached to another residence, perhaps not. I own the land that this town home sits on, but I am part of a town-home community)

NOW! I own a home...

Many companies have either their own Homeowners policy form or have endorsements to standard policy forms that help distinguish them from the competition. Some companies like new, high-valued homes, some companies do well with older or historic preservation homes. Others are comfortable with country homes or old farmhomes and some don't like the city. It pays to shop around, both for the best coverage and for a company who likes homes in your area.

Find a company that wants to insure your home. If the company and agency already has a customer base in your area, consider them first. They understand how to insure homes like yours. This agency or company may not always have the cheapest policy, but they may have the best combination of coverage, price, service and claims expertise for your particular needs.

There are two types of coverage:

Named causes of loss or Risks of physical loss. Named causes of loss coverage is just that. The policy only covers for certain kinds of causes of loss to your property. You must prove to the company that one of the covered causes damaged your property.

Risks of physical loss covers all causes of loss except those that are excluded. The company must prove that one of the excluded causes of loss damaged your building.

Many companies offer risks of physical loss coverage for your buildings and named causes of loss coverage for your "stuff". Other companies will offer risks of physical loss coverage for virtually all of your covered property. Risks of physical loss costs more, but here are some claims that would not be covered under named causes of loss policies:

NOTE: Your state may have restrictions or natural disaster cause of loss problems. Coastal states face wind problems. California, and certain Midwestern areas have severe earthquake problems. Some Western states have brushfire problems. Other areas face hail damage. Each state and company has its own rates and philosophy on how it will insure these common causes of loss. Check around.

Policies that are considered named causes of loss forms are the Homeowners 1 (not sold much any more), the Homeowners 2 and the special use Homeowners 8 forms.

Homeowners 8

Basic Homeowners coverages common to all homeowners form that insure both the home and personal property

You must insure to 80 or 90% of replacement value to avoid any kind of "under-insurance" penalty if you have a loss. These penalties can include reduced payment, or change from payment on a replacement cost basis to actual cash value. Actual cash value means depreciation. Roofs depreciate over 20 years. A 10 year old roof is 50% depreciated. Do you want only 50% of your repair bill paid? No. Work with your agent to make sure you insure to value.

Ask your agent if a guaranteed replacement value clause in the policy is available. The Guaranteed replacement value clause says that coinsurance will not be a factor if a properly prepared replacement cost valuation is submitted at the same time the policy application is submitted, provided this valuation is updated each year after.

Coverage for your outbuildings - garages, sheds, barns, cabanas - are usually covered as a percent (10-30%) of your building limit of insurance. Normally these limits are adequate for the average 2 car garage, but not for carriage houses, three car garages or barns. You can increase the limits of insurance.

Coverage for personal property ("stuff") is usually 50-75% of your building limit. Again, this may be adequate for the average homeowner, but are you average? How much stuff do you own? Is your stuff ne - is it of superior quality?

Additional living expense coverage is usually a percent of your building limit of insurance (20-40% or even a "no limit" form commonly called actual loss sustained).

Additional living expenses covers the additional cost of temporary housing, food and other increased costs of living when you are forced from your home by a fire or other covered cause of loss.

If you have a tenant, the homeowners form can cover your loss of rents if rent payments (by contract) do not continue after a covered loss.

For most customers, the limit of coverage provided by the standard policy will be adequate, but if your home will take a long time to repair or the loss occurs in the dead of winter, you may not have enough to pay the extra living expenses.

If you are in a disaster prone area (tornadoes, hurricanes, earthquakes, wildfires), we have seen recent occurrences where it has taken 2-3 times the normal time to repair property because materials and workers were overwhelmed with work or unavailable. Actual loss sustained coverage is best, for there is no limit to worry about.

Endorsements: Sump pump, ordinance or law, business in the home. There are literally hundreds of endorsements companies make available to provide additional coverage not found in the standard homeowners policy. This is where you need a good agent who specializes in personal lines insurance. Let the agent ask you a lot of questions. The agent needs answers to build the right policy for you. Homeowners policies are not cookie-cutter forms. Every family's needs differ and a good agent can help you design the correct plan for you.

Theft limitations. This brief article is not the forum to discuss every limitation and exclusion under the Homeowners form. However, you need to know that certain "target" items have limited coverage for theft. The limit shown is the average theft limit in the market. Your company may provide less or more. Increase coverage by endorsement to the policy or through a personal article floater policy. (See 15 for information on insuring jewelry, furs and other high valued items)

Other Property limitations. The following property is subject to certain maximum limits of coverage. The limit shown is the average limit of insurance available in the market. Your company may provide less or more. Increase coverage for most by endorsement to the policy.