Insurance Clients

Which Homeowners Policy Is Right

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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).


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:

    1. The washing machine in the spin cycle danced across the room and broke the waterheater, cascading water throughout the home.
      A guest injured herself and bled all over the couch and carpet.
      While the insured cleaned the imported crystal chandelier, the chandelier fell, shattering into pieces.
      While working on the attic floor joists, the insured slipped and put his foot through the ceiling.
      A two year old boy went on a rampage with a hammer, smashing the bathroom toilet, sink, walls etc…
      The insured dropped a storm window. It cascaded through the home, down the stairs, damaging walls along the way.
      The insured was cleaning the bowling ball in the bathroom sink – the bowling ball slipped and shattered the sink.
      The insured’s lawnmower kicked a rock through the exterior air conditioner.
      The insured slipped and threw a full paint can into the room; the spray hit virtually everything in the room.
      Freezing and thawing of ice on the roof caused a break in the wall and water damage to the interior of the home
      The policy name for risks of physical loss coverage for buildings is often referred to as Homeowners form 3. To add risks of physical loss to personal property under form 3, you must have the Homeowners 15 endorsement. Some companies sell a Homeowners form 5 which does the same thing as the combined Homeowners 3 plus the Homeowners 15 endorsement. Other companies have their own risks of physical loss forms they call Special, Gold, Executive etc. Not everyone will qualify for risks of physical loss, but most companies sell the coverage.

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

    1. Insures for the same causes of loss as the Homeowners 2 form.
      Designed for older homes. Older homes generally were built with more expensive and/or exotic materials. You could not build most turn of the century homes today for any price.
      Contains no coinsurance penalty. You and the company agree on a maximum coverage limit if the building burns to the ground. NOTE: in most states the company only has to pay for the actual cost to repair or replace, so if the building costs less to rebuild than the limit of insurance, only the cost to rebuild is paid.
      Not all companies will write the Homeowners 8. Some states do not permit the sale of this policy.

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

    1. Coverage for your building.
      You work with the agent to establish the replacement cost of your home.

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)

    1. Jewelry and gems ($1,000)
      Furs ($1,000)
      Gold, silverware, pewterware ($2,500)
      Guns ($2,000)
      Building supplies – no coverage for theft

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.

    Electronics used in an auto ($1,000)
    Money ($200) Including coin collections – face value only.
    Stamps ($1,000)
    Business personal property ($2,500 on, $250 off premises)
    Other than boat trailers ($1,000)
    Boat trailers ($1,000)
    Boats – anything bigger or more valuable than a canoe – purchase a separate boat or yacht policy.
    Credit card forgery ($500)
    Fire department service charge ($500)
    Fine arts, antiques, Persian rugs, hummels and other collections should be appraised and listed separately in a personal articles floater or endorsement.

Your personal property “stuff” can be covered for replacement cost. That five year old refrigerator that is only worth $100 but would cost $600 to replace could be covered for $600 for this endorsement. Ask for replacement cost contents coverage. Liability coverages are usually identical from form to form, however some companies will have special endorsements to improve coverage. We recommend that you always ask your agent to quote you an umbrella liability policy (improves coverage and increases liability insurance limits to $1,000,000 or more).

Liability covers you for your negligence in injuring other people or property on your premises or through the actions of many of your hobbies.

The policy also provides defense coverage, including hiring and paying for a lawyer (if necessary) and paying most court costs. Covered claims include: slips and falls; baseball beans the neighbors child; you hit the foursome in front with your errant hook shot; your lawnmower spits out a rock into traffic and blasts through a car window, injuring the driver and the car. Homeowners insurance does not, however, provide you any car insurance for any car you drive. High limits of insurance are recommended, and again, you should ask your agent about an umbrella policy to increase your coverage to $1,000,000 or more.

Why high limits of liability insurance? Anyone can sue for anything and for any amount.

If your policy covers you for $100,000 liability insurance and you are sued for $200,000, your insurance company will advise you that you need to hire a lawyer at your own expense.

If the insurance company pays out the $100,000, it’s obligation is done, but the lawsuit may not be over. Courts are backed up. The high cost, whether good or bad, of lawsuits, court fees and lawyers is not exaggerated.

The injured party may not have to pay a dime in attorney’s fees until the lawsuit is won. You don’t have that option. Your defense lawyer will want to be paid from the day of hire, often for each hour worked – even if you eventually lose the case. Medical payments coverage is for minor injuries to people other than residents of the household. You don’t have to be sued or be negligent.

Example: Aunt Bertha from 200 miles away comes to visit for a few days. The day she arrives she slips on the stairs and breaks a hip.

The insurance company will pay up to the medical payments limit ($1,000 – $10,000 normally) for the medical expenses incurred. After the medical payments limit is used up, you must be negligent and/or sued by the injured person.

Cutting costs.

Deductibles save money. Combine your auto and home insurance with the same company. Many companies offer discounts on both auto and home when you insure them together (not available in all states). Some companies offer combination auto/home policies which usually provide superior coverage at a lower price than if you were to cobble all the coverages together using many policies (not available in all states).

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