The Basics of Homeowners Insurance

Homeowners insurance is something we all need in order to protect our assets from loss and it is required by all mortgage lenders. However, it can get very complicated. Insurance can not only cover the structure of your home and your personal property, but also cover any personal legal responsibility (or liability) for injuries to others while on your property. Here are some homeowners insurance basics.

Filing a Claim

If something happens to your property and you need to file a claim, there are two primary people you?ll be in contact with. They are your insurance agent and the your insurance adjuster.

• Insurance Agent: Insurance agents sell policies to people with insurance. Typically, insurance agents do not adjust losses.
• Insurance Adjuster: Insurance adjusters investigate insurance claims by interviewing the claimant and witnesses and inspect property damage to determine the extent of the insurance company’s liability. Adjusters also interpret policy and pay the claim for the covered amount.

Coverages

There are a different types of packages offered by homeowners insurance policies. Here are the main types of coverages.

• Dwelling: Pays for damage to your house and to structures attached to your house.
• Other Structures: Pays for damage to other structures not attached to the house such as fences, garages, tool sheds, guest houses, etc.
• Personal Property: Reimburses you for value of your possessions.
• Loss of Use: Pays for some of your additional living expenses while your home is being repaired.
• Medical Payments: Pays for medial bills for people hurt on your property or hurt by your pets.

Peril

A peril is the insurance industry’s name for what’s covered in a property policy. Each policy is different and covers different perils. You should always read your policy very carefully to understand what perils are included on your policy and what perils are not included on your policy. Perils covered by different types of polices are: fire, smoke, windstorm, hail, lightening, explosion, vehicles, civil unrest, theft, vandalism, tress or other falling objects, weight of ice, snow or sleet, freezing, rupture or sudden and accidental overflow or plumbing, heating, air-conditioning or fire-sprinkler system or household appliance. Homeowner’s policies don’t usually cover flood damage or earthquake damage. So, if you live in an area where these can occur, additional coverage will need to be purchased.

Form

A form is a type of homeowner policy. Which perils your policy covers depends the type of policy you buy. There’s a is a difference between open and named perils coverage.?Open perils provides insurance coverage for any reason not specifically excluded and named perils provides coverage only for those perils listed. Here are the most common types of forms.

• Dwelling Fire Form: Covers only your dwelling and a only a few perils. This is the type of policy your mortgage lender will buy for you if you don’t renew your policy.
• Basic Form: Insures your property for the basic perils named on the policy such as fire, smoke, windstorm, hail, lightning, explosion, vehicles and vandalism.
• Modified Coverage Form: This policy is for older homes that have a replacement cost that is much higher than it’s market value. It covers the same set of perils as the Basic Form.
• Broad Form: This covers more perils than the Basic Form. However, it is a named policy and if the peril is not included, then it is excluded.
• Special Forms: This is the most popular form. It is an open perils policy that covers any direct damage to the house or other structures on the property unless it is specifically excluded. Perils commonly excluded are flood and earthquake.
• Comprehensive Form: This policy is also an open perils policy, but also includes direct damage or loss to personal property. Thus, personal property is covered by an open perils clause rather than the more restricted named perils coverage with the Special Form and Broad Form polices.

Limits of Coverage

The limits of coverage is the largest total amount the insurance company will pay for covered losses. Your coverage should equal how much it will cost to replace your home. Keep in mind, the replacement cost and market value are not the same. For example, the market value includes the price of your land and also depends on the real estate market, which can fluctuate. The limits of your coverage for other structures, for personal property and loss of use, are typically expressed as percentages of your dwelling limit and are usually a set percentage.

In addition, you can choose to insure your home and it’s contents for either replacement costs or actual cash value.

• Replacement Cost: The cost to rebuild your home or repair damages using materials of similar quality.? You will most likely be required to insure your property to at least 80% of the replacement cost in order to qualify for replacement cost coverage.

• Actual Cash Value: The value of your home considering it’s age, wear and tear, etc. This oftentimes does not pay enough to fully repair the home or to replace the damage, but it will pay you for the loss.

Deductible

The deductible is the amount you have to pay out-of-pocket for expenses before the insurance company will cover the remaining costs. The deductible applies to coverage for your home and personal property and is paid on each claim. Higher policy deductibles mean lower policy premiums.

Premium

Depending on which insurance company you choose, many factors can affect the amount of premium you pay. Different insurance companies charge different premiums for similar coverage. Also, premiums also are affected by how much insurance coverage you buy. In addition, how often you file a claim and the types of claims you file often affect your premium and whether your insurer will renew your policy.

It’s always a good idea to shop around and compare prices from different insurance companies. Before you shop around, decide what coverages and policy limits you need.? Also, be prepared and know how much it would cost to rebuild your home before shopping around.

For more information on homeowners insurance, go to the National Association of Insurance Commissioners.