|
|
Insurance of any kind is your protection against the uncertainties of day-to-day living. For most people, their home is their single most valuable possession -- and their biggest investment. Homeowners insurance protects your investment as well as you, the members of your family, and your household possessions.
If you were to suddenly lose your home due to fire or a tornado or have the contents damaged or stolen, like most of us, you probably could not afford to replace everything all at once. And if somebody sued you for an injury or damage caused by you or your property, the cost of defending yourself could run into thousands of dollars just for legal fees -- regardless of the outcome.
All of these situations are covered by the homeowners package policy. And while it may be unpleasant to think about fire, theft, and other "uncertainties of life", let's face it, they are there and things do happen.
Yet another reason you need to carry homeowners insurance is that mortgage lenders require it. No mortgage company will lend the large amounts of money needed to finance homes at today's prices without requiring an insurance policy to protect that investment.
What does homeowners insurance cost?
Damage to your home can be some of the most costly losses you will have to cover -- homeowners insurance protects you. Prices of homeowners insurance vary and depend largely on the value of your home and the size of the policy. State laws may dictate how losses are to be figured, which means the same insurance company may use one method in one state and a different method in another. The common methods are: - Actual Cash Value: This represents the replacement cost of the item minus depreciation. For example, a new television set may cost $500. If your seven-year-old TV set gets damaged in a fire, it might have depreciated fifty percent. Therefore, you would be paid $250 for that set.
- Replacement Coverage: Replacement coverage will cover the cost of replacing an item without deducting for depreciation. So today's cost for a TV set with features similar to the seven-year-old one damaged by fire would determine the amount of compensation. If it still costs $500 today, that would be the replacement coverage.
HerTip: Replacement value should not be confused with market value. The market value is what your house, for example, would actually sell for and is generally more than the replacement cost. This is partially because replacement value does not include the land -- which almost always does not need to be replaced.
HerTip: Many guaranteed replacement-cost policies do not pay to upgrade a house to comply with building-code changes that were made after it was built, so be sure to ask if there are any limitations on your coverage. (Ask your insurance professional about Ordinance or Law Coverage.)
What kinds of homeowners policies are there?
There are two basic policy forms: - Named peril insurance (Broad Form or HO2) -- Named peril insurance only covers against dangers named in the contract. If something happens outside of what is listed in your policy, you may be unable to receive any damage claims.
- All-risk insurance (Special Form or HO3) -- All-risk insurance is more comprehensive coverage than the named peril insurance. It covers all dangers except those specifically named in the contract.
Remember that policies vary but homeowners insurance usually covers damage to both structures and personal property caused by:- Fire or lightning
- Windstorm or hail
- Explosions
- Riot or civil commotion
- Aircraft
- Vehicles
- Smoke
- Theft or vandalism (sometimes called malicious mischief
- Falling objects
- Weight of ice, snow, or sleet
- Freezing of a plumbing, heating, air conditioning, or other such household system
In fact, your coverage is most likely even more comprehensive than the above list. Many homeowners policies cover damage by "just about everything," unless the coverage is specifically excluded. In these cases, it is even more important to understand what is not covered.
What about floods, earthquakes, and other catastrophes?
Most catastrophes are covered. For example, wind damage from hurricanes and tornadoes come under the windstorm peril listed above and so are included. Flood and earthquake damage, however, are not covered by a standard policy.
Be careful not to be lulled into a false sense of geographic security. Flood and earthquake activity is more widespread than many people realize. For example, almost ninety percent of the US population lives in seismically active areas. Since 1900, earthquakes have occurred in thirty-nine states and caused damage in all fifty. And if your home is located in a flood-prone area, you are twenty-six times more likely to suffer a flood loss than a loss from fire.
You may want to check with your agent about special catastrophic policies for normally excluded conditions like floods and earthquakes. Of course, the cost of such extra coverage may reflect the high risk involved. If you live along a shoreline, for example, expect to pay a higher premium for flood coverage than someone living on a mountaintop would pay.
Home Contents
Homeowner's policies provide fifty percent of the dwelling limit as the coverage limit for your home contents. Remember that homeowners insurance is designed to cover general personal possessions, not valuable collections like antiques, jewelry, or original art. Insurance companies deliberately limit their coverage of expensive possessions so that household premiums are more affordable to everyone. After all, if they had to cover museum-level art collectors under standard homeowners policies, we would all end up paying higher premiums to cover those expensive items.
Your policy lists the specific monetary limits for personal property under what is called "Special Limits". Those limits usually are: - $200 for money, bank notes, gold, and silver (other than goldware and silverware), platinum, coins, and medals
- $1,000 on securities, accounts, deeds, evidences of debt, letters of credit, notes (other than bank notes), manuscripts, passports, tickets, and stamps
- $1,000 on watercraft, including their trailers, furnishings, equipment, and outboard motors
- $1,000 on trailers not used for watercraft
- $1,000 for loss by theft of jewelry, watches, furs, precious and semiprecious stones
- $2,000 for loss by theft of firearms
- $2,500 for loss by theft of silverware, silver-plated ware, goldware, gold-plated ware, and pewter-ware
- $2,500 on property on the resident premises, used for business, and $250 on this property damaged or lost away from the premises
If these limits seem low to you (maybe that engagement ring is worth much more than $2,500), you may wish to talk to your agent about additional coverage for specific items.
What can I do to lower my premiums?
Because your premium is based partly on the level of risk the insurance company must take, there are things you can do to lower your premium. Here are a few suggestions: - Installing deadbolt locks (to discourage theft), fire extinguishers, smoke alarms, and burglar and fire alarms that alert your local police and fire stations can often save you up to fifteen percent on your premium. Check with your agent before purchasing any of these items to see if your insurance carrier has specific requirements to qualify for the discount.
- Many insurers also offer discounts if you insure both your home and automobile with the same company. Another way to save may be to increase the deductible on your homeowners policy. If your deductible is $100, it means that you agree to pay this amount first, and your insurance company will pay for damages that exceed this deductible. By increasing your deductible from $100 to $250, or even $500, this decreases the insurance company's risk, which may mean a savings in your premium.
- Also, it pays to shop around for insurance coverage just like anything else. Of course, you may want to keep in mind that the extent of coverage also determines the premium cost, so the cheapest policy is not necessarily the best. Your insurance agent can help you evaluate the different policies and companies to find the one most suitable for you.
|
Premiums