The biggest asset for most people is their home. Lose that and you will likely lose a big part, if not most, of your net worth. Even if you don't own, but rent, you can still easily lose all your belongings in a sudden fire or other disaster. That's where homeowners and renters insurance comes into play.
Homeowners insurance will protect your property, whether it's a ranch in the country or a condo in the city. Homeowners insurance will not only cover a home structure, it can cover the contents as well. Of course, all of this depends on how much coverage you purchase and whether you have any add-ons, known as endorsements, attached to your policy for extra coverage or protection of special or valuable items.
Homeowners insurance also covers you for liability should someone be injured on your property. It will also cover damage to some of your possessions that are not located at your home. This includes damaged luggage on a trip or property stolen from your car.
One thing homeowners insurance doesn't cover is damage from floods. So, if you have a home in an area vulnerable to rising water or flooding, ask one of our Trusted Choice® independent insurance agents about how you can purchase flood insurance.
The most important thing about homeowners insurance is to have adequate coverage. If you do not purchase enough insurance, any loss may not be totally covered. For that reason, you may want to look into a policy that increases your coverage limits at the rate of inflation.
Of course, if you're a renter, you will want insurance to cover the value of your possessions. (The landlord's insurance only covers the structure—not your contents.) You'll also need renters insurance for liability coverage in case someone is injured in the apartment or house you rent.
Because everyone's needs are not the same, it is best to consult a Trusted Choice® agent to help assess your needs so you can choose the insurance policy that is right for you.
Chances are your home is your single most valuable investment. Homeowners insurance* is a "package" policy that covers property structures, personal possessions, and liability.
Because it is comprehensive, your homeowners insurance policy may include coverage of which you are not even aware. If your luggage is stolen from a motel room while you are a thousand miles away from home, for example, you will of course want to notify the police. You will also want to check with your Trusted Choice® agent about coverage for loss under your homeowners policy. And if your house burns down, leaving you without a place to stay, your policy provides living expenses as well as reimbursement for damaged property.
Your Trusted Choice® insurance agent can explain your policy in detail. To get you started, this guide outlines the key areas of coverage as well as any exclusions or limits that might apply. More than any other line of coverage, homeowners insurance is substantially standardized throughout the U.S. The questions and answers in this guide are based on the most commonly purchased homeowners insurance policy (called HO-3 in the industry) offering the widest protection.
*Throughout this guide, the term "homeowners insurance" is used. However, the coverage for personal property and liability is similar for renters and condo owners. The main difference, of course, is that you do not need to insure the building. Therefore, almost all the information contained in this guide should be of use to you whether you own or rent an apartment, a condominium, or a home. Questions on specific concerns about condominiums and renting an apartment or dwelling are answered after the general questions.
Q. Do I really need insurance for my home?
A. For most people, their home is their single most valuable possession and largest investment. Homeowners insurance protects your investment as well as you, your family and your household possessions.
If you were to suddenly lose your home due to fire or a hurricane, or have the contents damaged or stolen, you probably could not afford to replace everything all at once. If somebody sued you for an injury or damage caused by you or your property, the cost of defending against that lawsuit could be very expensive 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, that's reality.
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.
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Q. My homeowners insurance is part of the payment I make each month to the mortgage company. Who decides what insurance to get?
A. You do. It's your home and your insurance policy. As a means of protecting its investment, the mortgage company collects a set amount from you each month, puts it in escrow, and then pays your insurance and taxes when they fall due. However, the policy is still yours and you may select the insurance you feel offers the best coverage at the best rates. In fact, if you allow the mortgage company to choose, you might well end up paying more for your homeowners insurance.
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Q. I know I have that homeowners policy in a drawer somewhere. What exactly does it cover?
A. "Exact" coverage is hard to define because there are different policies. However, about 80 percent of homeowners policies are based on a standard form, which we described in this guide. All homeowners policies cover two important areas: property and liability. Remember that you have to have protection against the proverbial thief in the night and the person who slips on your sidewalk by day.
What this means in insurance terms is that your homeowners policy has two basic components. It covers your structures, possessions, property insurance, and it furnishes protection against personal liability. Personal liability, as its name implies, means you are legally obligated to pay money to another person for actions caused by you, your family, or your property. That liability extends to medical payments to others for injuries caused by you or your family.
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Q. What kinds of perils am I protected against?
A. Every policy is different 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.
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Q. What about floods, earthquakes, and other catastrophes?
A. Most catastrophes are covered. For example, wind damage from hurricanes and tornados come under the windstorm peril listed in the previous question and so are included. Flood and earthquake damage, however, are not covered by a standard policy. In Florida if you request in your own handwriting and your bank or mortgage company agree’s you can eliminate wind coverage from your policy, however, you should speak with your agent before making any decision to eliminate this very important coverage, even if your bank permits it.
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 90 percent of the U.S. population lives in seismically active areas. Since 1900, earthquakes have caused damage in all 50 states. And if your home is located in a flood-prone area, you are 26 times more likely to suffer a flood loss than a loss from fire. Over the life of a 30 year loan if you are in a Special Flood Hazard
Area you have 26% chance of flooding. The of fire is only 9%.
You may want to check with your Trusted Choice® 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.
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Q. Are there any other exclusions I should know about?
A. There may be other exclusions spelled out in your policy, such as neglect, intentional loss, earth movement, general power failure, and even damage caused by war. If you neglect to take care of your property (e.g., a leaky roof), you may not be covered. Obviously, if you intend to lose an object or damage your property, there is no coverage.
An important coverage available to building owners is “Building Ordinance and Law Coverage” (O&L).
For example, if the current building code in your area requires a higher grade of electrical wiring and after a fire you are replacing all the wiring in your home, your policy may cover only the cost of replacing the older wiring and not the O&L part. The difference in cost between the old wiring and the new wiring required by ordinance or law is your responsibility. However, usually O&L coverage can be added by endorsement.
In some situations (as mandated by Florida statutes) certain policies must include O&L coverage unless you reject it in writing. However, regardless of whether it’s required by law, it is a very important coverage to have in Florida. We may be the only state where the statutes address this coverage as enacted after Andrew and subsequently amended after the storms in 04/05.
The statute applies only to homewoners policies and does not apply to dwelling policies, commercial insurance policies, mobile homes or condo unit owners. Policies of Citizens are impacted by the statute if they are of the homeowners type. The statute mandates that an additional 25% or 50% (at your choice) of coverage be included for O&L losses, and this is an additional amount of coverage added to your building policy limit. A home insurer must offer both 25% and 50%; if the insured makes no selection or rejection then the policy must be issued with at least the 25% amount, with the option still present to buy 50%. Some insurers issue at 50% with the option to select 25% or reject coveage. Always, check with your agent to determine what is best for you.
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Q. Are both the backyard shed and my color TV covered in my homeowners policy?
A. Yes, they are both your property so they are both covered. The value of the real property—your home, garage, shed, and other structures—is generally based on the value of the main structure, the house itself. However, some carriers provide the option to reduce or eliminate coverage on outbuildings. For example, if the house were insured for $75,000, the shed, detached garage, and other auxiliary structures would be covered for 10 percent or $7,500 worth of damages. Some carriers will allow you to eliminate the 10 percent or reduce it to say, 2 percent if you prefer. Remember, that even if you don’t have such structures you may want to keep this coverage in the event you acquire a shed or build such a structure during the policy term.
Your personal property is also covered by a homeowners insurance policy. Personal property includes the contents of your home and personal belongings used, owned, worn, or carried by you or members of your household—basically, everything including the kitchen sink! This coverage is also based on the house coverage, and there are limits on the losses that can be claimed. Higher limits can be purchased for both real and personal property.
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Q. Who decides how much my property is worth?
A. The same insurance company may use one method in one state and a different method in another. The common methods in Florida are:
Actual Cash Value: 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 50 percent. Therefore, you would be paid $250 for that set.
Replacement Coverage: 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.
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 because replacement value does not include the land, which almost always does not need to be replaced.
Check your policy. If you prefer replacement coverage and do not already have it, this coverage can be added to your policy. Typically, the difference in premiums is 10 to 15 percent to upgrade from actual cash value coverage to replacement coverage. However, it is well worth it to protect your investment in your possessions. Your Trusted Choice® agent can tell you about the costs involved.
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Q. How much will I be paid for damage to my personal property?
A. 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, and 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 pewterware.
- $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 Trusted Choice® agent about additional coverage for specific items. If you want to reduce your premium you can reduce or eliminate contents coverage altogether but this is not recommended.
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Q. Does my policy cover my possessions even when I go on vacation?
A. Yes. Perhaps, in this case, the term "homeowners" is misleading because this is a package of insurance coverage that extends to all your possessions no matter where they are. If you take a round-the-world vacation and lose a valuable item, as long as the loss is by a covered event or peril, the location does not matter.
The liability component also extends well beyond the boundaries of your home. Should you be found legally at fault for injury or loss to another individual, whether you unfortunately caused a tumble down a San Francisco hill or a fall in an Indiana barn, that is personal liability, which, again, is addressed in your homeowners policy.
As in the property section of your homeowners policy, there are limits and exclusions to personal liability. Your business activities, for example, are not covered under a homeowners policy. You are also not covered for injuries or damage you purposely cause. So if a fight with a neighbor turns physical and you end up bopping him on the nose, your homeowners insurance will not cover the injury or any resulting suit. Your policy lists specific exclusions and limits
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Q. I rent out my basement. Are my tenants covered by my homeowners policy?
A. No. Your property and the structure (the basement) are covered by your policy as is your personal liability. However, the tenants' possessions and liability are not covered by your policy. Therefore, they may wish to purchase their own renters insurance. Whether you are a lessor or a renter, you should check with your Trusted Choice® agent to make sure you have the coverage that is right for you.
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Q. My mother lives with us in a separate in-law suite. Are her possessions covered?
A. As a member of the family, she is probably covered under your homeowners policy. So, too, is your child away at college covered for personal liability, theft, or damage to his or her property even in the dormitory or college apartment. However, you should check with your Trusted Choice® agent to be sure you have chosen the coverage that is right for you.
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Q. What about our vacation home in the next state?
A. Insurance companies can operate in more than one state, so the company that carries your primary residence may issue a policy for your vacation home. Personal liability is covered in the first homeowners policy, so the second policy need cover only property. This type of policy is called a "dwelling policy."
If you rent out your second home for all or part of the year, your homeowners policy may need to be endorsed (added to) to cover the increased liability exposure. The renter's property is not covered under your dwelling policy. Should damage occur while someone is renting your property, they will need to check with their own agent about their coverage.
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Q. I work out of my home. Are my inventory and business property covered?
A. Yes, but within certain limits. Both are covered as personal property used for business purposes. However, like all personal property, there are monetary limits on reimbursement. Whether your home business is your primary occupation or a hobby that nets you a few hundred dollars a year, it is still a business and you should treat it as such. If you've invested quite a bit in equipment (woodworking tools, for example) and sell the occasional decoy, you should consider whether the personal property limits are sufficient.
Also, keep in mind that the personal liability protection in your homeowners policy does not extend to business liability. Check with your independent business insurance agent concerning your business insurance needs.
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Q. Help! I've lost everything! Where do I start?
A. If most of us suddenly found ourselves without anything due to some calamity, we would be hard pressed to know all that we had lost. When was the last time you counted the number of shoes you own or CDs, not to mention furniture, dishes, drapes, or audio and video equipment? The list goes on and on. How much is it all worth and where would you start if you had to replace it?
Now is the time to make a list of major household items and possessions. The handy inventory form at the back of this guide will make your job easier. Just remember that, where possible, it is wise to list the serial number, date and cost of purchase, and even include the receipt if you can.
Another easy way in preparing a home inventory is to use a video camera or take pictures of your home and its contents. As you take the video, you can also talk about the items and their date and cost of purchase.
Whichever method you choose, have a copy made and ask a friend or family member to hold on to it. Or store your copy in a safe deposit box. That way if the worst happens and your home is destroyed, the inventory list will be safe at another location.
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Q. Why does the insurance company want to know where the nearest fire hydrant to my home is?
A. The insurance company has to weigh many factors in determining a premium to charge for your policy. One factor is access to water (hence the question about the location of the nearest fire hydrant) as well as the dependability and nearness of your local fire company and police. Rural homes more than five miles from a water supply are more at risk for severe damage from fire and lightning. Therefore, they can be more expensive to insure and rural homeowners may even have difficulty obtaining insurance.
Other factors are, of course, the age and construction of your house. Generally, brick and stone homes are cheaper to insure than ones constructed of wood.
The number and dollar amount of lawsuits in your state can also influence your premiums. Residents in states that experience a large number of lawsuits or of verdicts in excess of $1 million may face higher premiums to cover the cost of those suits.
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Q. Is there anything I can do to lower my premiums?
A. 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; particularly your wind premium in Florida. You should try to implement any reasonable wind mitigation features not just to save on your insurance premium but also to protect your family and your belongings that may be irreplaceable. Being secure in the event of a hurricane has it’s own rewards beyond saving on your insurance premium. However, in Florida, every homeowners policy must be accompanied by a standard mitigation discount form explaining every discount available to you, whether you have it on your home and what the amount saved is in dollar and percentage terms. Your Trusted Choice independent agent can explain all of these things to you so you can fully understand the savings that are available.
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 15 percent on your premium. Check with your Trusted Choice® 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. In Florida there are two types of deductibles. One is called a flat deductible and usually applies to perils other than wind or hurricane. The other is a percentage deductible that often applies to hurricane damage. You should be sure to ask your agent to fully explain the difference to you.
Remember, in the case of a percentage windstorm deductible the percentage is applied to your “building amount” not to the amount of the loss as is the case with the flat deductibles applying to perils other than wind. With a flat deductible that applies to all other perils (AOP), if your deductible is $500, 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 $500 to $750, or even $1000 or $5000, this decreases the insurance company's payout, which may mean a savings in your premium.
You may be able to increase your hurricane deductible to 10%, for example. But, this means that if you have a $200,000 home and suffer a $20,000 hurricane loss, you will be paid nothing. Your bank or mortgage lender will often prohibit percentage deductibles higher than, say 2% or 5%. Again, check with your Trusted Choice independent agent.
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 Trusted Choice® agent can help you evaluate the different policies and companies so you can make the choice this is right for you.
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Q. Who keeps an eye on the insurance companies?
A. Insurance is a heavily regulated industry. Every state has a government department that regulates and monitors every insurer operating within the state's borders. In Florida the Office of Insurance Regulation (OIR) regulates insurance companies and the Department of Financial Services (DFS) regulates insurance agents. In addition to approving rates, OIR is involved in all insurance company matters on behalf of private citizens and businesses. It also issues operating licenses to insurers and the DFS does the same for agents based on their ability to meet the state's requirements for conduct and knowledge about insurance issues.
If you ever have difficulty settling a claim, work with your Trusted Choice® agent to resolve the difficulty. However, you can also contact the OIR if you wish to know more about your options and rights as an insurance consumer.
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Q. What do I do when my property is damaged or stolen?
A. Contact your Trusted Choice® agent as soon as possible. If there is damage to your home or possessions, make "emergency" repairs to protect yourself and your property from further damage. Then, call your Trusted Choice® agent. For example, if some of the windows in your home have been blown out by wind, you may board them up to prevent additional damage. In fact, your policy covers the cost of these emergency measures.
However, before setting about to make permanent repairs, call your Trusted Choice® agent. The insurance company has the right to inspect the property in its damaged condition. They may want to send a claims adjuster or instruct you to get an estimate from an independent contractor.
If you have property stolen, notify the police immediately and call your Trusted Choice® agent.
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Q. What if I am sued or found liable for injury to another person?
A. Liability covers bodily injury and property damage to others due to your negligence. The coverage applies to non-auto accidents that occur either at your residence or off the premises. Medical expense payments such as first aid can also be due to the injured party. Should you be sued or suspect that you may be, contact your Trusted Choice® agent immediately.
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Q. I am a renter, not a homeowner. Do I need insurance?
A. The same rule of thumb applies to renters as to homeowners. If catastrophe struck tomorrow, could you afford to replace everything you own? Or if you were sued, would you have enough money to pay legal fees and possibly settle the suit? If not, chances are you would benefit from the protection afforded by renters insurance.
Renters insurance offers the same general personal property coverage and liability protection as a homeowners policy. Thus, your camera is insured while you are on vacation and you are covered if your grandfather clock crashes into the apartment lobby's wall and leaves a gaping hole. In fact, most policies are surprisingly extensive and may include additional living expenses (also called loss-of-use coverage) if you are forced by fire or other damage to live elsewhere.
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Q. Isn't my apartment covered under my landlord's policy?
A. No, the landlord's insurance covers damage to the building and the landlord's property, not your personal property or liability. Plus, you may be liable for damage to the building if it is your fault. If you go out and leave the stove on and an ensuing fire causes extensive damage to the entire building, you may be held liable to the landlord.
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Q. How are prices determined for renters insurance?
A. Renters insurance is surprisingly inexpensive. That's because you are not insuring a building. Like all property/casualty policies, the value of your property to be insured and other risk factors are weighed by the insurance company to determine your premium. Your Trusted Choice® renters insurance agent can help you find the best combination of coverage and cost that you determine are right for you.
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Q. I live in an apartment with three roommates. Do we each need a policy?
A. Check with your Trusted Choice® agent. Usually, it is best if all roommates are on the same policy although it is possible for each to purchase his or her own coverage. If you do need to "go it alone," you alone receive the security of renters coverage.
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