Thursday, June 7, 2012

Homeowner's Insurance F.A.Q.

Homeowners Insurance

Homeowner's Insurance

Here are answers to some frequently asked questions we get as insurance agents that might be helpful. In addition to the questions we have included coverage items to look for before purchasing your next policy.

1.  What is covered?

This may sound like a basic question but it is a very important one. The good news is the standard home owner policy covers most hazards or “perils” to the dwelling.  It is probably easier to answer what is not covered vs. what is.  Although this list is not complete, here are a few of the major ones that are not covered:

-       Flood
-       Earth Movement (Earthquake, landslide, sinkhole)
-       War
-       Nuclear Hazard
-       Intentional Loss
-       Wear and tear
-       Governmental Action
-       Birds, vermin, rodents, or insects

For anything not covered under a standard homeowner's insurance policy, consider Umbrella Insurance, which also protects you above and beyond the limits of your existing policy.

2.  Do I need to purchase a different type of policy if I am renting my home?

Yes. There are many different types of policies depending on the use of the home. Writing a policy incorrectly could leave you exposed. Landlord or rental policies cover you for the extra exposure of having a tenant in the home. For example what if the tenant of your home is found liable for an injury to someone while on the property? If the policy is written as a primary home there would potentially be no coverage for the risk associated with the tenant.

3.  Does a tenant need his own insurance if he is renting my investment property?

The answer is yes for multiple reasons. By having the tenant purchase what is known as a “renters” policy, or "renter's insurance", the landlord and the tenant both benefit. The Landlord gets an added layer of protection in the event the tenant is found liable for some damage or injury to someone while on the property.  The tenants get coverage for their personal belongings (furniture, clothes, T.V. etc) as well as liability protection for their actions as well.

4.  Is there added exposure if my home is vacant? 

Yes. Many people do not realize there are vacancy exclusions in almost every home policy. The time limit can vary but most policies state that after 30 to 60 days of the home being vacant coverages are limited. (If the home is a seasonal and is correctly written this would not apply).  Losses from theft, vandalism, water leaks, could potentially go uncovered. If you know your home is going to be vacant for an extended period of time having a property management company check on the home periodically could mitigate a lot of the risk.   

5.  How can I save money on my home insurance?

This is the question everyone wants to know. Home insurance pricing is based on many factors, (age of home, proximity to fire station, estimated replacement cost, security features etc).  Although insurance companies use the same criteria, you will find that their rates will vary greatly.  Probably the best way to save money is to quote your insurance with multiple companies. You can call several companies for a quote or use an independent agent that can get multiple quotes for you. Choose a high deductible.  A 1,000 deductible should be a starting point.  It is not uncommon for policies to be written at 5,000 deductibles or higher. The savings can be well worth it. Make sure you let your agent know about any security features. Monitored alarms for fire and/or burglary will shave off 10% or more.  

Now that I have a great quote on my home insurance does the policy have the coverage I need?  

Many people think home insurance is the same from company to company.  Here are 3 things to look for in a great policy:
 1. "Guaranteed replacement cost"   What happens if your home burns down and the cost to rebuild is 300,000 and your policy is written for 250,000?  Most policies have some sort of "extended replacement" cost but that may or may not be enough. A policy written with the language "guaranteed replacement cost" puts the burden on the insurance company to make sure there is enough coverage in the event of a total loss.
 2. "Water back up coverage" I know what you’re thinking........"Why would I need water back up coverage on a home in the AZ desert?” This is an essential coverage often times overlooked by agents and insureds. If water backs up through your toilet, sinks, bathtubs, etc and causes damage to the flooring, chances are you may be out of luck. The standard home policy does not cover this.
 3. "Building ordinance coverage" Many cities are requiring the construction or remodeling of homes to include certain extras or upgrades to bring them up to city building code. What if the city your home is in now requires all homes to have fire prevention sprinkler systems throughout the house? (Such a law was passed in Scottsdale, AZ not too many years ago)  If your home needed repair from an insurance claim you might be stuck paying the bill for the extra work. 
 Another confusing aspect of home policies is the breakdown or separation of the coverages.  What exactly are all those numbers and letters referring to and do I need less or more? Here is a summary of the coverages sections for you to refer to:
Coverage A - Residence (Dwelling)

This provides protection on: the house and attached buildings (dwelling, attached garage and porches, etc.), building equipment (furnace, hot water heater, etc.), fixtures, built in components, outdoor antennas including lead-in wiring and accessories, carpeting, building materials and supplies located on the insured premises for use in construction of or to the residence. 

Coverage B - Other Structures

This covers fences, driveways, sidewalks, and other permanently installed outdoor fixtures, outdoor antennas including lead-in wiring and accessories, carpeting, building materials and supplies located on the insured premises for use in construction of or to a related private structure.

Coverage C - Personal Property

Personal property you own or in the care of you or your relatives residing in your household is covered. This coverage includes detachable building items such as window air conditioners, curtains, drapes and outdoor equipment not permanently installed.

This also includes coverage for the property of students who are resident relatives while temporarily living away from home at a school or college.

Certain types of personal property are subject to specified limits of protection.

Coverage D - Additional Living Expense

Any extra reasonable and necessary costs incurred (up to your policy's specified limit) is covered if you're forced to live in temporary quarters due to the loss or repair of your home following a covered loss to your property. This coverage is for additional expenses above and beyond your normal household expenses. The increase in living expenses applies to such expenses as rental of temporary quarters, meals in restaurants and laundry service.

Coverage E - Personal Liability

Personal liability coverage protects you against covered losses caused to others while on your property and elsewhere. It also safeguards you against accidental damage to someone else's property.

Coverage F - Medical Payments

This coverage provides for the necessary medical expenses (subject to policy limits) for non-residents injured on your property, regardless of fault. Medical payments will be paid if expenses are incurred within three years from the date of accident.

Make sure you are not just getting a great rate but also getting the protection you need. Having an agent that understands these risks is even more important than ever. Your home is one of the biggest investments you will ever make. Making sure you have the right policy is essential to protecting that investment long term.

This was part of a Homeowner's Insurance presentation that a friend of mine gave a while back. I think it answers a lot of the most frequently asked questions on this topic and I'll continue to add to it. You may also want to compare it to the FAQ produced by the Arizona Department of Insurance. Hopefully this can be a useful reference for any of you preparing to buy a home or switch policies. If you have any questions not answered here, please let me know. 

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