The largest single investment most consumers make is in their home. In order
to best protect your family, your home, and your possessions, it is wise to
take the initiative to fully understand your homeowners insurance policy.
While it is difficult to predict future loss, you can minimize the impact of
loss on yourself and your family by spending the time necessary to
familiarize yourself with your policy and how it specifically addresses your
needs in the event of a loss.
Homeowners insurance is a package policy consisting of different types of
coverage for the house, its contents, additional living expenses, personal
liability claims against the policyholder and other members of the household,
and medical payments to others. The policyholder pays a single premium amount
for the combination of coverage listed in the policy.
When you purchase insurance, it is important to remember to shop for
insurance in the same way that you shop for any other consumer product. Take the
lead in shopping for and understanding your insurance policy. Make sure to
compare prices, policy coverage and conditions, and complaint information. Also,
research the coverage options that are available to you. Don't rely only on the
word of someone else, including an insurance agent or broker, as to what is the
"best coverage" for you. Find an agent or broker who is willing to spend time
discussing your needs and how specific insurance coverage can best meet your
needs. It is always wise to compare policies on your own to help determine the
best product for you.
Always try to plan ahead when you need to purchase insurance. Allow the
proper amount of time to make an informed decision. Never make important
decisions on the spot without conducting research first. Remember, this is your
home, not the insurance agent's or lender's. You should always take the lead in
deciding what sort of insurance to buy and how much insurance you need.
Each insurance company calculates its own rates, subject to Department of
Insurance approval. Since each company's loss experience differs, the rates
will differ as well. Therefore, it is wise to shop for the best price and
coverage available in relation to your insurance needs.
Most companies sell their policies through independent agents, who are often
representing several companies and should be able to get the most
competitive prices. However, some companies deal directly with the consumer
and can offer competitive prices because of lower expenses. Again, premiums
can vary greatly between insurers!
Many companies have their own methods of premium installment or payment
plans, so ask for the details regarding premium installments or payments
available through the company you consider for coverage. You can use this
information to compare with premium financing options.
Sometimes companies offer discounts for burglar alarms and fire protection
devices such as smoke detectors, alarms, and sprinklers. Ask about the
discounts available through the companies you are considering.
Typical homeowners coverage insures your dwelling, other structures and
contents, and may cover against losses such as:
- Fire or lightning
- Windstorm or hail
- Breakage of glass
- Explosion
- Riot or civil commotion
- Theft
- Aircraft
- Vehicles
- Smoke
- Vandalism and malicious mischief
You may elect to buy specialized homeowners coverage that provides additional
protection for your dwelling and contents beyond the standard coverage
limitations in most homeowners policies. Ask your insurance agent or broker
about available endorsements to extend coverage. Endorsements to coverage such
as building code upgrade can greatly add to your protection in a loss. You may
also want to consider separate earthquake coverage or flood insurance, as these
types of hazards are specifically excluded in most homeowners insurance
policies.
Your policy also covers loss of use, including increases in living expenses
due to fire or other insured loss. It is a good idea to be familiar with the
coverage provisions for living expenses and include the information in your
regular disaster plan in case of emergency.
Liability coverage protects you for injuries or damages to others caused by
you, a member of your family, or pet. Medical payments insurance covers medical
expenses to non-family members injured at your home.
Important: Read exclusions in your insurance
contract. Earthquake, flood, mold, earth movement, and "wear and
tear" are some of the perils that are usually excluded. When an insurer writes
your homeowners coverage, the insurer is legally obligated to offer you
earthquake coverage for an additional premium. The earthquake coverage may be
written directly by the homeowner's insurer, by a separate insurer, or through
the California Earthquake Authority (CEA).
Tenants (renters) insurance covers the loss of personal property and
loss of use due to the above-mentioned perils, and may include
liability and medical payments coverage.
Condominium insurance is similar to tenants insurance and covers personal
property and improvements. Loss of use is generally limited to 40 percent of the
contents limit. The condominium association generally purchases insurance for
the building structure and common areas, such as corridors. Loss Assessment
Coverage can be an important policy provision for you. It covers you for certain
assessments the condominium association makes. However, you should check if it
covers you for earthquake losses and how much it will provide you in the event
of an earthquake loss. You should also carefully analyze the type of insurance
your association has and how it would affect you in the event of a loss. Most
condominium association policies cover the common areas and walls. Your
condominium owner's policy will cover interior damage to your unit.
If you have lapsed or a canceled home insurance policy you may need high
risk help
The "dwelling" limit should be the amount it would cost to replace your
home. This may have nothing to do with the purchase price or the current
market value of your home, as homeowners insurance does not generally cover
the land value of your insured property. Your insurance policy is not
governed by the real estate market, but by the cost of the materials and
labor involved in rebuilding your home. Insurance companies have formulas
that they use to evaluate the replacement cost of your home. Since the
formulas developed are unique for each company, different insurers may
suggest or require different limits of coverage for your dwelling limit.
The following information can assist you to determine if the limit set by
your company accurately reflects the price it would cost to rebuild your home in
the event of a total loss:
- Contact your agent or broker for assistance in evaluating your dwelling
limit. In order to prevent a "he said, she said" situation from arising in the
future, you need to document your discussions and inquiries in writing.
- Review your dwelling limit initially and upon renewal. Discuss any changes
to your home in writing to your agent, broker, or insurer that may cause your
dwelling limit to increase or decrease.
- Know the replacement cost of your home. Be familiar with the building
materials that make up your home including the construction type and any special
features.
- Stay informed as to the current building costs in your area. Contact local
general contractors and ask what the current price per square foot is for a home
similar to your own.
- Keep accurate records of updates, renovations, and improvements to your
home. Save receipts and samples of materials used when possible and contact your
insurance agent or broker to increase the dwelling limit when appropriate.
- Contact your agent, broker, or insurance company if you believe your policy
limits may be inadequate to request a comprehensive inspection of your home.
If you believe that your dwelling limit is undervalued or overvalued, and you
have submitted documentation in writing to your agent, broker, or insurer to
raise or lower the limits and your request is refused, then contact the CDI for
assistance by using the information in the "Talk to Us" section of this
brochure.
The "contents" limit is generally around 50% of the dwelling amount; however,
this is a guideline only, as the most competent source on the replacement value
of your personal possessions is you. Be sure to take into account all of your
personal property when calculating the contents limits. Read and understand the
limited coverage amounts for specific types of personal property such as:
- Jewelry
- Fine arts
- Silverware
- Antiques
- Collectibles
- Firearms
- Computer hardware and software
- Business personal property
- Money
The limited coverage amounts for specific types of personal property are not
separate limits in addition to the contents limit. These limits are included in
the overall contents limit and represent the maximum paid out for that specific
type of personal property. Therefore, it is very important to add an endorsement
(sometimes referred to as a "rider" or a "floater") to coverage which
specifically schedules and takes into account the value of personal property
that you may own above the special limits. Contact your agent or broker to
discuss how to adequately cover any personal property that is valuable, falls
above the limits, or is in any way out of the ordinary. Also, make sure to take
into account commonplace household items when calculating your contents limit.
Often, people concern themselves only with big ticket items purchased for use in
their homes and neglect to account for all the many things you need to run your
household and enjoy your home such as small appliances, kitchen utensils,
linens, window coverings, and sundries. Remember, personal property also
includes clothing, shoes, accessories, and personal items.
Two major problems suffered by homeowners on their Residential
Property/Homeowners insurance policies in the Northern and Southern California
fires were
(a) Many of the dwellings were under-insured, i.e., insured for amounts
inadequate for rebuilding. Insurers sometimes refer to this as inadequate
insurance-to-value.
(b) The problem of increased cost of construction was evident in many
situations. When rebuilding, homeowners have to comply with new building code
requirements. In some instances the difference between the dwelling limit and
the code upgrades was a significant amount. Also, the extreme heat of some fires
(and some new building code requirements) necessitated building new foundations
along with appropriate debris removal. This is a situation that can be easily
overlooked when determining building limits.
An important part to owning any property is protecting the property to the
best of your ability. Homeowners insurance is a vital component to the
protection of your property. By knowing and understanding the coverage and
limits of your policy, and by making sure that values are current, your greatly
add to you and your family's peace of mind in any loss situation.
This depends on whether your policy is a replacement cost value policy or an
actual cash value policy. If your policy is an actual cash value policy, it
will not. California courts have decided that actual cash value, unless
otherwise specified in the insurance contract, is the fair market value.
Fair market value can be loosely defined as the amount that a knowledgeable,
willing buyer would pay and that a knowledgeable, willing seller would take
for an item, neither being under unusual pressure to buy or sell. Insurers
are permitted to provide an alternate definition of actual cash value in the
policy if another method of determining value is to be used.
If you have a replacement cost policy, the chances that you will be able to
completely rebuild your home are better; however, there are many types of
replacement cost policies, so you need to be careful to purchase a replacement
cost policy that best meets your needs. A policy cannot be sold as a "guaranteed
replacement cost" policy unless it will pay to completely rebuild the home.
Other types of replacement cost policies will pay your policy limits, plus a
certain percentage above those limits. Some policies do not have building code
upgrade (ordinance or law) coverage. Cities and counties periodically change
their building codes. Unless your policy has this coverage, your insurance
company may not pay for changes you may need to make to the structure of your
home to bring it up to current building codes.
As discussed earlier your agent, broker, or insurer can assist you in
establishing a limit that is adequate to rebuild your home. It is important to
update that limit periodically to maintain a limit that reflects current
construction costs. You may want to ask your agent, broker, or insurer if they
automatically review or increase limits on a regular basis or if they offer an
automatic inflation guard option that increases limits according to current
inflation information.
In short, there is no substitute for reading your policy and your renewal
declarations carefully. Whenever you are unclear about your policy, you need to
contact your agent, broker, or company for clarification in writing. Discovering
after a loss that you did not have the right coverage is not a situation you
want to experience.
For more detailed information on residential claims, please see the CDI's
Residential Property Claims Guide. This brochure helps you navigate the claims
process and discusses hot topics such as water damage, mold, and replacement
cost.
Remember, if you only shop by comparing prices only and not by comparing
coverage, you are doing yourself a disservice. Your home is one of the most
important purchases you will make. Take the time to get the facts straight
before you purchase homeowners insurance. It may be one of the best decisions
you make for yourself and your family.
- Take the time to shop around for homeowners insurance. Compare prices,
service, and coverage.
- Provide the most complete and accurate information to your agent or broker
when requesting a premium quote or completing an insurance application.
- Read all applications or finance agreements before signing. Read them again
after you have filled them out completely and before you sign in order to check
and see if everything is correct. Never sign a blank form or something that you
do not understand. Keep a copy of all signed documents in a safe place for your
records.
- Review and read your policy when you receive it. Don't file it without
checking to see that the coverage, limits, premium, and other information are
correct. Also, read through the policy carefully to identify your rights and
obligations and the company's rights and obligations under the terms of the
policy.
- Keep an inventory of personal property, listing all of the items you own,
the dates purchased, and the price. If possible, take pictures of important and
valuable items. You may want to videotape your home and possessions as well.
Keep these records in a safe place away from home, preferably in a safe-deposit
box. Also, periodically update your inventory, appraisals, photos, and
videotape. This will help you to file and settle a claim quickly and
efficiently.
Back to Top
| The price you pay for your
homeowners insurance can vary by hundreds of dollars, depending on the insurance
company you buy your policy from. Here are some things to consider when buying
homeowners insurance. |
| 1. Shop Around
It'll take some time, but could save you a good sum of money. Ask
your friends, check the Yellow Pages or contact your
state insurance department. (Phone
numbers and Web sites are listed
here.) National Association of Insurance Commissioners (http://www.naic.org/)
has information to help you choose an insurer in your state, including
complaints. States often make information available on typical rates charged by
major insurers and many states provide the frequency of consumer complaints by
company.
Also check consumer guides, insurance agents, companies and online
insurance quote services. This will give you an idea of price ranges and tell
you which companies have the lowest prices. But don't consider price alone. The
insurer you select should offer a fair price and deliver the quality service you
would expect if you needed assistance in filing a claim. So in assessing service
quality, use the complaint information cited above and talk to a number of
insurers to get a feeling for the type of service they give. Ask them what they
would do to lower your costs.
Check the financial stability of the companies you are considering
with rating companies such as A.M. Best (http://www.ambest.com/)
and Standard & Poor's (http://www.standardandpoors.com/)
and consult consumer magazines. When you've narrowed the field to three
insurers, get price quotes.
2. Raise Your Deductible
Deductibles are the amount of money you have to pay toward a loss
before your insurance company starts to pay a claim, according to the terms of
your policy. The higher your deductible, the more money you can save on your
premiums. Nowadays, most insurance companies recommend a deductible of at least
$500. If you can afford to raise your deductible to $1,000, you may save as much
as 25 percent. Remember, if you live in a disaster-prone area, your insurance
policy may have a separate deductible for certain kinds of damage. If you live
near the coast in the East, you may have a separate windstorm deductible; if you
live in a state vulnerable to hail storms, you may have a separate deductible
for hail; and if you live in an earthquake-prone area, your earthquake policy
has a deductible.
3. Don't confuse what you paid for your house with
rebuilding costs
The land under your house isn't at risk from theft, windstorm,
fire and the other perils covered in your homeowners policy. So don't include
its value in deciding how much homeowners insurance to buy. If you do, you will
pay a higher premium than you should.
4. Buy your home and auto policies from the same
insurer
Some companies that sell homeowners, auto and liability coverage
will take 5 to 15 percent off your premium if you buy two or more policies from
them. But make certain this combined price is lower than buying the different
coverage's from different companies.
5. Make your home more disaster resistant
Find out from your insurance agent or company representative what
steps you can take to make your home more resistant to windstorms and other
natural disasters. You may be able to save on your premiums by adding storm
shutters, reinforcing your roof or buying stronger roofing materials. Older
homes can be retrofitted to make them better able to withstand earthquakes. In
addition, consider modernizing your heating, plumbing and electrical systems to
reduce the risk of fire and water damage.
6. Improve your home security
You can usually get discounts of at least 5 percent for a smoke
detector, burglar alarm or dead-bolt locks. Some companies offer to cut your
premium by as much as 15 or 20 percent if you install a sophisticated sprinkler
system and a fire and burglar alarm that rings at the police, fire or other
monitoring stations. These systems aren't cheap and not every system qualifies
for a discount. Before you buy such a system, find out what kind your insurer
recommends, how much the device would cost and how much you'd save on premiums.
7. Seek out other discounts
Companies offer several types of discounts, but they don't all
offer the same discount or the same amount of discount in all states. For
example, since retired people stay at home more than working people they are
less likely to be burglarized and may spot fires sooner, too. Retired people
also have more time for maintaining their homes. If you're at least 55 years old
and retired, you may qualify for a discount of up to 10 percent at some
companies. Some employers and professional associations administer group
insurance programs that may offer a better deal than you can get elsewhere.
8. Maintain a good credit record
Establishing a solid credit history can cut your insurance costs.
Insurers are increasingly using credit information to price homeowners insurance
policies. In most states, your insurer must advise you of any adverse action,
such as a higher rate, at which time you should verify the accuracy of the
information on which the insurer relied. To protect your credit standing, pay
your bills on time, don't obtain more credit than you need and keep your credit
balances as low as possible. Check your credit record on a regular basis and
have any errors corrected promptly so that your record remains accurate.
9. Stay with the same insurer
If you've kept your coverage with a company for several years, you
may receive a special discount for being a long-term policyholder. Some insurers
will reduce their premiums by 5 percent if you stay with them for three to five
years and by 10 percent if you remain a policyholder for six years or more. But
make certain to periodically compare this price with that of other policies.
10. Review the limits in your policy and the value
of your possessions at least once a year
You want your policy to cover any major purchases or additions to
your home. But you don't want to spend money for coverage you don't need. If
your five-year-old fur coat is no longer worth the $5,000 you paid for it,
you'll want to reduce or cancel your floater (extra insurance for items whose
full value is not covered by standard homeowners policies such as expensive
jewelry, high-end computers and valuable art work) and pocket the difference.
11. Look for private insurance if you are in a
government plan
If you live in a high-risk area -- say, one that is especially
vulnerable to coastal storms, fires, or crime -- and have been buying your
homeowners insurance through a government plan, you should check with an
insurance agent or company representative or contact your state department of
insurance for the names of companies that might be interested in your business.
You may find that there are steps you can take that would allow you to buy
insurance at a lower price in the private market.
12. When you're buying a home, consider the cost of
homeowners insurance
You may pay less for insurance if you buy a house close to a fire
hydrant or in a community that has a professional rather than a volunteer fire
department. It may also be cheaper if your home's electrical, heating and
plumbing systems are less than 10 years old. If you live in the East, consider a
brick home because it's more wind resistant. If you live in an earthquake-prone
area, look for a wooden frame house because it is more likely to withstand this
type of disaster. Choosing wisely could cut your premiums by 5 to 15 percent.
Check the CLUE (Comprehensive Loss Underwriting Exchange) report
of the home you are thinking of buying. These reports contain the insurance
claim history of the property and can help you judge some of the problems the
house may have.
Remember that flood insurance and earthquake damage are not
covered by a standard homeowners policy. If you buy a house in a flood-prone
area, you'll have to pay for a flood insurance policy that costs an average of
$400 a year. The Federal Emergency Management Agency provides useful information
on flood insurance. A separate earthquake policy is available from most
insurance companies. The cost of the coverage will depend on the likelihood of
earthquakes in your area. In California the California Earthquake Authority (http://www.earthquakeauthority.com/)
provides this coverage.
If you have questions about insurance for any of your possessions,
be sure to ask your agent or company representative when you're shopping around
for a policy. For example, if you run a business out of your home, be sure to
discuss coverage for that business. Most homeowners policies cover business
equipment in the home, but only up to $2,500 and they offer no business
liability insurance. Although you want to lower your homeowners insurance cost,
you also want to make certain you have all the coverage you need.
|
Actual Cash Value (ACV) -Unless otherwise defined in the policy,
actual cash value in California means fair market value. The fair market
value of an item is the dollar amount that a knowledgeable buyer (under no
unusual pressure) is willing to pay, and a knowledgeable seller (under no
unusual pressure) is willing to accept.
Agent - A licensed individual or organization authorized to
sell and service insurance policies for an insurance company.
Binder - A short-term agreement that
provides temporary insurance coverage until the policy can be issued or
delivered.
Broker - A licensed individual or organization who transacts
insurance on your behalf.
Claim - Notice to an insurance company that a loss has
occurred that may be covered under the terms and conditions of the policy.
Declarations - Usually the first page of an insurance policy
that contains the full legal name of your insurance company, your name and
address, the policy number, effective and expiration dates, premium payable, the
limits of insurance, covered property, deductibles, and any applicable lien
holder information.
Deductible - The amount of loss that the policyholder is
responsible to pay up-front before covered benefits from the insurance company
are payable.
Depreciation - A decrease in value due to age, wear and
tear, or obsolescence.
Endorsement - A written agreement that changes the terms of
an insurance policy by adding or subtracting coverage.
Exclusion - A contractual provision in an insurance policy
that denies or restricts coverage for certain perils, persons, property, or
locations.
Insured - The policyholder who is entitled to covered
benefits in case of an accident or loss.
Insurer - The insurance company that issues the insurance
policy, and agrees to pay for losses and provide covered benefits.
Premium - The price of insurance paid to the insurance
company for a policy.
Quote - An estimate of the cost of insurance based on
information supplied to the agent, broker or insurance company.
Replacement Cost - The amount that it costs to replace lost
or damaged property with new property of like kind and quality in the local
market.