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 agent about coverage for loss under your homeowners policy. Additionally, 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 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 United States. The questions and answers in this guide are based on the most commonly purchased homeowners insurance policy (called HO3 in the industry), which offers the widest protection.
You may be interested in knowing that claims can consume 80 cents or more of every premium dollar (the exact amount varies from year to year). The rest of that dollar goes to taxes, marketing and administrative costs, dividends, and profits. It is in your best interest to be aware now of your protection so that you may select the insurance that best meets your needs.
*Throughout this guide, the term “homeowners insurance” is used. However, for renters and condo owners the coverage for personal property and liability is similar. 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, live in 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.
House/Apartment Insurance 101 Questions and Answers
- Do I really need insurance for my home?
- What does a homeowners policy cover?
- Against which perils is my property protected?
- Does my policy cover my possessions even when I go on vacation?
- I work out my home. Are my inventory and business property covered?
- Help! I’ve lost everything! Where do I start?
- Is there anything I can do to lower my premiums?
- What if I am sued or found liable for injury to another person?
- I am a renter, not a homeowner. Do I need insurance?
- Isn’t my apartment covered under my landlord’s policy?
- I own a condo. How is my policy different?
Do I really need insurance for my home?
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 tornado, 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 is 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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I know I have that homeowners policy in a drawer somewhere. What exactly does it cover?
“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 here. 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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What kinds of perils am I protected against?
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.
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Does my policy cover my possessions even when I go on vacation?
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 an around-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. Consequently, if a fight with a neighbor turns physical and you end up hitting 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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I work out of my home. Are my inventory and business property covered?
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. Come to us with any questions concerning coverage for your business operations.
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Help! I’ve lost everything! Where do I start?
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. 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. Another option is that you can 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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Is there anything I can 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. 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 us 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.
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What if I am sued or found liable for injury to another person?
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 us immediately.
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I am a renter, not a homeowner. Do I need insurance?
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 that renters insurance brings.
Renters insurance offers the same general personal property coverage and liability protection as a homeowners policy (but is less expensive because you are not insuring a building). 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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Isn’t my apartment covered under my landlord’s policy?
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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I own a condo. How is my policy different?
Condo owners insurance covers the same general areas outlined throughout this guide for homeowners in the important areas of personal property and liability. In addition, condo owners insurance provides coverage for some situations specific to condominium unit owners.
Usually, the condominium association buys insurance to cover the property (building and structures) and liability coverage for the general association. If you own a condominium unit, you may be responsible for covering from the “walls in” on your unit, that is, for your personal property and the interior of your unit (whatever area is excluded from the condo association’s policy) as well as for your personal liability.
Sometimes, condo owners are assessed by their condo association for losses “outside the walls” that were not completely covered by the association’s policy. For example, if the clubhouse is destroyed and the condo association did not have it insured, you could be assessed for a “share” amount needed to replace it. If you wish, check with us about adding such “loss assessment coverage” to your condo owners policy.