Homeowners Insurance

Homeowners insurance is one of those products that you hope to never have to use. But if disaster or even a minor calamity strikes, the right protection can go a long way.

A homeowners’ policy covers the structure of your home and your personal property in case of a mishap. If you have a mortgage, you must buy homeowners insurance. Even if you own your house free and clear, a homeowners policy is a wise investment. If you live in a condo or townhouse, your association probably buys a master policy that will satisfy your lender and cover major damage. But if you have special financial needs, it might make sense to explore additional coverage.

The most popular homeowners policy

An “all risk” policy, the most popular type, protects your home from 16 different specific types of perils, including fire, hail, theft, frozen pipes, leaky plumbing and even volcanic eruptions. It also includes personal liability coverage that can protect you from lawsuits if someone slips on your sidewalk. Typically, this liability coverage is limited to $100,000.

The name “all risk” is misleading because the policy doesn’t cover all risks. You aren’t likely to find a policy that includes protection from floods or earthquakes if you want that kind of protection, you’ll have to buy it separately. A homeowners policy also isn’t likely to cover backed-up sewers, mold, normal wear and tear or any injury or damage that occurs while you were doing something related to your business.

In a typical policy with $200,000 in coverage for the dwelling, the insurer would cover up to $100,000 to replace furniture, electronics and other personal items. Pricey items such as jewelry, furs and silverware typically are covered, but many insurers impose dollar limits if they’re stolen. If you have an extensive jewelry collection or other extremely valuable items, you might consider paying for an endorsement, which specifies coverage under certain special circumstances or for itemized valuables.

Three levels of coverage

Policyholders typically can choose from three levels of coverage. An “actual cash value” policy pays to replace home and possessions minus a deduction for depreciation so don’t expect to get $2,000 for that ancient laptop. As the name implies, a “repair cost” policy pays for the cost of repairs. A “replacement cost” policy will pay for what it takes to replace lost items. This leads to more generous payouts, so you’ll pay a higher premium.

Before anything unfortunate happens, take photos and video of the exterior and interior of your home, including valuable personal items. Get close-up shots of your possessions, and with your electronics, get pictures of the serial numbers as well. If you’ve lived in your house for years, creating an inventory might seem tedious. Start with your most recent purchases and then work backward to your older possessions. It’s better to have an incomplete list than no list at all.

What determines your premium cost?

Insurance premiums are all over the map. How much you pay depends on the value of your house and belongings, where you live and the kind of policy you want.

When it comes to premiums, geography matters. Perhaps not surprisingly, premiums are especially high in Florida, Louisiana, Texas and Oklahoma Hurricane Alley and Tornado Alley. Idaho, Oregon and Utah are the cheapest states to buy homeowners coverage. The differences are significant. The average yearly premium in Florida in 2013 was $2,115, according to the National Association of Insurance Commissioners. In Idaho, it was only $561, about one-fourth as much.

The type of construction matters, too. If your Florida abode is a wood-frame house, you’ll pay more. If it’s a concrete-block structure with impact-resistant windows that just might hold up in a windstorm, you’ll pay less. Insurers use a catastrophe model to determine prices. Rate regulation is the duty of insurance commissioners in each state.

Discounts vary by insurer, but there are usually several ways you can save some money. Most companies will give you a discount if you bundle your home insurance with your auto insurance. Shop around, though, because some bundles are cheaper than others. You may also be able to save money by taking safety-minded steps such as installing smoke alarms, dead bolts or a home security system. Seniors and non-smokers also tend to pay less.

What to do when there’s damage to your home

If something does happen to your household, your policy requires you to mitigate the damage as soon as possible. So, for instance, if you have a water leak, turn off the water and immediately call a company that handles water damage. Next, contact your insurance company to report the issue. When you reach your company’s adjuster, be sure to get his name and cell phone number, along with your claim number.

In case of a burglary, you’ll need to provide a police report and an inventory of the items taken. In the event of a fire or if harsh weather damages the structure of your house, you’ll need to hire a contractor, and your insurer ultimately will reimburse you for your costs.

However, Jack Hungelmann, author of Insurance for Dummies and owner of Hungelmann Risk Management and Insurance, warns against getting a written estimate directly from your contractor. Instead, he advises connecting your adjuster and your contractor, and then stepping aside. Otherwise, you run the risk of having two written estimates for two different amounts. “We have to constantly remind our clients not to get in the middle,” Hungelmann says. “It’s a miserable experience.”

Do not assign your right to seek reimbursement from your insurance company to a third-party contractor, though, who may sue the insurer if your carrier doesn’t pay an inflated amount. In Florida, widespread abuse by contractors has resulted in the possible cancellation of thousands of home insurance policies, according to
newspaper reports.

In most cases, your carrier will come through with a check to cover your claim, up to the limits of your policy. Unfortunately, you can expect some delays and headaches when trying to collect an insurance claim, Hungelmann says. “Sadly, the industry takes too long to respond,” he says. “I’d give the insurance industry an A on auto claims, but a B- on homeowners claims.”

Sometimes, an insurer simply refuses to pay what you think you’re owed. If you’re faced with an unreasonable settlement offer, it might make sense to hire a public adjuster. Unlike an adjuster who’s employed by your insurance company, a public adjuster works for you and is paid by you. The National Association of Public Insurance Adjusters offers a listing of its members.

Home insurance is one of the things that comes with having a place of your own. You won’t enjoy paying the premiums, but you’ll certainly appreciate the peace of mind.

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