What kind of home? You may not be
looking at the correct article.
This is the right place if
You own a home (free standing, not rented,
not a mobile home i.e.: the home is permanently attached to and
part of the foundation).
You own a town-home (not a condominium or co-op
or time share). Perhaps this town home is attached to another
residence, perhaps not. I own the land that this town home sits
on, but I am part of a town-home community)
This is not the right place if
See "I own or rent a trailer, manufactured housing, or double-wide..."
See Condominium or Co-op? Your Insurance Needs are Different
You will need to go elsewhere after
reading this article if
I Own a Time-Share in Addition to Having Another Residence...
NOW! You own a home...
Many companies have either their own Homeowners
policy form or have endorsements to standard policy forms that
help distinguish them from the competition. Some companies like
new, high-valued homes, some companies do well with older or historic
preservation homes. Others are comfortable with country homes
or old farm homes and some don't like the city. It pays to shop
around, both for the best coverage and for a company who likes
homes in your area.
Find a company that wants to insure your home.
If the company and agency already has a customer base in your
area, consider them first. They understand how to insure homes
like yours. This agency or company may not always have the cheapest
policy, but they may have the best combination of coverage, price,
service and claims expertise for your particular needs.
Two Types of Coverage: Named Causes
of Loss or Risks of Physical Loss
- Named causes of loss coverage is just that.
The policy only covers for certain kinds of causes of loss to
your property. You must prove to the company that one of the covered
causes damaged your property.
- Risks of physical loss covers all causes
of loss except those that are excluded. The company must prove
that one of the excluded causes of loss damaged your building.
Many companies offer risks of physical loss
coverage for your buildings and named causes of loss coverage
for your "stuff". Other companies will offer risks of
physical loss coverage for virtually all of your covered property.
Risks of physical loss costs more, but here are some claims that
would not be covered under named causes of loss policies:
- The washing machine in the spin cycle danced
across the room and broke the water heater, cascading water throughout
- A guest injured herself and bled all over
the couch and carpet.
- While the insured cleaned the imported
crystal chandelier, the chandelier fell, shattering into pieces.
- While working on the attic floor joists,
the insured slipped and put his foot through the ceiling.
- A two year old boy went on a rampage with
a hammer, smashing the bathroom toilet, sink, walls etc...
- The insured dropped a storm window. It
cascaded through the home, down the stairs, damaging walls along
- The insured was cleaning the bowling ball
in the bathroom sink - the bowling ball slipped and shattered
- The insured's lawnmower kicked a rock through
the exterior air conditioner.
- The insured slipped and threw a full paint
can into the room; the spray hit virtually everything in the room.
- Freezing and thawing of ice on the roof
caused a break in the wall and water damage to the interior of
The policy name for risks of physical loss
coverage for buildings is often referred to as Homeowners form
3. To add risks of physical loss to personal property under form
3, you must have the Homeowners 15 endorsement. Some companies
sell a Homeowners form 5 which does the same thing as the combined
Homeowners 3 plus the Homeowners 15 endorsement. Other companies
have their own risks of physical loss forms they call Special,
Gold, Executive etc. Not everyone will qualify for risks of physical
loss, but most companies sell the coverage.
NOTE: Your state may have restrictions or natural
disaster cause of loss problems. Coastal states face wind problems.
California, and certain Midwestern areas have severe earthquake
problems. Some Western states have brush fire problems. Other
areas face hail damage. Each state and company has its own rates
and philosophy on how it will insure these common causes of loss.
Policies that are considered named
causes of loss forms are the Homeowners 1 (not sold much any more),
the Homeowners 2 and the special use Homeowners 8 forms
- Insures for the same causes of loss as
the Homeowners 2 form.
- Designed for older homes. Older homes generally
were built with more expensive and/or exotic materials. You could
not build most turn of the century homes today for any price.
- Contains no coinsurance penalty. You and
the company agree on a maximum coverage limit if the building
burns to the ground. NOTE: in most states the company only has
to pay for the actual cost to repair or replace, so if the building
costs less to rebuild than the limit of insurance, only the cost
to rebuild is paid.
- Not all companies will write the Homeowners
8. Some states do not permit the sale of this policy.
Basic Homeowners coverages common
to all homeowners form that insure both the home and personal
- Coverage for your building.
- You work with the agent to establish the
replacement cost of your home.
- You must insure to 80 or 90% of replacement
value to avoid any kind of "under-insurance" penalty
if you have a loss. These penalties can include reduced payment,
or change from payment on a replacement cost basis to actual cash
value. Actual cash value means depreciation. Roofs depreciate
over 20 years. A 10 year old roof is 50% depreciated. Do you want
only 50% of your repair bill paid? No. Work with your agent to
make sure you insure to value.
- Ask your agent if a guaranteed replacement
value clause in the policy is available. The Guaranteed replacement
value clause says that coinsurance will not be a factor if a properly
prepared replacement cost valuation is submitted at the same time
the policy application is submitted, provided this valuation is
updated each year after.
- Coverage for your outbuildings - garages,
sheds, barns, cabanas - are usually covered as a percent (10-30%)
of your building limit of insurance. Normally these limits are
adequate for the average 2 car garage, but not for carriage houses,
three car garages or barns. You can increase the limits of insurance.
- Coverage for personal property ("stuff")
is usually 50-75% of your building limit. Again, this may be adequate
for the average homeowner, but are you average? How much stuff
do you own? Is your stuff new - is it of superior quality?
- Additional living expense coverage is usually
a percent of your building limit of insurance (20-40% or even
a "no limit" form commonly called actual loss sustained).
- Additional living expenses covers the additional
cost of temporary housing, food and other increased costs of living
when you are forced from your home by a fire or other covered
cause of loss.
- If you have a tenant, the homeowners form
can cover your loss of rents if rent payments (by contract) do
not continue after a covered loss.
- For most customers, the limit of coverage
provided by the standard policy will be adequate, but if your
home will take a long time to repair or the loss occurs in the
dead of winter, you may not have enough to pay the extra living
- If you are in a disaster prone area (tornadoes,
hurricanes, earthquakes, wildfires), we have seen recent occurrences
where it has taken 2-3 times the normal time to repair property
because materials and workers were overwhelmed with work or unavailable.
- Actual loss sustained coverage is best,
for there is no limit to worry about.
- Endorsements: Sump pump, ordinance or law,
business in the home. There are literally hundreds of endorsements
companies make available to provide additional coverage not found
in the standard homeowners policy. This is where you need a good
agent who specializes in personal lines insurance. Let the agent
ask you a lot of questions. The agent needs answers to build the
right policy for you. Homeowners policies are not cookie-cutter
forms. Every family's needs differ and a good agent can help you
design the correct plan for you.
- Theft limitations. This brief article is
not the forum to discuss every limitation and exclusion under
the Homeowners form. However, you need to know that certain "target"
items have limited coverage for theft. The limit shown is the
average theft limit in the market. Your company may provide less
or more. Increase coverage by endorsement to the policy or through
a personal article floater policy. (See Click here for information on insuring jewelry, furs and other high valued items
- Jewelry and gems ($1,000)
- Furs ($1,000)
- Gold, silverware, pewterware ($2,500)
- Guns ($2,000)
- Building supplies - no coverage for theft
- Other Property limitations. The following
property is subject to certain maximum limits of coverage. The
limit shown is the average limit of insurance available in the
market. Your company may provide less or more. Increase coverage
for most by endorsement to the policy.
- Electronics used in an auto ($1,000)
- Money ($200) Including coin collections
- face value only.
- Stamps ($1,000)
- Business personal property ($2,500 on,
$250 off premises)
- Other than boat trailers ($1,000)
- Boat trailers ($1,000)
- Boats - anything bigger or more valuable
than a canoe - purchase a separate boat or yacht policy.
- Credit card forgery ($500)
- Fire department service charge ($500)
- Fine arts, antiques, Persian rugs, hummels
and other collections should be appraised and listed separately
in a personal articles floater or endorsement.
- Your personal property "stuff"
can be covered for replacement cost. That five year old refrigerator
that is only worth $100 but would cost $600 to replace could be
covered for $600 for this endorsement. Ask for replacement cost
- Liability coverages are usually identical
from form to form, however some companies will have special endorsements
to improve coverage. We recommend that you always ask your agent
to quote you an umbrella liability policy (improves coverage and
increases liability insurance limits to $1,000,000 or more).
- Liability covers you for your negligence
in injuring other people or property on your premises or through
the actions of many of your hobbies.
- The policy also provides defense coverage,
including hiring and paying for a lawyer (if necessary) and paying
most court costs.
- Covered claims include: slips and falls;
baseball beans the neighbors child; you hit the foursome in front
with your errant hook shot; your lawnmower spits out a rock into
traffic and blasts through a car window, injuring the driver and
- Homeowners insurance does not, however,
provide you any car insurance for any car you drive. High limits
of insurance are recommended, and again, you should ask your agent
about an umbrella policy to increase your coverage to $1,000,000
- Why high limits of liability insurance?
Anyone can sue for anything and for any amount.
- If your policy covers you for $100,000
liability insurance and you are sued for $200,000, your insurance
company will advise you that you need to hire a lawyer at your
- If the insurance company pays out the $100,000,
it's obligation is done, but the lawsuit may not be over. Courts
are backed up. The high cost, whether good or bad, of lawsuits,
court fees and lawyers is not exaggerated.
- The injured party may not have to pay a
dime in attorney's fees until the lawsuit is won. You don't have
that option. Your defense lawyer will want to be paid from the
day of hire, often for each hour worked - even if you eventually
lose the case.
- Medical payments coverage is for minor
injuries to people other than residents of the household. You
don't have to be sued or be negligent.
- Example: Aunt Bertha from 200 miles away
comes to visit for a few days. The day she arrives she slips on
the stairs and breaks a hip.
- The insurance company will pay up to the
medical payments limit ($1,000 - $10,000 normally) for the medical
expenses incurred. After the medical payments limit is used up,
you must be negligent and/or sued by the injured person.
Deductibles save money. Combine your auto and
home insurance with the same company. Many companies offer discounts
on both auto and home when you insure them together (not available
in all states). Some companies offer combination auto/home policies
which usually provide superior coverage at a lower price than
if you were to cobble all the coverages together using many policies
(not available in all states).