Homeowners' Insurance & Legal Implications
Many people never think about homeowner’s insurance, beyond knowing that their mortgage requires it. It is worth the effort to understand your insurance, which, in a single policy, can cover losses to your home itself and your personal property, living expenses caused by losing the use of the home, and liability for accidents at and away from home.
You should also know what is typically not covered, such as floods, damage caused by power failure or septic backup, acts of war and nuclear accidents, earthquakes, some incidents of mold, settling and foundation damage, intentional damage by the insured, and termite damage. Ask about special policies that may be available for such risks.
Before you buy, consult your state department of insurance’s complaint index. You can investigate a company’s financial stability through independent agencies such as Standard and Poor’s, A.M. Best, and Moody’s. Various consumer guides also rate companies. To make valid comparisons, prepare a household inventory, identify the coverage you want, and list circumstances that might trigger a discount. You can obtain a Comprehensive Loss Underwriting Exchange (CLUE) report for a house before buying to learn its claim history.
The cost of insurance, known as the premium, depends on special risks like hurricanes in your area, the replacement cost of the house, added endorsements or riders, and characteristics such as proximity to a fire station, fire sprinklers and alarms, and security systems. In determining coverage limits, it is important to distinguish between the value of the land and the cost of the building. Another major factor is your deductible. In some areas, you can obtain different deductibles for different risks. You can save money by bundling your insurance with your vehicle insurance or by buying directly from the company, rather than through an agent. Maintaining a good credit score, staying with the same company, and even being a retiree can also save you money.
Available Forms of Insurance
States differ in their terminology, and not all forms of coverage are available in all states. Check your state department of insurance website for information specific to your state.
The most common coverage, called Special Form or All Risk, covers every risk that is not specifically excluded. Listed personal property is covered. Be sure to list jewelry, electronics, collections, and antiques. An enhanced version, called Comprehensive Form or Premier, covers all personal property if the cause of loss is not specifically excluded.
Dwelling Fire Form covers fire, smoke, windstorm, hail, lightning, explosion, vehicles, and civil unrest, but it does not cover personal property, personal liability, or medical expenses. A landlord might obtain such a policy, or a mortgage lender might buy it for a borrower if the borrower’s chosen policy lapses. Enhanced versions are available, covering additional risks. Modified Coverage may be available for an older home if the replacement cost would far exceed the home’s value.
Condominium owners can obtain coverage for their unit’s interior and personal property. Tenants can obtain coverage for personal property. Both policies generally include liability coverage. Ask whether the policy covers damage outside the unit, such as in a parking or storage area.
Ask about coverage of outbuildings, such as a shed, as well as about coverage of property associated with a business but stored at home, and about liability coverage for any business conducted on the property, such as child care. Personal property may be covered for either its cost, subtracting depreciation, or its replacement value. Examine coverage limits for different classes of personal property. For example, the policy may have a $200 limit on cash kept on the property. To protect against inflation, consider a coinsurance clause, stating that if the dwelling is insured to 80 percent of actual value, losses will be adjusted to replacement cost, up to the policy limits. Check whether increased expenses due to local ordinances would be covered. Determine whether the policy includes a concurrent causation exclusion that excludes losses where both a covered and an excluded loss occur.
Your insurance may cover things that would surprise you, such as identity theft, fire department charges, and damage to landscaping. Off-premises coverage insures against injuries you cause away from home, such as hitting a baseball through a window, loss of property while away from home, as well as even the theft of items from your car.
Keep Up With Your Rights After Obtaining Coverage
Regularly review your coverage. Some people create video inventories, while others simply keep receipts. Personal property may depreciate. You may actually need less coverage. Keep those records and the original policy in a safe location outside your home. Be sure to notify your insurer of any improvements to your home, since some of them can actually trigger a discount. Talk to your insurer before you install a swimming pool or trampoline, or get a dog. Some companies do not insure certain breeds, and dog bites account for about one-third of liability claims.
Do not claim small losses. Claims can cause increases to your premium or even the loss of insurance. Most insurers submit information about claims to a private database, so your history may have an impact on your future costs. Remember that insurance does not cover maintenance. Pay the premium on time. Most insurers do not offer a grace period.
After a loss, follow policy guidelines for securing the property to limit damage, and notify the company as soon as possible. Keep detailed records. The insurer will assign a claims adjuster to assess the damages. Do not feel pressured to agree with the adjuster. Consider having a contractor attend the inspection or provide an estimate in advance. If you are unable to reach an agreement, check your policy for an appraisal clause. You can also hire an attorney, contact your state insurance department’s consumer complaint office, or hire a public adjuster, licensed by that state department.
If your insurance company cancels your policy before it expires, it must give you notice and a refund. If it refuses to renew your policy after it expires, you are likely entitled to notice and an explanation. If you cannot obtain insurance, call the department of insurance to explore state-sponsored options.
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