FREQUENTLY ASKED QUESTIONS ABOUT HOMEOWNERS INSURANCE
For consistency, it is assumed that you have a policy known as
Homeowners-3 (HO-3), the most common homeowners policy in the United
States. Check with your agent to see if that's what you have. If
you have a more restrictive policy, review your options under question
#15 and talk to your insurance representative.
1. Are you covered for direct losses due to fire, lightning,
tornadoes, wind storms, hail, explosions, smoke, vandalism and theft?
Answer
Yes. The HO-3 provides broad coverage for a large number of
perils, including all those listed. There are some limits, however,
on the amount of insurance you have.
Action
Check the dollar limits of insurance in your policy. Make sure
you are comfortable with the amount of insurance you have for specific
items. For example, the standard policy provides only $1,000 for
theft of jewelry. If your jewelry is worth a lot more, you should
purchase higher limits. You may wish to add a floater to your policy
to cover specific possessions, such as expensive paintings or silverware.
The floater will provide both higher limits and protect you from
additional risks, not covered in your normal policy.
Also, if you live on the Atlantic or Gulf coasts there may be some
restrictions on your coverage for wind damage. Check this out with
your agent.
2. Your house is totally destroyed in a fire. You have bought
$150,000 worth of insurance to cover the structure of your house.
Will this be enough to rebuild your home?
Answer
If the cost of rebuilding your home is equal to or less than $150,000
you would have enough coverage. The HO-3 policy pays for structural
damage on a replacement cost basis. If the cost of replacing your
home is, say, $120,000, then that is all the insurance you need.
On the other hand if the cost of rebuilding your home is $180,000,
then you will be short $30,000. If you choose not to replace your
home, you will receive the replacement cost of your home, less depreciation.
This is called actual cash value.
Action
Make sure that the amount of insurance you have will cover the cost
of rebuilding your house. You can find out what this cost is by
talking to your insurance representative or builders in your area.
Do not use the price of your house as the basis for the amount of
insurance you purchase. The market price of your house includes
the value of the land on which the house is situated. In almost
all cases, the land will be still there after a disaster, so you
do not need to insure it. You only need to insure the structure.
3. Are you covered for flood?
Answer
No.
Action
Flood insurance is provided by the federal government, under a program
run by the Federal
Insurance Administration. If you are in a flood prone area it
may be wise to purchase flood insurance. In some parts of the country,
homes can be damaged or destroyed by mudslides. This risk is also
covered under flood policies. Contact your agent or company representative
to get this insurance.
4. A pipe bursts and water flows all over your floors. Are you
covered?
Answer
Yes. The HO-3 covers you for accidental discharge of water from
a plumbing system. Action Check your plumbing and heating systems
once a year. While you are covered for damage, who needs the mess
and hassle?
5. Water seeps into your basement from the ground. Are you covered?
Answer
No. Water seepage is excluded under the HO-3. And if the water seepage
is not due to a flood you will not be covered under a flood policy.
Problems like seepage are viewed as maintenance issues and are not
covered by insurance.
Action
You should see a contractor about waterproofing your basement.
6. Are you covered for earthquake damage?
Answer
No. Action Earthquake coverage is sold as additional coverage to
the homeowners policy. To determine whether you should purchase
this insurance, talk to your agent or company representative. In
earthquake prone areas, the price of this insurance is relatively
high. In other areas, it is relatively cheap.
7. A neighbor slips on your sidewalk and threatens to take you to
court for damages. Does your policy protect you?
Answer
Yes. The policy will pay for damages, if the accident is the result
of your negligence. It will also pay for the legal costs of defending
you against a claim. Also, the medical payments part of your homeowners
policy will cover medical expenses arising from an injury to a neighbor
or guest.
Action
Check to see how much liability protection you have. The standard
amount is $100,000. If you feel you need more, consider purchasing
higher limits.
8. During a storm, a tree falls and damages your roof. Are you
covered?
Answer
Yes. You are covered for the damage to your roof. You are also covered
for the removal of the tree, up to a $500 limit.
Action
Cut down dead or dying trees close to your house. Prune branches
that are near your house. It's true that your insurance covers damage,
but falling trees and branches can also injure your family.
9. During a storm, a tree falls and does no damage to your property.
Are you covered for the cost of removing the tree?
Answer
No. Your trees and shrubs are covered for losses due to risks like
vandalism, theft and fire, but not wind damage. Action Decide if
you need extra insurance for the trees, plants and shrubs on your
property. You may be able to purchase extra insurance, which will
not only cover the cost of removal of fallen trees, but will also
cover the cost of replacing trees, and other plants. Talk to your
insurance representative about the availability and cost of this
extra insurance.
10. During a storm, the power from the electric utility is lost.
All the food in your refrigerator is spoiled and must be thrown
out. Can you make a claim?
Answer
The general answer is no. However, there are a number of exceptions.
In some states, food spoilage is covered under the homeowners policy.
In addition, if the power loss is due to a break in a power line
on or close to your property, you may be covered. Action Check with
your agent to determine whether you are covered for food spoilage
in your state. If not, you can add food spoilage coverage to your
policy for an additional premium.
11. Your golf clubs are stolen from the trunk of your car. Can
you recover?
Answer
Yes. The HO-3 covers your personal property while it is anywhere
in the world. However, if your golf clubs are old, you will only
get their current value. This normally will not be enough to purchase
a new set.
Action
Consider purchasing a replacement cost endorsement for your personal
property. This way you will get the full cost of replacing the golf
clubs, less the applicable deductible.
12. You have a power boat with a 50 horsepower engine. If it
is stolen, are you covered? What if there is a boating accident
and you get sued? Are you covered?
Answer
If the boat is stolen from your residence, in most cases, you can
recover only $1,000. If the boat is stolen elsewhere you are not
covered. You are also not covered for liability arising from an
accident with the boat. The homeowners policy provides liability
coverage for boats with engines less than 25 horsepower.
Action
See your insurance representative about getting extra coverage for
your boat, including theft and liability. Ask about the Boatowners
policy.
13. Your house is close to the ocean. You have heard that if
your house is destroyed by the wind, the town's new building code
requires that you rebuild the house on stilts. This will cost $30,000,
in addition to the cost of rebuilding your house. Are you covered
for this extra cost?
Answer
No. The HO-3 excludes costs caused by ordinance or laws regulating
the construction of buildings.
Action
Purchase the Law and Ordinance endorsement. This will cover the
extra costs involved in meeting new building codes.
14. Am I covered for an "Act of God"?
Answer
Yes. Normally, you are covered for "Acts of God". The term "Act
of God" usually refers to natural disasters like hurricanes and
tornadoes, as opposed to man-made acts, like thefts or auto accidents.
Most natural disasters, with the notable exceptions of floods and
earthquakes, are covered under normal insurance.
15. Does your policy provide less coverage
than the HO-3?
Answer
If the answer is yes, review your coverage with your agent. Some
older policies provide less coverage than the HO-3. They may not
provide coverage for water damage, theft, or liability. They may
also provide coverage for the house on an Actual Cash Value basis,
rather than a replacement cost basis. Actual Cash Value means replacement
cost less depreciation. For example, if your roof is destroyed in
a storm, the insurance will only pay the cost of a new roof less
than amount of depreciation of the old roof. If your roof was in
great shape, this deduction will not be large. However, if the roof
was old and worn out, the deduction for depreciation may be large.
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