Part 1 - Jump Menu

Do I really need insurance for my home? My homeowners insurance is part of the payment I make      each month to the mortgage company. Who decides      what insurance to get? I know I have that homeowners policy in a drawer      somewhere. What exactly does it cover? What kinds of perils am I protected against? What about floods, earthquakes and other catastrophes? Are there any other exclusions I should know about? Also See Intro - Terminology - House versus Apartment; General      Notes; Our Help; Topics in Upcoming House / Apartment      Insurance 101 articles Part 2 - Who decides property worth; amount paid for property      damage; coverage for property while on vacation, for tenant's      property and for my mother's belongings - she lives with us, what      about our vacation home. Part 3 -I work out of my home - coverage for my business property;     with catastrophic loss, where do I start; why does the insurance     company need the location of the nearest fire hydrant; what I     can do to lower my premiums; who watches the insurance     companies; steps to take when property is damaged or stolen;     what if I am found liable for personal injury Part 4 - What about when I am a renter or own my own condo - what     insurance do I need; what coverage does my landlord's policy     provide; how is renters insurance priced; what about my     roommates coverage; how is a condo ownership 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’s 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.

 

My homeowners insurance is part of the payment I make each month to the mortgage company. Who decides what insurance to get?

You do. It’s your home and your insurance policy. As a means of protecting its investment, the mortgage company collects a set amount from you each month, puts it in escrow, and then pays your insurance and taxes when they fall due. However, the policy is still yours and you may select the insurance you feel offers the best coverage at the best rates. In fact, if you allow the mortgage company to choose, you might well end up paying more for your homeowners insurance.

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 in this guide. 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 and 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.

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:

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.

What about floods, earthquakes and other catastrophes?

Most catastrophes are covered; for example, wind damage from hurricanes and tornadoes come under the windstorm peril listed in the previous question and so are included. Flood and earthquake damage, however, are not covered by a standard policy.

Be careful not to be lulled into a false sense of geographic security. Flood and earthquake activity is more widespread than many people realize. For example, almost 90 percent of the U.S. population lives in seismically active areas. Since 1900, earthquakes have caused damage in all 50 states. And if your home is located in a flood-prone area, you are 26 times more likely to suffer a flood loss than a loss from fire.

You may want to check with us about special catastrophic policies for normally excluded conditions like floods and earthquakes. Of course, the cost of such extra coverage may reflect the high risk involved. If you live along a shoreline, for example, expect to pay a higher premium for flood coverage than someone living on a mountaintop would pay.

Are there any other exclusions I should know about?

There may be other exclusions spelled out in your policy such as neglect, intentional loss, “earth movement,” general power failure and even damage caused by war. If you neglect to take care of your property (e.g., a leaky roof), you may not be covered. Obviously, if you intend to lose an object or damage your property, there is no coverage.

One other exclusion that can be costly is the Ordinance or Law exclusion. Building codes established by governmental bodies that drive up the cost of rebuilding or repairing after a loss occurs may not be covered by your insurance policy. Thus, if you discover when replacing damaged property that current law demands higher grade or more expensive materials than the original ones being replaced, the new materials may not be covered for the full price.

For example, if the current building code in your area requires a higher grade of electrical wiring and after a fire you are replacing all the wiring in your home, your policy may cover only the cost of replacing the older wiring. The difference in cost between the old wiring and the new wiring required by ordinance or law is your responsibility.

Even if you live in a fairly new home, laws and building codes are constantly being updated. Coverage to include ordinance or law requirements can be added to your homeowners policy with an endorsement—an addition that could save you money in the long run.

Intro

Part 2

Date Posted to Site:   Sept. 2004

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