A homeowners policy is a package of coverages for your property, medical payments for others, and personal liability. This type of policy is available for homes occupied by the owners as their primary residence. Companies may offer coverage for single family homes or homes with up to four living units. The company may provide this coverage through an industry standard policy form called an HO-3 or they may have designed their own policy. If you have a mortgage, your lender will usually require that you have homeowners insurance for no less than the current appraised value of your home. A permanent structure on your lot which is used as your primary residence will be covered by your homeowners policy, but there is no coverage afforded for the land on which this structure is located.
Coverages in a Homeowners Policy
Dwelling Coverage provides for the repair or replacement of your home. Most homeowners policies provide for replacement cost for your home if the limit of coverage is equal to at least 80% of the amount it would cost the insurance company to rebuild it. Some policies may provide for an additional percentage in value above the policy limits which guarantees that the insurer will bear a limited additional amount of the cost to replace your home if that cost exceeds the policy limits. An insurer that offers this limited guaranteed replacement coverage will generally offer 20%-25% additional coverage over the policy limits. However, a policy with guaranteed replacement cost may also require that the limit of coverage is at least equal to 80% or more of the amount it would cost the insurance company to rebuild it.
Most homeowners policies will offer Dwelling coverage for all perils. An all perils policy does not list the types of losses insured against, but will cover all losses or all physical damage not otherwise excluded by the policy. Common exclusions are for flood, earthquake, and maintenance related losses.
Other Structures Coverage provides for the repair or replacement of other permanent buildings on your building site. While this coverage will protect your detached garage or personal workshop, it usually won’t provide coverage for other buildings on your property occupied by a tenant or buildings used for business. Your policy will usually include coverage for Other Structures in an amount equal to 10% of the Dwelling coverage. If you have several outbuildings on your property or an unusually large detached garage, you may want to purchase additional coverage. Other Structures coverage usually provides protection against the same perils as those covered under the Dwelling coverage of your policy.
Personal Property Coverage provides for repair or replacement of your furnishings and personal effects. Your policy will usually include coverage in an amount equal to 50% of the Dwelling coverage. This coverage extends worldwide, but will usually only provide up to 10% of the coverage limit for personal property while it is away from your home.
Personal Property coverage is usually on a named perils basis. A list of perils that the company insures these items against will be included in your policy. The named perils will usually include fire, lightning, windstorm, hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, vandalism and malicious mischief, theft, and falling objects. However, there may be limits to the amount available for recovery under some of these perils. For example, your policy may provide up $50,000 in Personal Property coverage, but your policy may have a limit of $200 for theft of money.
As with the Dwelling coverage, there are exclusions with which you need to be familiar. Personal Property coverage will not cover the property of roommates or boarders. There is no coverage for your automobile. A small boat or kayak may be covered under this section of your policy, but coverage is usually restricted by the length of the boat and the presence of, or horsepower of, a motor. Property used for a business will not be covered, but you may be able to purchase additional coverage for some types of business property or inventory.
Loss of Use or Additional Living Expenses provides for the increase in your housing expenses when you are displaced because of a covered loss. For example, if a fire damages your home and you need to relocate until the damage is repaired, this coverage will pay reasonable costs to temporarily live at another location. Your policy will usually include Loss of Use or Additional Living Expenses coverage at 20% of the Dwelling coverage limit without additional cost. There may be restrictions regarding the amount payable per month or a time limit that applies to this coverage. If you rent out part of your home and it is uninhabitable after a covered loss, this coverage will provide payment for the rental value of the unit.
Medical Payments provides for the medical expenses of others when they are injured on your property. Most policies include at least $1,000 of coverage, but higher limits may be available. Payment under this coverage is made without a determination of negligence. Any non-resident on your property with your permission is eligible for coverage under this section.
Personal Liability provides for expenses of others for which you are determined to be responsible. Most policies include at least $100,000 of coverage, but higher limits may be available. When deciding how much coverage to purchase, consider the value of your total assets and how much you might lose if another person sued you and you lost the case.
Personal Liability coverage extends beyond the boundary your property. In addition to providing coverage against negligence that occurs on your property, this coverage can provide coverage if your child damages a neighbor’s property. If an incident involving family members occurs, as defined in your policy, at other locations, the liability of your family members will also be covered by the policy.
The following coverages are not part of a standard homeowners policy, but are examples of some of the common optional coverages which may be included in your policy or are available for an additional charge.
Earthquake or earth movement coverage provides for repair or replacement of your home following an earthquake or earth movement, as defined by your policy. Some companies may require that your property meet certain criteria, such as having a secured hot water heater, in order to purchase this coverage. The amount of this coverage will match your dwelling coverage, but you will have a separate deductible for this coverage, which is usually 10% of the dwelling coverage amount. Your policy will define what situations are included in this coverage and will include any limitations which may apply to this coverage.
A common definition of earthquake or earth movement includes aftershocks for up to 72 hours after the initial event. Check your policy for the period of time which your insurer uses to define an earthquake or earth movement.
Flood insurance is available as a separate policy and provides coverage for direct physical losses caused by flood, flood-related erosion, abnormal tidal surges, and mudslides. The National Flood Insurance Program provides these policies through an arrangement with private companies. If your property is located in an area with a high likelihood of flooding, your lender may also require that you obtain this coverage.
There are several policy forms available and the policy you will be offered, and the price you will pay for it, will be largely determined by the location of your home. Your agent should be able to determine what flood zone applies to your property or you may be able to obtain this information from your city planning or engineering department. You may also be required to obtain an elevation certificate, a document from an engineer that shows the relative elevation of different areas of your home.
More information is available from your insurance agent, by calling 1-888-FLOOD-29, or on-line at http://www.fema.gov/business/nfip/ or http://www.floodsmart.gov/. Additional information on flood insurance and flood mitigation in Alaska is available by calling (907) 269-4567 or at related links.
An inflation guard endorsement is available to help maintain an adequate level of coverage on your home. This endorsement allows your insurer to automatically increase your policy limit based upon the insurer’s estimate of increases in building material and construction costs. Even if you have an inflation guard endorsement, you should still check the limits of your coverage periodically to make certain you are adequately insured.