Affordable Homeowners Insurance

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It'll take some time, but could save you a good sum of money. Ask your friends, check the Yellow Pages or check out the National Association of Insurance Commissioners website (www.naic.org) which has information to help you choose an insurer in your state, including complaints. States often make information available on typical rates charged by major insurers and many states provide the frequency of consumer complaints by company.

The land under your house isn't at risk from theft, windstorm, fire and the other perils covered in your homeowners policy. So don't include its value in deciding how much homeowners insurance to buy. If you do, you will pay a higher premium than you should.

Consumer Answers to Common Questions

Knowledge of Home Insurance is imperative.

Homeowners Insurance FAQ

What is homeowners insurance and who should buy this type of coverage?
Homeowners insurance is one of the most popular forms of personal lines insurance on the market today. The typical homeowners policy has two main sections: Section I covers the property of the insured and Section II provides personal liability coverage to the insured. Almost anyone who owns or leases property has a need for this type of insurance. And many times, homeowners insurance is required by the lender as part of the requirements in obtaining a mortgage.

Why is homeowners insurance sometimes referred to as a "packaged policy?" What are the major parts of the package?
Before the 1950's, if a person wanted to purchase all the coverage that the modern day homeowners policy provides, he or she would have had to purchase at least three separate policies: one policy to cover personal property and the dwelling, a separate policy to cover losses due to theft, and a third policy to cover losses due to personal negligence. Changes in the laws which regulate the sale of insurance now allow the insurance industry to sell policies which combine the separate coverages into one all encompassing policy. The main advantages of combining the various coverages are lower expenses, and therefore lower cost to consumers, and the convenience of being able to purchase the property, personal liability and other coverages in a single policy.

The standard homeowners policy can have up to six different coverages. Coverage A covers the main dwelling being insured. Coverage B covers any other structures that are on the premises but are not attached to the main dwelling. For example, losses to a detached garaged would be covered under Coverage B. Coverage C covers the personal property of the insured. Coverage D covers the additional cost incurred by the policyowner when the premises cannot be used because of an insured loss. For example, if a tree falls through the roof of the main house and the policyowner has to live in a motel for two weeks, the cost of the motel room would be covered under Coverage D. The last two coverages provide personal liability coverage to the policyowner. Coverage E protects the insured from losses due to his or her negligence and provides this protection anywhere in the world. Coverage F provides medical payments to other persons who are injured either on the policyowner's premises or by the actions of the policyowner.

Do all insurance companies offer the exact same coverage in their homeowners insurance contracts? Or does the coverage differ among insurers?
Many insurance companies use standardized policy forms in lieu of developing their own company-specific contracts. One of the most popular homeowners policy forms used in the United States was developed by the Insurance Services Office (ISO), an industry consulting and statistical agency. Comparing premium quotes from different insurers is relatively easy when the quotes are based on the same policy form. Because some insurers use their own company-specific contracts, customers should examine whether the policy forms are the same when comparing premium quotes from different companies.

What are the key differences between the various homeowners policy forms?
The major policy forms offered by the ISO include:

HO-2 is a named perils policy
HO-3 is an all risks policy
HO-4 is designed for tenants and therefore omits Coverages A and B.
HO-6 is a named perils policy designed for the owners of condominiums.
HO-8 is a named perils policy designed for owners of older homes where the cost of reconstructing the home in the event of a catastrophic loss exceeds the market value of the home.

What is the difference between an "all risks" policy and a "named perils" policy?
A named perils policy covers losses that are due to only those perils listed in the policy. The perils typically covered include fire, windstorm, hail, and other direct physical losses. An all risks policy covers losses that are due to any peril except those specifically excluded in the policy. It is important to note that all risks policy provides broader protection than do named perils policies.


What are the policy limits (i.e., coverage limits) in the standard homeowners policy? How are they determined?
[Note: this answer is based on the Insurance Services Office's HO-3 policy.]
Coverages A and B provide protection to the dwelling and other structures on the premises on an all risks basis up to the policy limits. The policy limit for Coverage A is set by the policyowner at the time the insurance is purchased. The policy limit for Coverage B is usually equal to 10% of the policy limit on Coverage A. Coverage C covers losses to the insured's personal property on a named perils basis. The policy limit on Coverage C is equal to 50% of the policy limit on Coverage A. Coverage D covers the additional expenses that the policyowner may incur when the residence cannot be used because of an insured loss. The policy limit for Coverage D is equal to 20% of the policy limit on Coverage A. The coverage limit on Coverage E - Personal Liability - is determined by the policyowner at the time the policy is issued. The coverage limit on Coverage F - Medical Payments to Others - is usually set at $1000 per injured person.


What is the difference between actual cash value and replacement cost?
Covered losses under a homeowners policy can be paid on either an actual cash value basis or on a replacement cost basis. When "actual cash value" is used the policyowner is entitled to the depreciated value of the damaged property. Under the "replacement cost" coverage, the policyowner is reimbursed an amount necessary to replace the article with one of similar type and quality at current prices.

What does it mean to schedule personal property? What types of property would I most likely want to schedule?
Certain types of personal property are subject to maximum dollar limits that the insurance company will pay in the event of a loss. Two classes of personal property are usually subject to these limits. The first is property that is particularly valuable that not everyone would own. For example, a collection of antique china dolls would be subject to a separate, smaller limit under the standard homeowners policy. The second class of personal property for which coverage is limited under a standard HO policy consists of is personal articles that should be covered under other types of insurance contracts. For example, a computer in the home that is used for business purposes should be covered under a commercial property policy, not a personal homeowners policy and is therefore subject to a limit of liability.

You can purchase additional coverage for these articles by adding a scheduled personal property endorsement to your policy. This endorsement will accomplish two things. First, any article listed in the endorsement will be covered on an all risks basis instead of the usual named perils coverage provided in Coverage C. Second, when you schedule personal property the insurance company will ask you for the verify the replacement cost of the article. This is usually accomplished by having an appraisal of the article completed and then forwarding a copy of the appraiser's report to your insurance company. The replacement cost reported in the appraisal will then become the coverage limit which applies to that article, regardless of the limit listed in Coverage C. Examples of property you should schedule include expensive jewelry and a silverware, fine art, coin collections and the like.


How does the coinsurance clause work in the typical HO policy?
The coinsurance clause in the standard homeowners policy only affects claim payments resulting from losses covered under either Coverage A - dwelling, or Coverage B - other insured structures. Losses are paid on a replacement cost basis as long as your policy limit is equal to at least 80% of the replacement cost of the dwelling. For example, assume you own a home with a replacement cost is $150,000 and the home suffers $20,000 in covered damages. As long as your Coverage A limit is $120,000 (i.e., 80% of $150,000) or more, the full $20,000 loss will be covered. When the limit on your homeowners policy is less than 80% of the replacement cost of the dwelling, a coinsurance clause then applies. In this case, the typical homeowners policy will pay the greater of either (1) the actual cash value of the damage, or (2) a percentage of the replacement cost of the damaged property where this percentage is equal to the amount of the policy limit divided by 80% of the replacement cost of the dwelling.

It is recommended that you carry a policy limit equal to at least 80% of the replacement cost of your home. This will ensure that you will always receive the full value of any partial loss. You may, however, want to carry an insurance amount equal to 100% of the replacement cost of your home. In this way, if you suffer a complete and total loss, the insurance company will pay the full replacement costs of your home. Otherwise, the insurer will only reimburse you up to the policy limit.


What is the inflation-guard endorsement?
Most policyowners purchase enough insurance to cover at least 80% of the replacement cost of their home. By purchasing this much insurance, the policyowner can avoid any coinsurance penalties that otherwise might apply under Coverages A and B. However, many policyowners forget to increase their policy limits as the value of the home appreciates. An inflation-guard endorsement can be added to your homeowners policy which will instruct the insurance company to automatically raise your policy limit at each policy renewal according to some predetermined index of local home values. Policyowners should be careful, however, to make sure that the index used by your insurer matches the rate at which home values are rising in your neighborhood.

If I have an accident which I think is covered under my HO policy, what should I do?
Insurance contracts are conditional contracts, which means that policyowners have certain duties that they must perform if a covered loss occurs. Failure to complete these actions can, and sometimes does, result in non-payment by the insurance company for losses that otherwise would have been covered. Required duties include: (1) notifying the insurance company or the agent that a loss has occurred -- this should be done as soon as you discover the loss; (2) protecting the property from further damage and/or to making any repairs necessary to prevent further damage; (3) preparing a detailed list of the personal items damaged which contains a description of the items, their actual cash value, or their replacement cost if you have added the replacement cost endorsement to your policy; (4) being prepared to show the company and/or the insurance agent the damaged items; (5) completing a statement for the insurance company that details the events that led to loss -- for example, the time the damage occurred, the cause of the losses, etc.


Do I need earthquake coverage? How can I get it?
Direct damages due to earthquakes are not covered under the standard homeowners insurance policy. However, unless you live in an area that is prone to earthquakes, you probably do not need this coverage. If you do live in a part of the country with high earthquake activity you may want to consider adding an earthquake endorsement to your homeowners insurance policy. This endorsement will cover damages due to earthquakes, landslides, volcanic eruptions and other earth movements.


Where and when is my personal property covered?
Coverage C, which provides named perils coverage, applies to all your personal property (except property that is specifically excluded) anywhere in the world. For example, suppose that while traveling, you purchased a dresser and you want to ship it home. Your homeowners policy would provide coverage for the named perils while the dresser is in transit - even though the dresser has never been in your home before.


Do I really need liability coverage? How much should I have?
It should come as no surprise to most people that both the frequency and severity of civil lawsuits have been on the rise in this country for a long time. Accordingly, everyone should have liability insurance coverage to protect their personal assets. The standard homeowners policy offers at least $100,000 of liability coverage and this amount can often be increased to $300,000 or more at very little additional cost. How much liability insurance coverage you require depends primarily upon the value of your personal assets. People with more personal assets to lose in a lawsuit will typically carry higher liability policy limits. Individuals who require more liability coverage than their homeowners policy can provides can purchase a personal umbrella policy where liability coverage limits of $5-$10 million are possible.


Who pays for my legal defense costs if I am sued?
In the unfortunate event that you are sued, your homeowners policy will not only cover the cost of your legal defense, but your insurance company will also provide the legal counsel.

What does it means to have a per occurrence policy limit?
The policy limits in Coverage E -personal liability- are per occurrence policy limits. Per occurrence limits apply to either one specific accident or to a series of continuous and related incidents which lead to a specific bodily injury or property damage loss. For example, suppose your policy limit in Coverage E is $100,000. If you were found to be negligent in two unrelated incidents and the court awarded damages of $50,000 and $60,000, respectively, your insurance company would cover both losses fully even though the total damages incurred in the lawsuits exceeded than $100,000.