Friday, November 9, 2012
HOME INSURANCE: What's Covered, What Isn't
Many homeowners are baffled by trying to figure out the maze that is home insurance. Take Stephanie and Eric Jones, who for 15 years paid too much because they weren't clear on which coverage they needed and which they didn't.
Their local insurance company wasn't very responsive to the Jones' inquiries about how they could lower their rates. When the couple decided to change agencies, inspectors were sent to their property, and they uncovered roof issues. One agency was adamant that a new, $10,000 roof was needed, while another said that a simple $400 repair would be enough. It was then that they learned how different home insurance agencies could be.
"The Jones' would have definitely benefited from doing some research into the types of policies available to consumers," says Eric Sharfstein, claims director with National Underwriters Insurance. "It's easy to just say yes to everything, thinking that's the best course of action and, sadly, that leads to wasted money." Having too little coverage isn't ideal either, he says, because you may end up paying out of pocket for damage to your home.
To help, here's a comprehensive list of what homeowner's insurance covers and what it doesn't:
Differences Between Home insurance and Fire Insurance:
Dwelling fire policies are less expensive, but coverages are more limited. The more-comprehensive dwelling form is the DP-3. Dwelling fire policies are most often used by
landlords for rental properties, but they're sometimes purchased by owners who occupy the property.
The Form HO-3 is the most common type of homeowner's policy. It's generally the most comprehensive coverage and therefore the most expensive. The HO-3 policy is divided into two sections: Section I covers property, and Section II covers liability. Policies are typically divided into sections which identify what's covered, what it's covered against, what's not covered, and general terms and conditions.
What's Covered in Home Insurance, Section I:
Coverage A covers the house itself -- roof, walls, cabinets, plumbing and electrical systems, HVAC (heating, ventilation and cooling system), etc. Most policies provide replacement cost coverage for the structure, provided that the property owner purchases sufficient insurance to cover 80 percent of the replacement cost. Failure to "insure to value" can result in a co-insurance penalty, that is, the insurance company pays only a percentage of the claim.
Coverage applies for "all risks." In other words, the coverage applies to a loss by any cause, except for those that are specifically excluded. Examples of excluded losses are earth movement (earthquake) and flood. Examples of covered losses include fire, theft and water that escapes from within an appliance. A windstorm is typically a covered peril, but there are areas of Florida in which private insurance companies will exclude them from policies. In these areas, property owners may purchase such an "x-wind" policy, and then purchase a separate windstorm-only policy from Citizens Property and Casualty. Citizens is the state-run insurer of last resort.
Coverage B covers "other structures" on the insured location that are separated from the primary structure by a clear space. This can include sheds, detached garages and the like.
Coverage C covers personal property. Under the base HO-3 policy, personal property is covered for "named perils." These are specified in the policy and include fire and lightning, theft, water that escapes from within a plumbing system or appliance, windstorm (again, the x-wind discussion above applies), rain (if wind damages the structure so that rain can enter), damage from vehicles or flying objects, etc. For an additional premium, many policies will provide "all risk" coverage, as for the structure.
Coverage D covers additional living expenses that are necessitated when a covered peril causes the structure to be unlivable.
What's Covered in Home Insurance, Section II:
Section E covers liability. This is typically for property damage or personal injuries to third parties, due to the neglect of the insured. Examples would be injuries to a guest who slips and falls in the insured's home due to a hazard of which the insured person was aware and failed to correct. If the friend sues, the policy will provide a defense, but in most cases, the insurance company will attempt to negotiate a reasonable settlement based on the severity of the injuries and the degree of the insured's negligence.
Available coverage amounts vary, and the insurance agent should be able to recommend a level of coverage suitable for the individual's needs. Obviously, people with significant assets should carry higher limits of coverage. Consumers should be aware of the increasing use of exclusions. Specifically, insurance companies are excluding claims for animal liability (dog bites and the like), trampolines and swimming pool injuries, to name a few. Agents can explain the differences between policies and should always advise clients on the coverage that they require.
Section F provides medical payment coverages, which pay for medical bills incurred by persons injured on the insured property. The important distinction is that this coverage applies, regardless of the existence of negligence. Coverage amounts vary and can be increased by payment of an additional premium.
Finally, consumers like the Joneses should be 100 percent truthful with their agent when they're applying for coverage. If the applicant provides a false response to an underwriting question and the insurance company issues the policy, the insurance company may have the right to later deny a claim. The Joneses learned the hard way, finally coming to their senses and opting for another insurance company once they were dropped, but by then, the damage had been done and lots of money was lost. This list at the outset could have saved them a few headaches.