The Homeowners Policy

The Homeowners insurance policy is a multi-line policy because it provides Property and Liability insurance in a single policy. By obtaining Property and Liability coverage in one policy, the insured is more likely to avoid gaps in coverage. Homeowners policies are divided into two sections: Section I provides Property insurance and Section II provides Liability and Medical Payments insurance.

Eligibility, Insureds

Not every person or every house is eligible for coverage under a Homeowners policy. The rules are stricter than those that apply to the Dwelling policy.

• The named insured must be the owner-occupant of the dwelling or a renter who maintains a residential occupancy
• The home cannot contain more than four families; one additional family or two roomers or boarders are allowed per family
• Unless the insured is a renter, he or she cannot purchase coverage for personal property only
• The dwelling must be used exclusively as a residence
• Farms may not be covered under a Homeowners policy
• Dwelling under construction and secondary or seasonal residences are eligible
• Homes that are being purchased on an installment contract are eligible

When obtaining Homeowners insurance, ask the agent which form of Homeowners policy their company offers.  

Homeowners Forms and Coverages

Just as there are several Dwelling forms to provide increasing coverage, there are different Homeowners forms to vary the extent of coverage.

Note:  Each of these forms provides identical Liability coverage. It is the property coverage that varies with the homeowners forms selected.

HO-2...the Broad form, provides broad coverage for the dwelling and personal property. Breakage of glass and thief are also covered. In addition it broadens certain perils and adds other perils.

HO-3...the Special form, provides open peril coverage for loss to the dwelling and other structures. It provides broad coverage for personal property, which is identical to the HO-2's coverage of personal property.

HO-4...the Contents Broad form, insures tenants or people who do not own the building where they reside. It provides broad coverage for personal property only that is similar to the HO-2's and HO-3's broad coverage of personal property, and no coverage for the dwelling.

HO-5...the Comprehensive form, provides open peril coverage for both the dwelling and other structures and personal property. As the name applies, the HO-5 form is the most comprehensive homeowners form available.

HO-6...the Unit-Owners form, provides broad coverage on the personal property on condominium owners. It provides very limited dwelling coverage.

HO-8...the Modified Coverage form, is designed for older homes with replacement values that may exceed their market values. In many areas the HO-8 is no longer available.  

Section I-Property

Coverage A-Dwelling...covers the dwelling and structures attached to the dwelling, as well as materials and supplies for repair and construction of structures if they are located on or next to the residence premise.

Coverage B-Other Structures...covers buildings on the premises that are separated from the dwelling by clear space.

Coverage C-Personal Property...provides coverage for personal property owned or used by an insured while it is anywhere in the world. At the insured's request, coverage will also apply to property owned by others while in the part of the residence premises occupied by the insured or to the property of a guest or resident employee while in any residence occupied by the insured.

Coverage D-Loss of Use...provides two types of coverage. First, if a covered property loss makes the residence premises uninhabitable, the policy will cover additional living expense related to maintaining the insured's standard of living.

Second, is a covered loss to the insured's property makes a part of the residence premises that is rented to others or held for rental uninhabitable, the policy will cover the loss of fair rental value, less any expenses that are not required while the premises is uninhabitable.

Property normally kept at a residence other than the residence premises shown in the Declaration is covered for up to 10 % of the Coverage C limit or $1000, whichever is greater.

Classes of property excludes 

• Animals, birds or fish
• Motorized vehicles or aircraft, including equipment and accessories
• Property of boarders
• Property in an apartment held for rental by the insured
• Paper or electronic records containing business data
• Property rented to others off the residence premises
• Credit cards
• Hovercraft and parts

How much coverage should I carry on my Homeowners policy

Law requires that an applicant carry a minimum of 80% replacement cost on a Homeowners policy. Replacement cost varies for location. We can assume the replacement cost will be more for a home located in an up-scale neighborhood as compared to a rural community.

An applicant needs to understand that even if you got a great deal on a home and purchased the home far below market value, it still needs to be insured against replacement cost.

For example, let's assume you purchased a 2500 sq ft home for $100,000. At 80% replacement cost, the homeowner should purchase a $160,000 homeowners policy.

There are a few things the homeowner needs to understand:

First, the insurance company will not bind coverage on a home for less than the 80% minimum replacement cost. This is due to the fact, that the insurance company is not getting just premium for the exposure. Also, lets assume that your home was totally destroyed in a fire. Assuming you purchase a homeowners policy at 80% of purchase price ($100,000) you would have obtained $80,000 coverage for your home. With this scenario you would not recoup your financial investment and would only receive 50% of the actual replacement cost.

What deductible amount should I choose on my Homeowners policy

Deductible means that the insured pays the first part of  every loss up to the amount of the deductible. This reduces the cost of insurance by reducing the number of small claims. It is wise to carry a large deductible on your Homeowners policy in order to lower the cost of insurance.

Can my insurance company cancel my Homework policy for too many claims

Yes, yes, yes. As I stated previously, the purpose of the deductible is to reduce the cost associated with the Homeowner policy by reducing the number of claims. Your Homeowner policy is not a home maintenance policy! Frequent filing of small claims (within a certain period) will result in the cancellation of your Homeowner policy. The actual number of claims filed in a specific period vary slightly for different insurance companies. Generally speaking, the policy holder would be in jeopardy of having their Homeowner policy cancelled by filing three or more claims within a year. Not only will this put a burden on the policyholder, it will make it extremely difficult to obtain other Homeowner coverage at a competitive cost. Many insurance companies will refuse to bind coverage on an individual with excessive claims.

Is flood insurance included in a Homeowner policy

Flood insurance is managed by the Federal Insurance Administration. In 1968, Congress created the National Flood Insurance Program (NFIP), to make Flood insurance available to eligible communities through federal subsidization.

A Homeowner policy does not cover Flood damage. Flood insurance has to be purchased separately, with the cost regulated by risk assigned to a certain area. Flood insurance is purchased through the Federal Insurance Administration.

Most flood surveys are seriously outdated. Many have not been revised in over a century, causing mortgage companies to require homeowners to carry flood insurance in areas no longer prone to flooding.

Flood generally refers to:

• An overflow of inland or tidal waters
• Unusual and rapid accumulation or runoff of surface water from any source
• Mudslides caused by accumulations of water on the ground or underground
• Collapse of land as a result of excessive erosion due to flood

Flood policies do not cover:

• Accounts, bills, currency, deeds, money, evidences of debt, securities, bullion, and manuscripts
• Lawns, trees, shrubs, growing crops, plants, and livestock
• Aircraft, self-propelled vehicles, and motor vehicles
• Fences, retaining walls, bulkheads, swimming pools, wharves, piers, bridges, docks, and other structures on or over water
• Underground structures and equipment, such as wells and septic tanks
• Newly constructed buildings that are in, on or over water
• Structures that are primarily containers, such as gas or liquid storage tanks

Important Notice...Identity Theft is increasingly becoming big business for scam artist. You too, could easily become a victim of identity theft. Scam artist can easily obtain your personal information such as, name, address, social security number to obtain new credit cards, purchase automobiles and charge thousands of dollars of merchandise using your name.

What you can do to protect yourself from Identity Theft?

• Do not use your social security number on personal or business checks
• Get a new drivers license number, do not use your social security number.
• Invest in a paper shredder. Many people discard documents containing their personal information in the trash. Identity theft scam artist often check garbage dumpsters and city garbage disposals for documents that contain personal and financial information.
• Do not give out your social security number over the phone, in the mail or over the internet unless you confirm that you are dealing with a trusted source.
• Do not carry your social security number or any personal information in your purse or wallet.
• Many businesses (such as video rentals) ask for a social security number on applications. Ask why this information is needed. Inform the manager that you do not want to give out this information. Most businesses will waive the requirement.

Note: Many insurance companies now offer an option for Identity Theft protection, that can be added to your homeowners policy. It is a good idea to check the availability of the identity theft option with your agent.