What Homeowners Need to Know About Insurance

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This article was originally posted on The Simple Dollar: http://www.thesimpledollar.com/best-home-insurance


If you’re looking for the best home insurance in 2016, there are plenty of national and local insurance companies that will want your business. However, it’s hard to decide which company to pick with so many choices.

What Does Home Insurance Cover?

The main reason you buy an insurance policy is for the coverage it provides. State Farm stands out for offering excellent coverage options, some of which include:

Dwelling Coverage:

The part of your policy that helps pay to repair or rebuild your home if damage is the result of a covered loss. Critical home components like plumbing, electrical wiring, or your HVAC system fall into this category.

Liability Insurance:

Helps protect your assets and cover costs associated with a lawsuit when you or a family member are responsible for injuring another person, or if someone is injured on your property. (For example, if your dog bites your neighbor.) It also provides coverage if you or a family member causes damage to another person’s property. $100,000 is a good benchmark for liability coverage, but this will vary depending on the size of your home and the assets you need to protect.

Other Structures:

Covers the cost of repairing (or rebuilding) detached garages, sheds, and other similar structures.

Personal Property Coverage:

Covers your clothing, electronics, furniture, and other personal property that is damaged or destroyed by a cause that is covered by your insurance. Most top insurance companies provide checklists, personal property calculators, or other resources to help you document your belongings. For example, Liberty Mutual provides a mobile app where you can upload pictures, receipts, and more.

Loss of use:

If your home is damaged to a degree that you have to temporarily move out while it is being repaired, loss of use will help pay your housing and living expenses.

Guest Medical Coverage:

Provides coverage for medical bills and related expenses when someone is injured on your property, but they do not want to sue you. $1,000 per person is a common level of coverage, though some homeowners choose to take out an extension for added protection.

Most of the top homeowners insurance carriers offer similar types of coverage. The best way to find the right homeowners insurance package is by comparing rates and coverage options through an online quote.

Factors that Influence Home Insurance:

There are several factors that influence the cost of your homeowners insurance policy. You won’t be able to change or control many of these factors. However, identifying the characteristics you can modify and making the appropriate adjustments can help you keep your rates low. The most common factors that influence your homeowners insurance premium include:

Home’s age and type of construction:

If your home is older, there’s a higher chance there will be problems with major components like plumbing, electrical wiring, and HVAC systems. New homes are less susceptible to these major problems.

Location:

If you live in an area prone to natural disasters, with a relatively high crime rate, or located far from emergency services, expect to pay more for your policy.

Claims History:

If you file several claims a year, you are more likely to pay a higher premium.

Risk Factors:

If your home has a swimming pool, aggressive dog, trampoline, or other characteristic deemed risky, you’ll likely pay a higher premium.

Credit Score:

Your credit score (whether good, bad, or average) has an impact on the price of your policy.

Deductible:

The level of deductible you choose plays a role in the price of your coverage. If you choose a high deductible, that means you have to pay more out of pocket if an incident does occur. The trade-off is a lower premium. (As a side note, I recommend sticking with a deductible you’re comfortable with. If your home is damaged, coming up with $1,000 is probably manageable. Coming up with $2,500 or $5,000 is probably going to be more difficult for most of us. Remember, your insurance won’t kick in until the deductible is met.)

Coverage Amount:

The amount of coverage you select will play a role in the price of your insurance.

What Does Home Insurance Not Cover?

As much as insurance is meant to cover the things you can’t plan for, the inverse is also true: you need to plan for the things insurance doesn’t cover. Too often people file home insurance claims, only to find out too late that they’re liable for the high cost of damages themselves. Sometimes, it’s a simple matter of gaps in coverage, where someone thought they were protected but either had insufficient or incorrect coverage. Those issues can usually be addressed by either upgrading a policy (before disaster strikes) or switching providers to one with better coverage options. However, there are certain situations that aren’t likely to be covered by any insurance company, situations that can leave you on the hook for a lot of money if you aren’t prepared. Here are some of the most common:

Flooding

Home insurance does not cover damage caused by weather-related flooding. Many insurance companies do offer special coverage or water damage endorsements, but they only cover accidents occurring inside the home (or on the property), such as flooding caused by burst pipes. They won’t cover water damage caused by heavy rain or overflowing rivers. If you think your home is at risk of flooding, or want the peace of mind of the added coverage, the government does offer protection through the National Flood Insurance Program.

Earth Movement

  • Earthquakes: The most common earth movement damage is that caused by earthquakes. Special endorsements can be purchased for an extra fee in all states except California, but without them, no standard policy covers earthquake damage.
  • Landslides and Sinkholes: Earthquakes aren’t the only forms of earth movement to consider. Standard policies also won’t cover the damage caused by sinkholes or landslides. Like with earthquake endorsements, some companies may offer this protection, but with the exception of the state of Florida (which mandates sinkhole coverage) they aren’t legally required too.

Wind Damage

Wind damage is unlikely to be covered under a basic home insurance policy in hurricane-prone areas, such as the Atlantic or Gulf coasts. In these areas, you will most like purchase added endorsements to your policy to cover the increased risk.

Simultaneous Events

The most common simultaneous event that could be problematic for homeowners is a storm that causes both wind and flood damage. Depending on your policy and endorsements, you could be covered for one, but not the other. If an insurance adjuster attributes all of the damage to the uncovered cause, you could be liable for the cost of damages from both.

Maintenance Neglect

Home insurance companies assign a certain level of responsibility to the home owner for performing both routine and preventative work on a home in order to keep it properly maintained and livable. As such, there are many maintenance-related issues not covered by standard policies:

  • Burst pipes: As pipes age, they can become brittle and are at a greater risk or cracking or leaking. That risk can be exacerbated by any number of factors, like frozen pipes in winter, or some unlicensed, D-I-Y plumbing. The home damage caused by a burst pipe may be covered if you have extra water damage endorsements, but the cost of the actual pipe repair isn’t.
  • Sewer Backups: Blockages, torrential rainfall, and even cracks caused by tree roots, can cause a sewer line to back up and flood your home. Unfortunately, these backups fall under the same category as burst pipes. The resulting damage may be covered if you have the special endorsements, but the cost of the line replacement won’t be.
  • Mold Rooms with high humidity such as basements, attics, or crawl spaces (or any room which experienced previous water damage) can be a breeding ground for mold. Mold growing on floors or walls can be a potent allergen and cause any number of respiratory problems. Because mold can easily be controlled with preventative maintenance, home insurance policies rarely cover it without additional, costly endorsements.
  • Termites Termite cause billions of dollars in damage to homes every year. The wooden beams that support your home are a food source that can sustain massive colonies of the pests, all the while slowly destroying your house with you none the wiser. Home insurance companies view infestation by termites (or any animal or pest) as a sign of neglect and will not cover the cost of damage.
  • Ordinance changes In some instances, new laws or government regulations could require upgrades on a home that isn’t otherwise damaged, such as updates to an aging (yet functional) natural gas pipeline. Some cities have even passed ordinances that required homes of a certain size to install fire suppression systems, at the cost of the homeowner. Some insurers offer added ordinance coverage, but a standard policy will not cover the cost of government-mandated upgrades. The same is also true if the government confiscates or condemns your home or property for any reason. Home insurance will not cover the damages.

Nuclear Accidents

Any damage caused by accidents at a nearby nuclear power plant are not covered by home insurance policies. However, federal law requires nuclear power companies to contribute to an insurance pool that will cover the costs of nuclear accident damage.

Acts of War

Living in the United States, being covered against acts of war probably isn’t a primary concern when purchasing home insurance. However, with the number of domestic terror attacks in the either executed or prevented over the past few years, more people are probably starting to think about it. As it stands, home insurance companies do not cover any terror attacks using nuclear, biological, chemical or radioactive weapons. They are considered acts of war, and there for uninsurable. However, those are extreme cases. Most insurance policies do cover damages cause by explosions, smoke, and fire, which are the most likely of an unlikely scenario.

Certain Dog Breeds

Many policies include coverage for the medical costs incurred in the event that a homeowner’s dog bites a guest or neighbor. However, some breeds with a reputation for being aggressive may be charged a higher premium, or not be covered at all. It’s important to always report dogs to your insurer to identity any breed-related gaps in coverage, or any extra steps needed to make sure that you are protected.
Additional ProtectionIn addition to the basic coverage options listed above, the policies of each major company include other types of coverage to complement the basic options outlined above. For example, Allstate also offers optional coverage for identity theft restoration, scheduled personal property, water backup, and more.
Most home policies cover damage from wind and fire, but natural disasters like floods or earthquakes almost always have to be added on as an additional policy option. If you live in areas particularly susceptible to these threats, you should look into the catastrophic coverage options offered by the provider before making a purchase.

Home Insurance Protects More Than Your Home

Despite what the name might imply, home insurance does much more than just cover your home. In fact, any standard policy should cover all of the following:

  • Dwelling coverage: This is the “home” in home insurance. Dwelling coverage pays for the damages to your home – including electrical wiring, plumbing, and heating and air conditioning – from any covered cause. The insurance pays for the repair of those damages. But sometimes, the damages are so severe that repair is impossible and you need a total rebuild. It’s important to ensure that you have enough dwelling coverage to cover the cost of any potential rebuild.
  • Other structures coverage: This coverage pays for damages to any other structure on your property, such as garages, sheds, fences, etc. The same damage
  • Personal property coverage: Reimburses you for personal items in your home damaged or destroyed by any covered cause, such as furniture, clothes, sporting goods, and electronics.
  • Loss of use coverage: Loss of use pays your additional housing and living expenses if covered damage forces you to move out of it while it is being repaired or rebuilt.
  • Liability insurance: Liability coverage protects your personal assets and covers the cost of your defense costs if you are ever sued for injury or damages to another person or their property, regardless of if the incident occurred on your property. However, like any insurance, there are levels of coverage. Depending on your assets, you may want to add increased limits to your policy.
  • Medical payments to others: This coverage is a lesser version of liability coverage for incidents. It pays for the minor medical costs of anyone injured in your home, such as cuts, burns, or simple falls.

You might be underinsured

Most people concerned about the scope of their insurance coverage try to protect themselves against all possibilities by adding extra endorsements to their existing policies. However, even someone who is completely “covered” could still be underinsured. In fact, about half of homeowners are. Most are insured for repairs, but in the event of catastrophic damage, it might be necessary to rebuild.

Rebuilds are a part of your policies dwelling coverage. However, that coverage has limits. When purchasing a home insurance policy, most people chose a coverage limit equal to the cost of their home. This is especially true because most home insurance policies are bought as a requirement for mortgage approval. Most lenders only require the minimum dwelling coverage which is the selling price of the home. Their only concern is recovering their investment in the event of a total loss.

However, there are a number of factors that could make a rebuild more expensive than the original purchase price or tax assessment of your home. For example, the cost of some necessary building materials has increased significantly in recent years. Also, depending on the causing event, specialized workers may be needed for a rebuild in order to prevent further damage to the property. And there is always the possibility that building codes may have changed since your home was built, requiring new, costly features that you didn’t have before. It is very important to make sure that you have enough dwelling coverage to cover the full cost of a rebuild.

Some valuable items need their own endorsements

Your personal property coverage reimburses you for the cost of replacing the valuable items in your home should they become lost or damaged in a covered event. However, that coverage does have a specific dollar limit. What that limit is depends on your policy, but for very valuable, high-priced items (like a very expensive engagement ring), you will need to purchase a special endorsement for their official appraised value in order to ensure that you a fully reimbursed.

Flood damage is not covered by a standard insurance policy

As previously mentioned, water damage caused by sources inside of the home, or on the property, are covered by your home insurance policy. However, weather-related flooding is not. Flood insurance must be purchased through the National Flood Insurance Program.

Home insurance covers damage; home warranties cover mechanical breakdowns

Most wouldn’t expect their home insurance policy to cover the cost of their mini-fridge if it ever stops running, but many mistakenly assume that the large, vital systems are covered, such as heating and air conditioning or water heaters. Unfortunately, that isn’t the case. Home Insurance does not cover mechanical breakdowns. Those systems fall under that umbrella of general maintenance. However, home warranty plans do cover those systems, as well as important appliances. It also covers many of those “routine maintenance” areas that home insurance doesn’t, such as electrical systems, plumbing, garage doors, and even some roof replacement.

Author: MC2 Home Inspections

MC2 Home Inspections has been proudly serving and protecting home buyers since 2007. All inspectors are certified, licensed (where applicable) and insured for your protection. We are full time home inspectors available 7 days a week for all of your residential home inspection needs. Call today to schedule your inspection 303-688-0912.