What kinds of perils am I protected against?
Please see the 'What It Covers' section for details of what a homeowners insurance policy covers.
What about floods, earthquakes and other catastrophes?
Most catastrophes are covered; for example, wind damage from hurricanes
and tornadoes come under the windstorm peril listed in the previous
question and so are included. Flood and earthquake damage, however, are
not covered by a standard policy.
Be careful not to be lulled into a false sense of geographic security.
Flood and earthquake activity is more widespread than many people
realize. For example, almost 90 percent of the U.S. population lives in
seismically active areas. Since 1900, earthquakes have caused damage in
all 50 states. And if your home is located in a flood-prone area, you
are 26 times more likely to suffer a flood loss than a loss from fire.
Are there any other exclusions I should know about?
There may be other exclusions spelled out in your policy such as
neglect, intentional loss, earth movement, general power failure and
even damage caused by war. If you neglect to take care of your property
(e.g., a leaky roof), you may not be covered. Obviously, if you intend
to lose an object or damage your property, there is no coverage.
What is Ordinance of Law Coverage?
One other exclusion that can be costly is the Ordinance or Law exclusion. Building codes established by governmental bodies that drive up the cost of rebuilding or repairing after a loss occurs may not be covered by your insurance policy. Thus, if you discover when replacing damaged property that current law demands higher grade or more expensive materials than the original ones being replaced, the new materials may not be covered for the full price.
For example, if the current building code in your area requires a higher grade of electrical wiring and after a fire you are replacing all the wiring in your home, your policy may cover only the cost of replacing the older wiring. The difference in cost between the old wiring and the new wiring required by ordinance or law is your responsibility.
Even if you live in a fairly new home, laws and building codes are constantly being updated. Coverage to include ordinance or law requirements can be added to your homeowners policy with an endorsement an addition that could save you money in the long run.
Are the backyard shed and my color TV both covered in my homeowners policy?
Yes, they are both your property so they are both covered. The value of
the real propertyâ€”your home, garage, shed and other structures is
generally based on the value of the main structure, the house itself.
Thus, if the house were insured for $75,000, the shed, detached garage
and other auxiliary structures would be covered for 10 percent or
$7,500 worth of damages. Additional property protection features may
include living expenses should your home not be habitable for a period
Your personal property is also covered by a homeowners insurance policy.
Personal property includes the contents of your home and personal
belongings used, owned, worn, or carried by you or members of your
household basically, everything and the kitchen sink! This coverage is
also based on the house coverage, and there are limits on the losses
that can be claimed. Higher limits can be purchased for both real and
Who decides how much my property is worth?
State laws may dictate how losses are to be figured, which means the same insurance company may use one method in one state and a different method in another. The common methods are:
Actual Cash Value - The replacement cost of the item minus
depreciation. For example, a new television set may cost $500. If your
7-year-old TV set gets damaged in a fire, it might have depreciated 50
percent. Therefore, you would be paid $250 for that set.
Replacement Coverage - The cost of replacing an item without deducting
for depreciation. So today's cost for a TV set with features similar to
the 7-year-old one damaged by fire would determine the amount of
compensation. If it still costs $500 today, that would be the
Replacement value should not be confused with market value. The market
value is what your house, for example, would actually sell for and is
generally more than the replacement cost. This is because replacement
value does not include the land, which almost always does not need to
Does my policy cover my possessions even when I go on vacation?
Yes, perhaps in this case the term "homeowners" is misleading because
this is a package of insurance coverage that extends to all your
possessions no matter where they are. If you take a round-the-world
vacation and lose a valuable item, as long as the loss is by a covered
event or peril, the location does not matter.
The liability component also extends well beyond the boundaries of your
home. Should you be found legally at fault for injury or loss to
another individual, whether you unfortunately caused a tumble down a
San Francisco hill or a fall in an Indiana barn, that is personal
liability which again is addressed in your homeowners policy.
As in the property section of your homeowners policy, there are limits and exclusions to personal liability. Your business activities, for example, are not covered under a homeowners policy.
You are also not covered for injuries or damage you purposely cause. So
if a fight with a neighbor turns physical and you end up bopping him on
the nose, your homeowners insurance will not cover the injury or any
resulting suit. Your policy lists specific exclusions and limits.
I rent out my basement. Are my tenants covered by my homeowners policy?
No. Your property and the structure (the basement) are covered by your
policy as is your personal liability. However, the tenants' possessions
and liability are not covered by your policy. Therefore, they may wish
to purchase their own renters insurance.
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