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| DESCRITPION OF COVERAGES |
Level of Coverage:
Most home insurance policies do not cover 100% of the cost of your loss.
The actual payment will depend on the level of home insurance coverage you have.
Regardless of whether you are an owner or renter, you have the following three options:
Actual Cash Value
This type of policy pays the actual cash value of your building or belongings meaning the insurance company will pay to replace your home or possessions minus a deduction for depreciation. Note that they will calculate depreciation on many items you would not expect them to - like jewelry. Now, in many cases, actual cash value may be sufficient. If so, just be sure to get a special endorsement or 'rider' for any item (like jewelry or antiques and collectibles) to which you would not want depreciation applied. Actual Cash Value is the least expensive and most common level of home insurance coverage and the policy will pay the lowest percentage of your claim.
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Replacement Cost
The policy pays the cost of rebuilding/repairing your home or replacing your possessions WITHOUT a deduction for depreciation. You will pay more for replacement cost home insurance coverage. However, if you ever have to make a claim, you will at least get the full value of your item. Replacement cost home insurance coverage has 'no surprises'. Whatever the value of your home or goods, you will get that amount.
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Guaranteed or Extended Replacement Cost
This policy offers the highest level of protection. Let's say your home burns to the ground. The Guaranteed replacement cost home insurance policy will pay to rebuild your home exactly as it was before the fire - even if it exceeds the policy limit. This even protects you if building materials surge in price after a disaster which affects a large area. It generally won't cover the cost of upgrading the house to comply with current building codes. You can, however, get an endorsement (or an addition to) your policy called Ordinance or Law to help pay for these additional costs. A guaranteed replacement cost policy may not be available if you own an older home.
Some insurance companies offer an extended, rather than a guaranteed replacement cost policy. An extended policy pays a certain percentage over the limit to rebuild your home. Generally, it is 20 to 25 percent more than the limit of the policy. For example, if you took out a policy for $100,000, you could get up to an extra $20,000 or $25,000 of coverage.
Even though a guaranteed/extended replacement cost policy may be a bit more expensive, it offers the best financial protection against disasters for your home. These coverages, however, may not be available from all companies, in all states or for all homes.
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Structural Home Insurance:
If you own the building you should have home insurance to insure the building. While this most often applies to the home you own and live in it also applies to buildings you own and rent.
The home insurance coverage should pay for repairing or rebuilding if your home is either damaged or destroyed by one of the named perils on the policy. Most home insurance policies will not pay for damage by earthquake or flood. Protection for earthquake or flood would require a special perils policy.
You probably have a good idea of what your home is worth. If not, you can make a reasonable guess based on your local real estate listings. You can even speak to a real estate agent directly. They often offer free estimates of your home's worth and the exercise can be very interesting. It's usually a 'no obligation' estimate - but ask and be sure.
Now, if you paid $250,000 for your home you should have $250,000 in home insurance for the structure, right? Wrong. The $250,000 you paid will include the cost of the land itself, which you shouldn't have to re-build (If you live in an earthquake prone area this may not apply to you! But you'll need special "peril" coverage).
What you want to insure is the building - and you want to insure it for repairs or re-building. Assuming that 1/5 to1/4 of the cost of a home in an urban area is the lot then you will need home insurance for the structure to the tune of $160,000 to $200,000 on a $250,000 purchase price.
Not comfortable with that amount of insurance? To be really sure get an appraiser who will appraise the house separately from the building lot.
Remember, you will have to revisit your home insurance regularly - yearly is great (on the renewal of the policy), but at least every 3 to 5 years. Costs of repairs increase, just like everything else.
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Home Content Insurance:
Your best bet if you really want to know how much home content insurance to buy is to 'inventory' each room. This can be a lot of work if you do it in detail - but you will be incredibly surprised! Also, it's invaluable to have that inventory for later, if you ever have to put in a claim.
But back to buying: How do you know how much home content insurance to buy? Here's a quick way to estimate: If you have a family of 4, a 'middle class' income, with two adults and two kids of school age, you should be assuming at least $200,000 for your personal belongings. That's an average of $50,000 per person.
When you do a home inventory please take note of any extremely valuable jewelry or other goods. You will often need a special "floater" or "endorsement" for jewelry, antiques, collectibles and such. Otherwise, your policy will likely limit the amount that you will be reimbursed if these items are stolen or damaged.
Not willing to write it all down? Okay, do a rough estimate for purposes of buying home insurance and then walk through the house and videotape each room in detail. This is not for cinematic value, but so that you know what's in your house - so film everything!
Inside closets - the works. Just be sure that the tape is stored securely - and preferably away from your home! A safety deposit box at a bank is best if you can afford it. But even at a friend's or relative's house in a water proof / fire proof container of some kind will give you some added protection. If you ever have to go through the claims process this videotape will provide you with some valuable documentation of your loss.
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Liability Coverage:
Most home insurance policies will include some liability coverage. Most home insurance policies provide a minimum of $100,000 liability. You should consider $250,000 to $300,000 usually. While this might seem a small amount compared to the recommended liability protection that you should carry on your car, it's generally sufficient.
You might want to consider additional home liability insurance coverage if you keep any kind of hazardous machinery around the house; maybe you are a hobbyist wood worker or if you collect guns. Accidents with power tools and firearms are more deadly than your regular, garden-variety accident. If someone sues you because they are hurt by a gun on your property you will want to have additional coverage; given a litigious society and an ambivalent attitude towards guns in many areas.
Because lawsuit's are more common today many are not comfortable with the level of liability in their home insurance liability policy. You can't blame them. If you aren't comfortable consider an additional "umbrella liability" home insurance policy. This is extra home liability coverage which will kick in when the liability under your home owner policy is exhausted.
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Umbrella Liability Coverage:
It's true that most home insurance policies - whether for the home, condo or apartment - will have a liability component. However, many people now carry umbrella liability policies as well in order to give them and their families more protection.
Should you do that? Well, here's what you have to consider: how much can you lose? In today's litigious environment many suit's are for large amounts. The liability in your home insurance policy is not likely to be enough.
Your umbrella liability insurance kicks in once you have exhausted the coverage through your home insurance. It is relatively inexpensive (between $15 and $20 per month) to have an additional $1 million personal liability. Most liability insurance companies will want you to have existing coverage through your home policy of at least $250,000 and coverage through your auto insurance of $300,000. Then, you purchase your umbrella liability insurance over and above that.
Generally, it's recommended that you have this additional liability insurance if you have personal assets you would like to protect.
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Living Expenses Home Insurance:
Living expenses home insurance coverage provides you with money for living expenses if you cannot live in your home. Living expenses home insurance will cover the cost of living accommodations, meals and other living expenses while your home is being repaired or rebuilt.
This living expenses home insurance coverage varies widely among insurers. Some home insurers will cover you for expenses up to a percentage of the insurance on your home. Some insurers will cover you for an unlimited amount of money, but only for a limited amount of time. So, it depends and you need to understand and read the fine print.
Note that living expenses home insurance coverage is the right coverage to have for reimbursement of rent that you would have expected to receive if you rent out a portion of your home.
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Flood Insurance:
A basic homeowner’s policy won't cover your flood damage – you need specific flood insurance. In most cases, you can only get this as a special policy backed by the federal government, with cooperation from local communities and private insurance companies who actually write the policies.
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The government agency responsible for this is the National Flood Insurance Program (NFIP), which is under the administration of the Federal Emergency Management Agency (FEMA). The policy is provided by the Federal Flood Insurance Program (800-427-4661) or through FEMA’S website www.fema.gov.
Although flood insurance is relatively inexpensive (given the cost to the insurer), most Americans tend to avoid purchasing protection. Only about one-quarter of the homes in areas most vulnerable are insured against flood loss, according to the Federal Insurance Administration (FIA). In vulnerable areas, flooding is 26 times more likely to occur than a fire during the course of a typical 30-year mortgage. It's critical to have insurance.
If you live in a flood-prone area, you need to be sure to contact NFIP in order to find out which insurance companies are providing flood insurance in your area. Keep in mind that many insurance policies will not pay benefit's until 30-days after the policy is in force. So don't wait until just before hurricane season to purchase! You should carry this insurance year round, to reduce your risk of an uncovered loss.
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Earthquake Insurance:
Your basic homeowners insurance will NOT cover you for earthquake damage. You have to carry specialized coverage.
Since the beginning of the 20th Century, earthquakes have occurred in 39 states. Approximately 90 percent of Americans live in areas considered seismically active. Even so, only a small percentage of people purchase earthquake insurance. Even in California, where earthquake fears are a daily fact of life, less than 15 percent of homeowners have earthquake insurance according to the California Earthquake Authority (CEA), down from 30 percent in 1996 when the state legislature created the California Earthquake Authority. Each year, more homeowners get rid of earthquake coverage than buy it because, according to consumer groups, the policies cost too much and cover too little.
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Who buys earthquake insurance?
According to the U.S. Geological Survey, there is a 70 percent probability that one or more damaging earthquakes of magnitude 6.7 or larger will strike the San Francisco Bay area during the next 30 years. A magnitude 6.7 earthquake is equivalent to the 1994 Northridge earthquake that killed 57 people and caused $20 billion worth of damage.
Not surprisingly, Californians buy the most earthquake insurance. However, earthquake insurance has been sold to residents of all 50 states. After all, earthquakes have been known to occur even in the central regions of the continent.
The Earthquake Education Center at Charleston Southern University claims there is a 40 to 60 percent chance of a major earthquake somewhere in the eastern United States in the next 20 years. Less than 10 years ago, there was an earthquake with an epicenter just below the Great Lakes. Shocks from that earthquake were felt as far north as Toronto, Canada.
It is with this in mind that South Carolina Insurance News Service recommends residents of that state consider purchasing earthquake policies. Given the fact that there has been no appreciable earthquake activity in that state for many years, coverage is relatively inexpensive. And, adding it to a home insurance policy provides the right coverage, just in case.
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Title Insurance:
This is a special insurance specifically for the home or building owner. It's a new insurance product and can save you a considerable amount of money if there's ever a problem with the title of your property. For a relatively small fee (in comparison to the cost of your property), you have coverage to ensure your title is accurate. Title insurance covers all costs associated with fixing a title problem, including Lawyer fees.
Plus, in some cases a lawyer will actually give you a lower price for legal services associated with closing a real estate deal if you buy title insurance.
So, why would you bother?
Here's the kind of problem that title insurance addresses:
Marital status of owner incorrectly given
Deeds, wills, and trusts that contain improper vesting and incorrect names
Transfer of property by a mental incompetent or minor
Property line disagreement (i.e. a neighbor builds a fence over your property line)
Confusion due to similar or identical names
Outstanding mortgages, judgments, and tax liens
Easements
Incorrect notary acknowledgments
A forged deed that transfers no title to real estate
Previously undisclosed heirs with claims against the property
Instruments executed under expired or fabricated power of attorney
Mistakes in the public records
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