Tag Archives: all risk coverage

Homeowner’s Insurance

Homeowner’s Insurance:

Homeowner’s insurance (HOI) is a type of property insurance that covers a private residence.  It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of use (additional living expenses) or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.

Homeowner’s Insurance is a multiple-line insurance policy, meaning that it includes both property insurance and liability coverage with a single premium.  The cost of Homeowner’s Insurance often depends on what it would cost to replace the house and which additional endorsements or riders are attached to the policy.  Typically, claims due to floods or war (whose definition typically includes a nuclear explosion from any source) are excluded from coverage, amongst other standard exclusions (like termites).  Special insurance can be purchased for these possibilities, including flood insurance.

People usually shop around when buying a car or an appliance but neglect to do comparisons when taking out Homeowner’s Insurance.  Homeowners should do annual comparisons on Homeowner’s Insurance policies.  Upgrades to your home such as gourmet kitchens or glamour baths improve the aesthetics of your residence but also increase its value.  Whenever an upgrade is done, contact should be made with your insurance company to ensure that you are not under-insured.  Items such as hot tubs, swimming pools and trampolines leave you more vulnerable to lawsuits and will therefore increase your annual payment for Homeowner’s Insurance.

In every state except California, a low credit score can drive up the price of your Homeowner’s Insurance.  Someone with a credit score of 500 probably not only lets bills slip but also the general maintenance of a home which leads to claims.  Laura Adams, of insurancequotes.com discourages clients from requesting a low deductible as this may encourage you to make frivolous claims.  In some instances one claim can result in a 32% hike in premiums.

Insurance carriers are able to give lots of discounts if, for example, your vehicle is insured with the same company as your residence.  Not smoking, being a retiree or living in a gated community can increase the amount of discounts that you qualify for with the carrier.  When discounts expire, remembering to request new discounts can help save you money every month.

Many homeowners do not understand what exposures are covered under their home insurance policy, according to a consumer survey.  More than two in five Americans (41 percent) believe that a standard homeowner’s insurance policy protects against mould damage, according to a In.SuranceQuotes.com survey.  This misconception could prove extremely costly.  Mould remediation can cost tens of thousands of dollars.  It is often not covered by Homeowner’s Insurance, especially if it was caused by neglected maintenance such as a leaky pipe. http://www.insurancejournal.com/news/national/2013/05/14/291804.htm

The Insurance Services Offices has standardised the following homeowner’s insurance policy forms in general use:

HO0 – Dwelling Fire Form

A form that provides coverage on a home against fire, smoke, windstorms, hail, lightning, explosion, vehicles and civil unrest.  It does not cover your personal property, personal liability or medical expenses.

HO1 – Basic Form

A basic policy form that provides coverage on a home against 11 listed perils:  contents are generally excluded in this type of coverage, but must be explicitly enumerated.  The perils include fire or lightning, windstorm or hail, vandalism or malicious mischief, theft, damage from vehicles and aircraft, explosion, riot or civil commotion, glass breakage, smoke, volcano eruptions, and personal liability.

Exceptions include floods, earthquakes.  Most states no longer offer this type of coverage.

HO2 – Broad Form

A more advanced form that provides coverage on a home against 16 listed perils (including 11 on the HO1).  The coverage is usually a “named perils” policy, which lists the events that would be covered.

HO3 – Special Form

The typical, most comprehensive form used for single-family homes.  The policy provides “all risk” coverage on the home with some perils excluded, such as earthquake and flood.  Contents are covered on a named peril basis.

HO4 – Contents Broad Form
The contents Broad, in a form for renters.  It covers personal property against the same perils as the contents portion of the HO2 or HO3.  An HO4 generally also includes liability coverage for personal injury or property damages inflicted on others.

HO5 – Comprehensive Form

Covers the same as HO3 plus more.  On this policy the contents are covered on an open peril basis, therefore as long as the cause of loss is not specifically excluded in the policy it will be covered for that cause of loss.

HO6 – Unit Owners Form

The form for condominium owners.  It insures your personal property, your walls, floor and ceiling against all of the perils in the Broad form.

HO8 – Modified Coverage Form

The form is for the owner-occupied older home whose replacement cost far exceeds the property’s market value.

Coverage Classification

For each policy, there are typically 5 claim classifications of coverage.  These are based on Standard Insurance Services office forms.

Section 1 – Property Coverage

Coverage A – Dwelling

Covers the value of the dwelling itself (not including the land).  Typically, a coinsurance clause states that as long as the dwelling is insured to 80% of actual value, losses will be adjusted at replacement cost, up to the policy limits.  This is in place to give a buffer against inflation.  HO4 (renters insurance)  typically has no coverage A, although it has additional coverages for improvements.

Coverage B – Other Structures

Covers other structures around the property that are not used for business, except as a private garage.  Typically limited at 10% to 20% of the Coverage A, with additional amounts available by endorsement.

Coverage C – Personal Property

Covers personal property, with limits for the theft and loss of particular classes of items.  (e. g. $200 for money, banknotes, bullion, coins, medals, etc.).  Typically 50-70% of Coverage A is required for contents, which means that consumers may pay for much more insurance than necessary.  This has led to some calls for more choice.

Coverage D – Loss of use/Additional Living Expenses

Covers expenses associated with additional living expenses (i. e. rental expenses) and fair rental value, if part of the residence was rented, however only the rental income for the actual rent of the space, not services provided such as utilities.

Additional Coverage

Covers a variety of expenses such as debris removal, reasonable repairs, damage to trees and shrubs for certain named perils (excluding the most common causes of damage, wind and ice), fire department charges, removal of property, credit card/identity theft charges, loss assessment, collapse, landlord’s furnishing, and some building additions.  These vary depending upon the form.

Exclusions

In an open perils policy, specific exclusions will be stated in this section.  These generally include earth movement, water damage, power failure, neglect, war, nuclear hazard, septic tank back-up expenses, intentional loss and concurrent causation (for HO3).  The concurrent causation exclusion excludes losses where both are covered and an excluded loss occurs.  In addition, the exclusion for building ordinance can mean that increased expenses due to local ordinances may not be covered.

Floods

Flood damage is typically excluded under standard homeowners’ and renters’ insurance policies.  Flood coverage, however, is available in the form of a separate policy both from National Flood Insurance Program and from a few private insurers.

Coverage E – Personal Liability

Covers damages which the insured is legally liable for and provides a legal defence at the insurer’s own expense.   About a third of the losses for this coverage are from dog bites.

Claims process

After a loss, the insured is expected to take steps to mitigate the loss.  Insurance policies typically require that the insurer be notified within a reasonable time period.  After that, a claims adjuster will investigate the claim and the insured may be required to provide various information.

Filing a claim may result in an increase in rates, or in non-renewal or cancellation.  In addition, insurers may share the claim data in an industry database (the two major ones are CLUE and A-PLUS) with Claim Loss Underwriting Exchange (CLUE) by Choice point receiving data from 98% of US Insurers.