KINDS OF HOME INSURANCE
Let’s talk about types of home insurance.
Home insurance is commonly called “hazard insurance” or “homeowners insurance”.
Currently there are 8 standardized homeowner insurance forms in general use.
HO-1 is basic form homeowner’s policy.
It ensures against such hazards as fire or lightning, wind storm or hail, vandalism or malicious mischief.
Exceptions include floods or earthquake, which may be purchased separately.
This is the type of property insurance that covers most private homes.
HO-1 protects against losses to one’s home, its contents, loss of use or loss of personal possessions.
It also provides liability insurance for accidents that may happen at the home, or at the hands of the homeowner.
HO-2 is broad form homeowner’s policy.
It’s a more advanced form that provides coverage on a home against 17 specific risks.
The policy will list the events that would be covered.
HO-3 is special form homeowner’s policy and this is the most comprehensive form of insurance used for single-family homes.
The policy provides all risk coverage on the home with the exception of earthquake and flood.
HO-4 is renters insurance and covers the personal property of renters against the same perils as the contents portion of HO-2 or HO-3.
Generally, it also includes liability coverage for personal injury or property damage inflicted on others.
It’s a very inexpensive policy and it’s a good idea to buy if you’re a renter.
HO-5 is comprehensive form policy and it generally insures more perils than any other types of insurance policies.
Similar to a HO-3 form, a HO-5 is an open-peril coverage form that may financially protect you from pretty much all perils except if your insurance plan particularly excludes them on paper.
HO-6 is condo form and this kind of insurance coverage is created especially for condo owners and simply financially covers possessions and personal liability.
An HO-6 insurance policy in most cases extends to floors, the walls, and ceiling.
HO-7 is the mobile home form which is basically the identical to the HO-3, but is intended especially for mobile and manufactured homes, which usually do not belong to standard homeowners insurance coverage.
HO-8 is the modified coverage form. It’s for the owner occupied older home whose replacement costs far exceeds the property’s market value.
You can see the insurance can be complicated and confusing, so contact several insurance brokers in your area to find out which is the best policy for you.
HOW TO BUY HOME INSURANCE
Now, let’s talk about how to buy homeowners insurance.
When you’re looking to purchase homeowners insurance, you have a few different choices.
- you can purchase it from the bank, maybe where you received your loan for your home,
- you can purchase it from what’s known as a “captive agent”, or
- you can purchase it from what’s known as an “independent agency” which, works sort of like a brokerage, and they will represent multiple different companies and try to find the best rate for you, the best fit for your personal credit score and claims history.
In order to expedite the process you’re going to want to know the year your home was built, you’re going to want to know the square footage of the home, you’ll be asked what the home was built out of (whether it’s brick or frame), you’ll be asked about updates to the roof, updates to the plumbing, electrical, and all of those things.
You may want to discuss with your real estate agent if you’re not sure of them, but they will be necessary in order to purchase homeowners insurance.
A lot of people get confused with homeowners insurance because they believe that the value that their home should be insured for is close to or exactly the market value of the home, which is what they paid for it.
So, say for instance, you purchased a home for a 100 thousand dollars, and you go to purchase homeowners insurance, and if you’re asked to ensure the home for 160 thousand dollars, you may be confused, because you’re insuring it for more than you paid for it.
The reason for that is because, when you insure home, you’re insuring it for the cost to rebuild the home, and especially in today’s market it costs a lot more to build a home than it does to purchase a home.
So, keep that in mind when you’re receiving your estimates that you’ll get, that expect to see the dwelling amount which is the amount you’re insuring the home for to be higher than the market value of the home.
In order to calculate your rate, the insurance companies are going to look at your credit score, they’re going to look at your claims history if you’ve had any home claims in the past, the neighborhood that your house is in, the protection class which is has to do with how close and how well performing the fire departments are in your area, and at all of these things that are going to factor what your rate may be different from another home.
Keeping these things in mind you’ll be better prepared in order to go and purchase homeowners insurance.
HOW MUCH HOMEOWNER’S INSURANCE SHOULD ONE BUY?
Your professional insurance agent has tools with which can figure out the exact amount of dwelling coverage you need.
The most insurance agents have what’s called RCT, or Replacement Component Technology.
With this tool, they using the factors of the year house was built, the square footage, the quality of construction, and the type of roof, electrical panel, and all the things that go into making a house.
After that, they can come up with a real dollar figure, which includes contractors overhead and debris removal.
They come up with a real solid figure for coverage that’s the dwelling amount, and that’s the amount of coverage you should have on every homeowners insurance policy or even a dwelling fire policy.
You need to know how much coverage is there and you don’t want to over ensure a policy.
Just because you paid a half a million dollars for a house that only costs 400,000 to rebuild, there’s no reason to pay for next 100,000 in insurance.
Now there actually might be a time when you do need to pay for extra insurance.
That’s when you’re insured with the California fair plan.
The fair plan has no dwelling replacement coverage at all.
Sometimes they say they do, but just consider it not there.
Therefore, if you have a loan for a half a million dollars the fair plan or the lender is going to require coverage up to a half a million dollars.
Even if it only costs for a thousand to rebuild the house they need to protect their loan or their assets, so in that case you might need to pay for extra coverage.
But your typical homeowners insurance policy you should figure out the actual rebuilding costs of the home, thereby ensuring just that amount.
If your house was built in 1961. and it has smaller size thickness of walls, but new codes or things that are going to make the house better require bigger size wall, so if it’s a little bigger maybe it has energy efficient windows. Whatever the ordinance is, it’s going to cause you to have an actual better house than was there before.
But because of building code upgrades you can’t build the same house that was there in 1961. or whenever the house was built.
Talk to your insurance agent or professional, find out if they know what RCT (Replacement Component Technology), and find out the right amount to ensure the house for.
So, you don’t have to pay for extra insurance on the house just because you paid more for it, since the actual cash value is more than the rebuilding costs.
HOW TO FIND THE CHEAPEST HOUSE INSURANCE?
Let’s talk about how to find the cheapest home insurance .
Do you really want cheap home insurance?!!
No, you don’t!
You want affordable home insurance.
So, if you have I have a choice to look for insurance on your home, please don’t buy cheap insurance, because you get what you pay for.
You will have a claim and you expect that policy to respond, right?
Well, it will, they just won’t respond to the level you want it to.
So, talk to an insurance professional if you want to save money on your home insurance.
Other things that could save you money on your home insurance is the property itself and what is it made of.
Relative to how quickly it burns, the price will vary.
So, a-frame property made of wood or shingles will burn a lot faster, so it will cost a little more to insure.
A brick building will take a little longer, so will cost a little less.
Even better, a fire resistive building will cost a lot less, because it would take a while to burn.
Also what it will cost to rebuild that home, house or property in today’s market (the cost of raw materials and the cost of labor) is what the insurance company ensures to rebuild or replace that property.
So depending on what it will cost to rebuild or replace your property, the price of the insurance policy will vary.
Different insurance companies use different software to estimate the reconstruction of value of your home,and that would also affect the price.
If you have more questions, reach out to an insurance professional, because this is not an environment where you just throw a number, and say “I want to insure it for this number..”.
You want to know what it will cost to rebuild that home.
HOW TO LOWER HOUSE INSURANCE RATES?
First, if we’re gonna talk about how to lower those rates, we need to talk about what are the things that make the rates go up.
So, some of the things that make the rates go up are for example how old your roof is, how old your plumbing is, do you have a newer home, how far you are away from the fire station, are you in a mudslide or hurricane or tornado area, how safe is the neighborhood, etc.
These are all factors that if you’re taking a look at insuring a home the carrier’s look at extensively.
If you’re looking to buy a new home, you want to look at all the improvements and betterments that have done on the home such as how old the roof is, because if your roof is redone 5 years ago versus 25 years ago, that’s gonna affect your rates.
Also, if you’ve done any updates to the plumbing and the wiring and things like that, that’s only gonna bring it into a higher code, so the rates are gonna be lower, too.
So, any improvements that you can do affects the rates.
Also, a lot of people love to have a swimming pool, but a swimming pool also affects the rates.
When you have a swimming pool, they’re always gonna look at is it fenced in properly.
In insurance it is called an “attractive nuisance”, because for example, when kids are walking by your house and if they see a beautiful pool, it’s very tempting for them to go and swim in your pool if you’re not home, and if something were to happen, then you can have a claim on your hand.
So, the main thing is to take a look at.
Those factors that drive the rates up, and if you’re looking to get your rates down, there might be some improvements that you can do around your home, and that’ll actually drive those costs down.
WHAT DOES TYPICAL HOMEOWNER’S INSURANCE COVER?
There are a number of standard homeowner policies available in the United States.
However, because all insurance in the United States is regulated at the state level, there are going to be slight differences in these policies, depending upon which state you live in.
Still, all of the policies have the same basic structure.
There are six major coverages provided in the typical homeowner’s policy, and they include:
Coverage A – Dwelling Coverage: it covers the house itself, “the sticks in the bricks”.
Coverage B – Other Structures: this could be your fence, your pool, your detached garage, an outbuilding, etc.
Coverage C – Household Contents And Personal Property: this could be all of the stuff that you have in your house.
Coverage D – Loss Of Use: if you suffer a loss, say for example if your home burns, while it’s being repaired you can’t live there. Yet, you have to live somewhere else, so all of the expenses that you incur for those costs would be covered under “Loss Of Use”.
Coverage E – Personal Liability: for example, if somebody walks up on your sidewalk, and you didn’t shovel the snow and they slip and fall, you’re protected from the lawsuit by your “Personal Liability”.
Coverage F – Medical Payments To Others: this covers any medical payments that you have to spend to care for someone injured on your property. This doesn’t include you and your family members, and it’s only for people who don’t live in your home.
Coverages A, B, C and D are a function of coverage A.
What do I mean by that?
Well, say for example, you’re Dwelling Coverage (coverage A) is $300,000 on your home.
There are percentages that are found in standard policies which will dictate the value of the other coverages.
If your coverage A is $300,000, coverage B (Other Structures) is usually going to be 10%.
So, therefore, you’d have $30,000 in coverage for “Other Structures”.
Coverage C is normally going to be 60%, so on a $300,000 home you’d have $180.000 in coverage for coverage C “Household Contents And Personal Property”.
Coverage D (“Loss Of Use”) is usually 20%, so there you would have $60,000 worth of coverage.
Those 4 coverages are all a function of the amount of your dwelling.
Liability and medical payments are different.
Liability is normally available in an amount from 0 up to $300.000, and medical payments are normally a $1.000 to $2.000 amount, but many companies will allow purchase up to $10.000.
Now, that covers the different coverages on a standard policy.
Let’s look now at some other aspects of your policy.
In addition to understanding the coverages that are provided on your policy, it’s important to know in the event you have a claim, how that is going to be determined as well.
So, let’s consider the kinds of things you’re insured for.
Insurance terminology calls these “perils”, and there are two types: “open peril policies” and “named peril policies”.
Now, “open perils” simply mean that your policy covers you for “everything except this list of items that we exclude…”.
The alternative is “named perils” is a list of items that your policy covers, and means “these are the things you’re covered for and if it’s not on the list – you’re not covered…”.
So, which of those two would you prefer?
Most people would like to have an “open perils” policy.
Now in the event that there’s a claim, how are claims going to be adjusted?
There’s two methods:
- Actual Cash Value (ACV): that means “we’re gonna reimburse you for the actual value of the lost item on the day it was lost…”. So, if you had a five year old television, they gonna reimburse you for a television that’s five years old.
- Full Replacement Cost (FRC): that means “we’re gonna replace your old item with the same new item …”.
Most people prefer “full replacement cost” with “open peril policies”, and in 49 of the 50 states that policy is called an “HO-3 policy”, and it is the most common homeowner’s policy in the United States.