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Homeowners Insurance

OBTAINING INSURANCE PROTECTION FOR YOUR HOME

     For most families, buying a house is the biggest single purchase they will ever make in their lives. Whether it is viewed as an investment or as a measure of one’s ability to provide for oneself or one’s family, it is always prudent for a homeowner to purchase a good homeowners insurance. However, not all policies are created equal. In order to get the best value, the homeowner must approach the purchase of insurance with the same care and diligence used in buying the house.

     What is Homeowners Insurance?
     A homeowners insurance is a package policy which includes coverage for the house, the contents of the house, additional living expenses (should you have to temporarily move out of the house), personal liability claims (for damages or injuries to other persons while they were in the house), and medical payments (to other persons injured in the house).

     Shop Around
     Research is the key to getting the coverage that you need for the amount of money you’re willing or able to pay. When buying insurance, do not merely take the word of your agent or broker. Take the initiative in educating yourself and understanding the policy being offered to you. Compare policy coverage, policy limitations, prices, conditions, exclusions, and complaint processes.

     If you use an agent or broker, make sure this person will take the time to discuss your needs and how specific coverage can best meet your needs. Be wary of agents or brokers who are only there to earn commissions but do not really care whether the policy is appropriate for you or not. And even if your agent or broker is knowledgeable and has outlined the “best coverage” for you, you ultimately must still decide how much insurance you need and what kind to buy.

     In certain cases, it is generally preferable to deal with an agent of a reputable company instead of an independent broker. Any negligent act or omission by the agent is imputed to the insurance company. On the other hand, a broker’s negligence is usually imputed to the homeowner. A broker’s conduct in securing the policy for the homeowner may be important in determining whether the homeowner’s claim for losses will be paid by the insurer.

     How Much is the Premium?
     It is also important to remember that not all insurance companies charge the same price. Under California law, each insurance company calculates its own rates, subject to California Department of Insurance (CDI) approval. It is always a good idea to compare the prices with the available coverage and how these will meet your needs.

     One will typically pay a single premium amount for the combination of coverage listed in the homeowners policy. Different insurers charge different premiums. The amount of the premium may be influenced by several factors. If the company sells its policies through an independent agent who represents several other companies, the agent may have been able to get the most competitive prices, and savings could be passed on to you. On the other hand, if a company sells the policy directly to the consumer, it may be able to offer a lower price because it won’t have to pay a large commission to an independent agent.

     Most companies offer premium installments or payment plans, which they computed using their own methods. It is good to ask for an explanation on how premium plans are computed and what kinds of payment options are available for you. You may then wish to compare this information with the information that other insurers provide. Some companies may also give discounts for burglar alarms and fire protection devices (smoke detectors, alarms, and sprinklers). You should ask the insurer about what kind of discounts you can get if you have these devices installed in your house.

     What is Covered?
    Homeowners policies usually insure the house itself and the contents of the house for losses brought about by the following: fire or lightning, windstorm or hail, breakage of glass, explosion, riot or civil commotion, theft, aircraft, vehicles, smoke, vandalism and malicious mischief. Your policy also covers loss of use as well as additional living expenses due to a covered loss. Liability coverage protects you for injuries or damages to others caused by you, a member of your family, or pet. Medical payments insurance will cover medical expenses to non-family members injured at your home.

     You may choose to buy additional protection beyond the standard coverage. This is called an endorsement (a.k.a. Rider, addendum, attachment). An endorsement is a written document attached to an insurance policy that changes what is covered under the policy. An endorsement can add coverage for acts or things that are not covered in the original policy. The endorsement can be added when you first buy the policy or later during the term of the policy.

     What is Not Covered?
     The following are “excluded” or not covered in your typical homeowners policy: Earthquake, flood, mold, earth movement (like soil erosion), and wear and tear. When an insurer writes your coverage, it is legally obliged to offer you earthquake coverage for an additional premium. You should always read the exclusions in your insurance contract. You cannot simply assume that you are covered on certain losses when you may not be.

     What are the Policy Limits?
     The “dwelling” limit should be the amount it would cost to replace your home in the event of a total loss. This amount is different from the purchase price or current market value of your home. It is not governed by the real estate market but by the cost of the materials and labor spent in rebuilding your home. Each insurance company has its own unique way of computing dwelling limits. You may want to ask your agent’s help in evaluating the amount of coverage. Write down your agent’s explanation to prevent misunderstanding.

     Every time a policy is renewed, the information affecting your dwelling limits should also be updated. The cost of materials and labor may have changed. Renovation and improvement costs may affect the limits. Contact your insurer if you believe the policy limits may be inadequate and request a comprehensive inspection of your home.

     The “contents” limit is the amount it would cost to replace personal possessions in the home, and is generally computed to be 50% of the dwelling amount. However, the 50% figure is only a guideline because the homeowner will generally know more about the replacement value of the personal properties. Personal property includes furniture, small appliances, kitchen utensils, linens, window covers, clothes, shoes, accessories and other personal items. Consider all of your personal properties when computing the contents limits.

     There might be limited coverage for specific types of property such as jewelry, fine arts, silverware, antiques, collectibles, firearms, computers, money, and business personal property. You may need to purchase an endorsement to cover for these personal items because their value may exceed the general contents limits provided in the policy.
 
     Will the Policy Totally Replace a Destroyed Home?
    Homeowners do not like to think that their home might be destroyed as a result of calamity. Nevertheless, it is prudent to ask whether the homeowners insurance will completely replace the damage should the unthinkable happen. There are two types of policy you can purchase: a replacement cost value policy or an actual cash value policy. The actual cash value policy will not totally replace the home. California courts have decided that actual cash value (if not specified in the insurance contract) will be interpreted to mean fair market value, which may not be enough.

     A replacement cost policy has a better chance of completely rebuilding one’s home. However, this is not a guarantee and will depend on the kind of replacement cost policy that you purchased. Therefore, be careful about purchasing a replacement cost policy that best meets your needs. A policy cannot be sold as a “guaranteed replacement cost policy” unless the policy will pay to completely rebuild your home.

     Read Your Policy
    Reading an insurance contract can be a daunting task. But it is absolutely necessary. Review and read your policy when you receive it. You need to know and understand what your policy can do for you and what it cannot. If you have doubts about certain provisions or you just simply do not understand these provisions, you should call your insurer and discuss with them. It is better to know now what you have covered (or not covered) when you can still do something about it, than to know later when it’s too late.

     Other Helpful Precautions
    Keep an inventory of items that you own, the dates and costs of purchase. Take photos of important and valuable items. Take photos or a videotape of your home and personal possessions. Keep these records in a safe place away from your home (preferably a safe-deposit box in the bank). Regularly update your inventory, photos, videos, appraisals. Should you suffer a loss in the future and need to file a claim, it will be easier to support your claims because you have a complete record.

     Homeowners insurance is a key element in protecting that American dream. Take the time to know and understand the coverage and limits of your policy. However, in certain instances, despite one’s diligence, a homeowner’s insurance claim may prove to be a difficult challenge. Under these circumstances, seeking the help of an experienced insurance attorney may be the best course of action for the homeowner.

© Law Offices C. Joe Sayas, Jr.