Homeowners Insurance 101

Your home consists of more than just a house. A home may include the pool in your backyard, the tools in your shed, sentimental items and valuables collected over time. Home is where your family returns to for safety, shelter, warmth and happiness. Homeowners insurance allows you to protect every part of your home giving you a greater sense of security for a place so important.

The standard homeowners’ package policy consists of two sections (Section 1- Property Protection and Section 2 - Liability Protection) and six areas of coverage known as A through F.

Section 1 – Property: Includes the following coverage areas A, B, C, and D:

Coverage A (Dwelling) applies to the structure you reside in; in other words, it refers to your home. This would cover the dwelling, attached structures (ex. Garage) and any permanently installed property such as wall-to-wall carpeting. In addition, it includes fixtures in the house such as built-in appliances, heating, air-conditioning systems, plumping and electrical wiring.

*The total amount of dwelling coverage should be equal to what it costs for rebuilding your home (not the market value).

Of special interest to Florida homeowners with property that has recently appreciated: BUILDING VALUES MUST BE WRITTEN TO AT LEAST 80% OF THE REPLACEMENT COST TO RECEIVE REPLACEMENT COST COVERAGE. In other words, if your home is underinsured, building losses are based on a co-insurance penalty formula or at the depreciated value (actual cash value) whichever is higher.

Coverage B (Other Structures) applies to other structures on your property that are separated from your house structure by a clear space. This would typically include a separate storage shed or garage. Fixtures attached to the land are also included under this coverage such as fences, driveways, sidewalks, patios and retaining walls. Typically, there is no coverage for any detached structures used for business.

*The total amount for other structures is normally 10% of your dwelling (coverage A) limit (i.e. $200,000 Dwelling = $20,000 Other Structures).

Coverage C (Personal Property) applies to the contents of your home and other personal items owned by you or family members who live with you. Several items such as clothing, furniture, electronics, tools and lawn mower fall under this extensive personal property category. Claim settlement payments are based on either actual cash value (the depreciated value of an item) or replacement cost (the amount it would cost to replace an item today) depending on whether you have a Replacement Cost endorsement added to your homeowner policy. Personal property coverage generally applies to your property anywhere in the world.

There are dollar limits within the standard policy on specific content items that you should be aware of before a loss occurs. The standard homeowners’ policy will typically provide limited coverage for small boats; however, most policies do not cover motorized vehicles unless they are unlicensed and used to maintain your residence premises. Other policy limitations that may apply include those for artwork, antiques, firearms, business property, electronic data, jewelry, and money. Additional coverage for these limited items is usually available through your agent by adding the necessary endorsements to your policy or by getting a separate scheduled policy.

*The total amount of personal property coverage is usually between 40 – 70% of your dwelling (coverage A) limit.

Coverage D (Loss of Use/Additional Living Expenses) applies when your home is uninhabitable as a result from a covered cause of loss. This area covers those additional living expenses that are incurred in order to maintain your normal standard of living or “fair rental value” from a loss of rental income. Additional living expenses (ALE) typically covers your living expenses over and above your normal living expenses if you cannot live in your home during repairs or if a civil authority denies you access to your home.

                                               COMMON PROPERTY EXCLUSIONS:

The standard homeowners’ policy does not cover injuries to animals, damage to motor vehicles, aircraft and parts. Other losses not covered are those due to floods, mudslides, water damage from sewer backups, damage resulting form war or nuclear hazard, neglect, wear and tear, deterioration, earthquakes, power failures or vermin.

Section 2 - Liability: Includes coverage areas E and F:

Coverage E (Personal Liability) coverage protects you and family members who permanently reside with you. Personal liability provides coverage against a claim or lawsuit resulting from bodily injury or property damage to others caused by an accident on your property (i.e. your child breaks a window or a friend slips down your steps) or because of your personal activities anywhere. This coverage normally applies whether you are on or off your premises and provides coverage when you are legally responsible for an act that causes damage to others. There is no coverage protection provided for business or auto related incidents.
 
In some states, including Florida, it is also important to know that several insurance carriers no longer provide important liability coverage to dog owners leaving them fully liable if their dog bites someone. 

Coverage F (Medical Payments) covers medical expenses stemming from accidental injuries that occur to others while they are on your property. Medical expense payments do not apply to your injuries or those of family members living with you; in addition, injuries involving your at-home business are not covered.

                                             Types of HOMEOWNER POLICIES:

There are two types of policies: Named Peril and All-Risk.

Named Peril – covers only specifically named perils (causes of loss). If a peril is not identified (i.e. fire, water, lightning, windstorm), you are not covered. The more popular standard homeowner policies under this category are the:

HO-2 (broad form) and the HO-6 (condominium unit owner’s form) – provide coverage for the following covered losses fire/lightning, windstorm/hail, explosion, riot, aircraft, vehicles, smoke, vandalism, theft, volcanic eruption, falling objects, weight of ice, snow, or sleet, accidental discharge of water, sudden loss from water system, freezing and power surge.

HO-3 (All-risk) – basically, this is the opposite of a Named Peril policy in that it identifies what is specifically excluded; furthermore, it covers what is not mentioned.  This is the most popular and more comprehensive homeowner policy. All–risk policies have a number of exclusions that are important to be aware of, some of which include flood, power failure, neglect, intentional loss; faulty planning, zoning, workmanship, materials, or maintenance; damage caused by birds, vermin, rodents and insects (i.e. termites).

HO-6 Condominium unit owners can add “All-risk” coverage by adding the HO-1732 endorsement to your policy. It is also important to have a copy of and to be familiar with your association by laws; furthermore, you should know what the association covers under the association’s policy. Whatever the association is not responsible for after a loss, more than likely you are.

After passage of the 2003 laws, the condominium association policy no longer covers:

Floor, wall and ceiling coverings (i.e. wallpaper, paint, paneling, textures)
Electrical fixtures (i.e. lights, fans)
Appliances
Air conditioning and heating equipment
Air conditioning compressors that serve only one unit regardless where they are located
Water heaters
Water filters
Built-in cabinets and countertops
Window treatments, including drapes, blinds and hardware replacement

In addition to the above items, any upgrades or additions should be included under your condominium policy.