What is Insured?
A good home insurance policy should cover your home against all conceivable risks to the amount set as the policy limit at the time of purchasing the plan. The choice of either insuring a home and its belongings for the Actual Cash Value (ACV) also known as the market rate or for the replacement costs is at the discretion of the policyholder. Replacement cost covers the cost of replacing your property or rebuilding your home without factoring in depreciation, whereas with actual cash value cover insurer takes into account depreciation when compensating. It is recommended that you insure at 100% of the replacement cost, however, most insurers require homeowners to cover at least 80% of the replacement cost, any plan with a lower percentage is subjected to a coinsurance penalty.
What is Covered?
A home insurance plan has provisions to offer coverage for the following:
- Detached Structures such as a gazebo, garage, or a detached guest wing. The limit of coverage on these structures is however restricted to 10% of the coverage of the main structure.
- Home contents such as furniture, standard electronics, clothing, and upholstery are normally covered to a maximum 01 50% of the main cover and are on the basis of the actual cash value. Insurers, however, allow replacement cost coverage at a higher premium. Additional coverage for high valued personal property excluded items such as guns, antiques or jewelry is availed through endorsements.
- Contingency Living Expenses incurred while living away while waiting for repairs on your home to be completed are also covered but limited to 20% of the policy coverage of your home.
- Personal Liability on claims and litigation arising from property damage or bodily injury to others as a result of a direct action by you or your negligence are covered at an amount set by the policyholder and applies to all the inhabitants of the house declared on policy purchase.
- As an enhancement to personal liability cover, medical expenses incurred by others who have been accidentally injured whilst on your property are covered irrespective of who is at fault.
Varieties of Policies
The two main types of home insurance policies are; the open (or all risks) plan and the standard or named perils homeowner’s policy. An all risks plan covers losses incurred due to any risks except for specific perils set apart by the insurer. The standard homeowners policy covers losses due to perils listed in the policy such as fire or windstorm causing direct physical losses whereas the all risks policy entail a broader coverage. These policies are further bundled into five packages designed for single families in their homes namely:
- HO-1 Basic homeowner, a standard home owner's cover that covers against the most common and basic perils including windstorm/hail, fire/lightning, explosions, civil unrest, theft and vandalism, accidents caused by aircraft or motor vehicles among others.
- HO-2 Broad Basic Homeowner covers the 11 perils covered under HO-1 and includes coverage of the plumbing and heating systems, damage due to power surges on electrical appliances and losses due to the collapse of the building or any part of the structure.
- HO-3 Special Extended Homeowner is an open policy that comprehensively covers all 18 perils under HO-2 and is by far the most popular package.
- HO-3 with HO-15 Comprehensive Homeowner package comprehensively covers the home plus personal property against all risks apart for some which are specified by the insurer.
- HO-8 Modified Homeowner package is designed for older homes with valuable historical or architectural features.
The packaging of policy plans is not limited to the aforementioned five, other packages such as the HO-4 Renter's Coverage and the HO-6 — Condominium Unit Homeowner and are designed to provide protection against personal property, loss of use, medical expenses, personal liability and the homes to the extent of your ownership only
Homeowners are not restricted to seek coverage only within the confines of the policy package, endorsements or floaters or riders are availed by insurance companies to modify your package and fit your risk exposures. Common endorsements available within the insurance market today include:
- Inflation Guard Endorsement, which allows the insurance company to adjust your policy limit upwards in order to guard against inflation and maintain coverage of at least 80% replacement cost.
- Guaranteed Contents Endorsement similarly covers the cost of replacement of personal items regardless of the tenure of its ownership and regardless of depreciation. A piece of furniture owned for over 50 years is covered by such an endorsement
- Scheduled Personal Endorsement or Personal article Endorsement and Blanket floaters cover personal items which may be excluded in the standard policy such as jewelry, guns, and antiques. Each article is itemized and the excluded risks are stated. In case it is not practical to list the items and alternative floater known as blanket endorsement is applicable.
- Flood Insurance is availed to those whose homes are built on flood-prone areas. Such homes are also qualified to benefit from the National Flood Insurance Program (NFIP) which mainly cover damage to the structure and its foundation.
- Other endorsements include Windstorm coverage, earthquake insurance endorsement, theft coverage, credit card and depositor's forgery endorsements, watercraft coverage, law endorsements, income property endorsement, personal injury endorsement, home business endorsement and secondary residence coverage. These endorsements are not standard to all insurance companies but may vary from one to another depending on their products style.
To conclude, you need to know that home insurance companies are not as rigid as many perceive or rumored, there are several other rebates available to clients based on either the age of a home, the extent of loyalty or reduced risk. New homes often enjoy discounts of up to 14%, while those who maintain loyalty to insurers over prolonged periods or purchase multiple policies from the same insurer may enjoy up to 15% in discounts. Retired homeowners usually enjoy discounts of up to 5% while those who have minimized risks by placing home security systems such as intruder alarms, smoke alarms, or simply by not smoking, benefit from discounts ranging from 5% to go to as much as 20%.