Homeowner's Insurance Requirement

As a former insurance agent, adjuster, and former Certified Insurance Counselor, I can say a lot about homeowners insurance.    Mostly:

People Don't know how to select it!

and slightly less comforting....

Many Agents Don't Help!

As a Realtor, I see a lot of people struggling with this decision.  I see the results of their struggle.   Usually they don't think they're struggling, but they are.  Whether its a single family home, condominiums, or apartment, old or new, insurance companies don't always make it easy.   

The insurance industry, like all businesses, has changed over the years.  The public in many ways no longer consults a person of knowledge, who advises them and helps. In many cases, they consult a salesperson (hired by person of knowledge) to bring in sales.  In the 40's and 50's, some standardization into policy packages was increased because prior to that, each individual coverage had to be purchased seperately or itemized.    In many cases, the insurance policies being offered only match up to how that person qualifies at the company they've contacted. Companies evaluate the risk of the property:  age, condition, location, financial ability, and occupancy type of building /  owner etc. and will offer the policy that fits that risk level.   Each company may have different standards.  Many agents are "captive agents" which mean they can only sell what their company offers.  So they represent the company, not the customer.

The public tends to be under the impression that homeowners insurance policies are all the same.  Homeowners Insurance Policies come in various forms, coverages and settlement types.  One of the terms used, "perils" talk about the things you're protected from.   Things like flooding, sinkholes, or termite damage are usually not specifically named on a policy, unless its considered an "OPEN PERIL" policy, meaning 'everythings covered', except excluded perils.  Commonly excluded items are earthquake, ordinance or law, intentional act, power failure, neglect, war, and many many otehrs.  In some cases, like ordinance or law, or earth quake, perils can be added by endorsement.   

The typical perils named basic perils may very state by state, but Wind & Hail, Aircraft, Riots, Vehicles, Explosions, and Smoke were generally the 'basic perils'.  Additional perils are added as policies get better.  Vandalism, Malicious Mischief, Weight of Ice and Snow, Artificial Electrical Surges, Volcanic Eruptions and Freezing, and others as the policy gets better.  

Settlment provisions are another big ticket concern, as "Replacement Value" or "Actual Cash Value" (ACV) can make THOUSANDS of DOLLARS difference when considering what is paid out by the insurer.  I would help my clients by telling them ACV policies were like garage sale value, so the garage sale value on a 18 year old roof is close to nothing, and replacement value may be $5,000 or more!

Details Matter!

(this post isn't meant to interpret as much as to share the need to read the details and seek appropriate counsel).

Policy Forms

When policy forms were developed in the 1940's, these coverages were packaged to form a policy.  All policies vary based on the company, but most include the basic areas of coverage:

A -dwelling (structure)

B- other structures (shed, mailbox)

C. personal property

D. loss of use

E. medical payments

General Types of Policies

HO1,  HO2 & HO8-- basic form, broad form, modified form

Basic and Broad policy types weren't readily available for most homeowners in the St. Louis area when I was working. Most companies had a modified form (HO-8) to cover homes that didn't meet age and update criteria.  These policies acount for 5-7% of the policies available, but They have limited perils, and limited settlement provisions (ACV). 

HO3 -- SPECIAL FORM POLICY   

This is the most common type of homeowners insurance for single family homes.  Its not an 'open peril' policy, but its probably the next best thing for your 'normal' home.   Often times replacement cost endorsement is added to the policy, but not always.

HO5 -- COMPREHENSIVE FORM 

This is the best type of policy available, and is usually limited to homes less than 20 years old, or high value homes.  About 10-15% of the policies available are HO-5.  Things like guaranteed replacement cost and "OPEN PERIL" are usually included.   Replacement cost on personal property is also usually included on this.

Renters Insurance

Policy form HO-4 is only for contents, so no coverage A or B.

Condominium Policy

Policy form HO-6.  Condo policies often times are mistaken for renters policies, which is an error.   Most companies offer them with a standard amount of building coverage to pay for special wall finishes, flooring, vanities, counters, countertops and fixtures (the condo association master policy pays to have the unit replaced with 'white box' finishes). Usually the value provided on the base policy is not enough to cover in the event of a total loss.

Additional policy endorsements are available for things like condominium assessments. 

Mobile Home Policy

Policy Form HO-7, is similar to an HO-3 in most cases, but used for mobile home or pre-fabricated homes.

Closing Arguements

So after this basic run down on property insurance, some basic do's

1.  Seek competent consultation from a professional insurance advisor.  Interview them, ask questions about their experience and whether they are a captive agent, a broker, or a producer.

2.  Policy proposals must be carefully read in their entirety.  

3.  Ask your agent what the standard coverages (limitations) or exclusions. Make sure you have enough coverage to meet your needs. 

4.  Ask what coverages are available by endorsement.  Don't wait for a catastrophe to find out you don't have earthquake coverage or ordinance or law!

5.  Find out what policies you'd have to buy seperately, like flood, or specialty scheduled items and where to get them.

6.  Check coverage values against rebuilding estimates, and catalog personal items for knowledge of whether you have enough coverage. Include rough estimate of clothing, etc.    It all ads up!