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Homeowners' Hazard Insurance

Jack Pearce
Al Leonard

Homeowners insurance provides financial protection against disasters. A standard policy insures the home itself and the things you keep in it.²

Homeowners insurance is a package policy. This means that it covers both damage to your property and your liability or legal responsibility for any injuries and property damage you or members of your family cause to other people. This includes damage caused by household pets.

Unlike driving a car, you can legally own a home without homeowners insurance. But, if you have bought your home and financed the purchase with a mortgage, your lender will most likely require you to get homeowners' insurance coverage. That’s because lenders need to protect their investment in your home in case your house burns down or is badly damaged by a storm, tornado, or other disaster.

If you live in an area that is likely to flood, the bank will also require you to purchase flood insurance. Some financial institutions may also require earthquake coverage if you live in a region vulnerable to earthquakes. If you buy a co-op or condominium, your board will probably require you to buy homeowners insurance.

After your mortgage is paid off, no one will force you to buy homeowners insurance. But it is not advisable to cancel your policy and risk losing what you’ve invested in your home.

Damage caused by most disasters is covered but ― there are exceptions. The most significant are damage caused by floods, earthquakes and poor maintenance. You must buy two separate policies for flood and earthquake coverage. Maintenance-related problems are the homeowners' responsibility and there is help, here also, in the form of the "home warranty."

Your homeowners' policy will not cover you in the event your furnace doesn't come on next October. That's the job of the Home Warranty  - usually a one-year limited home service agreement that helps protect homeowners against the costs of repair or replacement of covered appliances and major systems that break down due to normal wear and tear (i.e. - they break down all by themselves and not because of a hazardous event).

5 things to understand about Homeowners insurance.
11 ways to lower your Homeowners Insurance costs.

5 Things to Understand About Homeowners Insurance¹

	1. Look for exclusions to coverage. For example, most insurance policies do not cover flood or earthquake damage as a standard item. These coverages must be bought separately.
	2. Look for dollar limitations on claims. Even if you are covered for a risk, there may a limit on how much the insurer will pay. For example, many policies limit the amount paid for stolen jewelry unless items are insured separately.
	3. Understand replacement cost. If your home is destroyed you’ll receive money to replace it only to the maximum of your coverage, so be sure your insurance is sufficient. This means that if your home is insured for $150,000 and it costs $180,000 to replace it, you’ll only receive $150,000.   >> Enough Insurance? - Play Video
	4. Understand actual cash value. If you choose not to replace your home when it’s destroyed, you’ll receive replacement cost, less depreciation. This is called actual cash value.
	5. Understand liability. Generally your homeowners insurance covers you for accidents that happen to other people on your property, including medical care, court costs, and awards by the court. However, there is usually an upper limit to the amount of coverage provided. Be sure that it’s sufficient if you have significant assets.

11 Ways to Lower Your Homeowners' Insurance Costs¹

	1. Raise your deductible. If you can afford to pay more toward a loss that occurs, your premiums will be lower.
	2. Buy your homeowners and auto policies from the same company. You’ll usually qualify for a discount. But make sure that the savings really yields the lowest price.
	3. Make your home less susceptible to damage. Keep roofs and drains in good repair. Retrofit your house to protect against natural disasters common to your area.   >> Prevent Losses -  Play Video
	4. Keep your home safer. Install smoke detectors, burglar alarms, and dead-bolt locks. All of these will usually qualify for a discount.
	5. Be sure you insure your house for the correct amount. Remember, you’re covering replacement cost, not market value.
	6. Ask about other discounts. For example, retirees who are home more than working people may qualify for a discount on theft insurance.
	7. Stay with the same insurer. Especially in today’s tight insurance market, your current vendor is more likely to give you a good price.
	8. See if you belong to any groups (associations, alumni groups) that offer lower insurance rates.
	9. Review your policy limits and the value of your home and possessions annually. Some items depreciate and may not need as much coverage.
	10. See if there’s a government-backed insurance plan. In some high-risk areas, such as the coasts, federal or state governments may back plans to lower rates. Ask your insurance agent.
	11. Maintain a good credit history. Most insurers use credit-based insurance scores when reviewing new applications for homeowners insurance. A person with a good insurance score will usually pay less for insurance than someone with a poor score. Actuarial studies show that how a person manages his or her financial affairs, which is what an insurance score indicates, is a good predictor of insurance claims. >> Credit Based Insurance Scores -  Play Video

See Also:

• Contrast with The Home Warranty
• Is Your Home Properly Insured? The Three Most Important Questions  to Ask Your Insurer
• Maintaining Good Credit Reaps a Variety of Financial Rewards
• Yuck… Are You Insured for Sewer Backup?
• Protect Your Home and Your Identity
• Spring Cleaning? - As you clean why not create a Home Inventory?
• Homeowners Insurance Expenditures
• Buying Your Home - Insurance
• Fire Insurance—How Does It Work-
• Homeowners' Insurance Covers Wide Range of Goods and Services
• Complete Asset List Is Essential, Ohio Bar Association.
• I’m installing a pool. what kind of insurance do I need?
• Consumers can find information on homeowners and renters insurance by visiting The Insurance Information Institute, (III)

Sources:

1. Portions reprinted from REALTOR^® Magazine Online
   by permission of the NATIONAL ASSOCIATION OF REALTORS^®
   Copyright 2005. All rights reserved.
    www.REALTOR.org/realtormag
2. Portions reprinted from www.iii.org by permission of the Insurance Information Institute^®
    

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