Homeowner Insurance

An Insurance Policy Which Combines
Various Insurance Protections

Home insurance, also commonly called hazard insurance or homeowners insurance (often abbreviated in the real estate industry as HOI), is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one's home, its contents, loss of its use (additional living expenses), or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home. It requires that at least one of the named insured occupies the home. The dwelling policy (DP) is similar, but used for residences which don't qualify for various reasons, such as vacancy/non-occupancy, seasonal/secondary residence, or age. It is a multiple line insurance, meaning that it includes both property and liability coverage, with an indivisible premium, meaning that a single premium is paid for all risks. Standard forms divide coverage into several categories, and the coverage provided is typically a percentage of Coverage A, which is coverage for the main dwelling.

The cost of homeowners insurance often depends on what it would cost to replace the house and which additional riders—additional items to be insured—are attached to the policy. The insurance policy itself is a lengthy contract, and names what will and what will not be paid in the case of various events. Typically, claims due to floods, or war (whose definition typically includes a nuclear explosion from any source) are excluded. Special insurance can be purchased for these possibilities, including flood insurance. Insurance must be updated to the present and existing value at whatever inflation up or down, and an appraisal paid by the insurance company will be added on to the policy premium. Fire insurance will require a special premium charge, plus the addition of smoke detectors and on site fire suppression systems to qualify.

The home insurance policy is usually a term contract—a contract that is in effect for a fixed period of time. The payment the insured makes to the insurer is called the premium. The insured must pay the insurer the premium each term. Most insurers charge a lower premium if it appears less likely the home will be damaged or destroyed: for example, if the house is situated next to a fire station, if the house is equipped with fire sprinklers and fire alarms. Perpetual insurance, which is a type of home insurance without a fixed term, can also be obtained in certain areas.

In the United States, most home buyers borrow money in the form of a mortgage loan, and the mortgage lender always requires that the buyer purchase homeowners insurance as a condition of the loan, in order to protect the bank if the home were to be destroyed. Anyone with an insurable interest in the property should be listed on the policy. In some cases the mortgagee will waive the need for the mortgagor to carry homeowner's insurance if the value of the land exceeds the amount of the mortgage balance. In a case like this even the total destruction of any buildings would not affect the ability of the lender to be able to foreclose and recover the full amount of the loan.

The insurance crisis in Florida has meant that some waterfront property owners in that state have had to make that decision due to the high cost of premiums. 

Types of Homeowners Insurance

United States

Prior to the 1950s, there were separate policies for the various perils that could affect a home. A homeowner would have had to purchase separate policies covering fire losses, theft, personal property, and the like. During the 1950s, policy forms were developed, allowing the homeowner to purchase all the insurance they needed on one complete policy. However, these policies varied by insurance company, and were difficult to comprehend.

The need for standardization grew so great that a private company based in Jersey City, New Jersey, Insurance Services Office, also known as the ISO, was formed in 1971 to provide risk information and issued a simplified homeowners policy for resell to insurance companies. These policies have been amended over the years until currently, the ISO has seven standardized homeowners insurance forms in general use:

HO1 - Basic Homeowner Policy

A basic policy form that provides coverage on a home against 11 listed perils; contents are generally included in this type of coverage, but must be explicitly enumerated.

HO2 - Broad Homeowner Policy

A more advanced form that provides coverage on a home against 17 listed perils (including all 11 on the HO1). The coverage is usually a "named perils" policy, which lists the events that would be covered.

HO3 - All Risk Homeowner Policy

The typical, most comprehensive form used for single-family homes. The policy provides "all risk" coverage on the home with some perils excepted, such as earthquake and flood.

HO4 - Renter's Insurance

The “Tenants” form is for renters. It covers personal property against the same perils as the HO2.

HO6 - Condominium Policy

The form for condominium owners.

HO8 - Older Houses


Older Stockton California Home
The “Modified Coverage” form is for the owner-occupied older home whose replacement cost far exceeds the property’s market value.

According a 1998 NAIC report, 83% of homes were covered by owner-occupied homeowners policies. Of these, 87% had the HO3 Special and 9% had the more expensive HO5 Comprehensive. Both of these policies are "all risks" or "open perils", meaning that they cover all perils except those specifically excluded. 3% were the HO2 Broad, which covers only specific named perils. Others include the HO1 Basic and the HO8 Modified, which is the most limited in its coverage. HO8, also known as older home insurance, is likely to pay only actual cash value for damages rather than replacement.

The remaining 13% of home insurance policies were covered by renter's or condominium insurance. Two-thirds of these had the HO-4 Contents Broad form, also known as renters insurance, which covers the contents of an apartment not specifically covered in the blanket policy written for the complex. This policy can also cover liabilities arising from accidents and intentional injuries for guests as well as passers-by up to 150' of the domicile. Common coverage areas are events such as lightning, riot, aircraft, explosion, vandalism, smoke, theft, windstorm or hail, falling objects, volcanic eruption, snow, sleet, and weight of ice. The remainder had the HO-6 Unit-Owners policy, also known as a condominium insurance, which is designed for the owners of condos and includes coverage for the part of the building owned by the insured and for the property housed therein. Designed to span the gap between the coverage provided by the blanket policy written for the entire neighborhood or building and the personal property inside the home. The liability coverage may cover incidents up to 150' from the insured property, all valuables within the home from theft, fire or water damage or other forms of loss. The Associations Bylaws determine the total amount of insurance necessary.

In addition, about 2.4% of homes were covered by a dwelling fire policy which which covers property damage to a structure and is typically sold to noncommercial owners of rented houses. It may also cover the owner's personal property (such as appliances and furnishings). The owner's liability is generally extended from their own primary home insurance, and does not comprise part of the Dwelling Fire policy.

Coverages

For each policy, there are typically six classifications of coverage. These are based on standard Insurance Services Office or American Association of Insurance Services forms.
Section I - Property Coverages
Coverage A - Dwelling
    Covers the value of the dwelling itself (not including the land). Typically, a coinsurance clause states that as long as the dwelling is insured to 80% of actual value, it will be replaced. This is in place to give a buffer against inflation. HO-4 (renter's insurance) typically has no Coverage A, although it has additional coverages for improvements.
Coverage B - Other Structures
    Covers other structure around the property which are not used for business, except as a private garage. Typically limited at 10% of the Coverage A.
Coverage C - Personal Property
    Covers personal property, with limits for the theft and loss of particular classes of items (eg, $200 for money, banknotes, bullion, coins, medals, etc). Typically 50 to 70% of coverage A is required for contents, which means that consumers may pay for much more insurance than necessary. This has led to some calls for more choice.
Coverage D - Loss of Use/Additional Living Expenses
    Covers expenses associated with additional living expenses (i.e. rental expenses) and fair rental value, if part of the residence was rented, however only the rental income for the actual rent of the space not services provided such as utilities.
Additional Coverages
    Covers a variety of expenses such as debris removal, reasonable repairs, damage to trees and shrubs for certain named perils (excluding the most common causes of damage, wind and ice), changes, removal of property, credit card / identity theft charges, loss assessment, collapse, landlord's furnishing, and some building additions. These vary depending upon the form.
Exclusions
    In an open perils policy, specific exclusions will be stated in this section. These generally include earth movement, water damage, power failure, neglect, war, nuclear hazard, intentional loss, and concurrent causation (for HO-3).

12 ways to save money on insurance

    1. Be sure to shop around.
    It'll take a few phone calls, but they could save you a good sum of money. Ask your friends, check the yellow pages or call the California state insurance department. Also check consumer guides, Stockton insurance agents and Stockton Insurance companies. This will give you an idea of price ranges and tell you which companies or agents have the lowest prices. But don't consider price alone.

    The insurer you select should offer both a fair price and excellent service. Quality service may cost a bit more, but it provides added conveniences, so talk to a number of insurers to get a feeling for the type of service they give. Ask them what they would do to lower your costs. Check the financial ratings of the companies, too. Then, when you've narrowed the field to three insurers, get price quotes.

    2. Raise your deductible.
    Deductibles are the amount of money you have to pay toward a loss before your insurance company starts to pay according to the terms of your policy. Deductibles on homeowners policies typically start at $250. By increasing your deductible to $500, you could save up to 12 percent; $1,000, up to 24 percent; $2,500, up to 30 percent; and $5,000, up to 37 percent, depending, of course, on your insurance company.

    3. Buy your Stockton home and auto policies from the same insurer.
    Some companies that sell homeowners, auto and liability coverage will take 5 to 15 percent off your premium if you buy two or more policies from them.

    4. When you buy a home...
    Consider how much insuring it will cost. Because a new home's electrical, heating and plumbing systems and overall structure are likely to be in better shape than those of an older house, insurers may offer you a discount of 8 to 15 percent if your house is new.

    Check its construction, too. Brick, because of its resistance to wind damage is better in the East; Frame, because of its resistance to earthquake damage, better in the West. Slab floors because they don't settle as much in the Stockton adobe soil. Choosing wisely could cut your premium by 5 to 15 percent.


    Stockton Fire Station
    Avoiding areas that are prone to floods can save you $400 or so a year for flood insurance. Homeowners insurance does notcover flood-related damage. If you do buy a house in a flood-prone area, you'll have to buy a flood insurance policy, too.

    Stockton has a  full-time fire service? Is your house close to a hydrant or fire station? The closer your house is to firefighters and their equipment, the lower your premium will be.

    5. Insure your house, not the land.
    The land under your house isn't at risk from theft, windstorm, fire and the other perils covered in your homeowners policy. So don't include its value in deciding how much homeowners insurance to buy. If you do, you'll pay a higher premium than you should.

    6. Beef up your home security.
    You can usually get discounts of at least 5 percent for a smoke detector, burglar alarm, or dead-bolt locks. Some companies offer to cut your premium by as much as 15 or 20 percent if you install a sophisticated sprinkler system and a fire and burglar alarm that rings at the police station or other monitoring facility. These systems aren´t cheap and not every system qualifies for the discount. Before you buy such a system, find out what kind your insurer recommends and how much the device would cost and how much you would save on premiums.

    7. Stop smoking.
    Smoking accounts for more than 23,000 residential fires a year. That´s why some insurers offer to reduce premiums if all the residents in a house don´t smoke.

    8. Once you retire...
    Retired people stay at home more and spot fires sooner than working people. Retired people have more time for maintaining their homes, too. If you´re at least 55 years old and retired, you may qualify for a senior discount of up to 10 percent at some companies.

    9. See if you can get group coverage.
    Alumni and business associations often work out an insurance package with an insurance company, which includes a discount for association members. Ask your association´s director if an insurer is offering a discount on homeowners insurance to you and your fellow graduates or colleagues.

    10. Stay loyal to your insurer.
    If you´ve kept your coverage with a company for several years, you may receive special consideration. Several insurers will reduce their premiums by 5 percent if you stay with them for three to five years and by 10 percent if you remain a policyholder for six years or more.

    11. Compare the limits in your policy and the value of your possessions at least once a year.
    You want your policy to cover any major purchases or additions to your home. But you don´t want to spend money for coverage you don´t need. If your five-year-old fur coat is no longer worth the $20,000 you paid for it, you´ll want to reduce your floater and pocket the difference.

    12. If you´re in a government plan...
    If you live in a high-risk area --- say, one that is especially vulnerable to coastal storms, fires, or crime --- and have been buying your homeowners insurance through a government plan, you should check with an insurance agent or company representative. You may find that there are steps you can take that would allow you to buy insurance at a lower price in the private market.

History

The first homeowners policy per se in the United States was introduced in September 1950, but similar policies had existed in Great Britain and certain areas of the United States. In the late forties US insurance law was reformed and during this process multiple line statutes were written, allowing homeowners policies to become legal.

See also

Writing the Agreement? When you buy a home in California, you will usually sign a purchase contract. Normally, your real estate agent will complete preprinted purchase contract. You may make changes or additions to contract, but the seller must agree to every change you make.

Buyer Information

Home Loan Many people think getting a home loan is a very difficult and complex process, when in fact it is quite simple. If you take the time to understand the process and provide a lender with all the information they require - even a person with less-than-perfect credit and a small down payment can obtain a loan.

Buyer's Advisory You have an affirmative duty to exercise reasonable care to protect yourself, including discovery of the legal, practical and technical implications of disclosed facts, and the investigation and verification of information and facts that you know or that are within your diligent attention and observation. The purchase agreement gives you the right to investigate the Property. If you exercise this right, and you should, you must do so in accordance with the terms of that agreement.

Closing the Sale At closing, the documents necessary to convey your new home to you and close the loan from the lender will be executed and delivered. In addition to these standard items, the lender, the title company, and the Realtors involved may require other documents to be signed.

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