Insuring Your Home

house fireYou want to be sure you have the right amount and type of insurance, so you’re protected when there’s a loss. Homeowner’s insurance covers your house and its contents, including your personal possessions and valuable articles, against damage or loss. If you rent, you can get insurance just for the contents. There are also special policies for condos and co-ops.

Most homeowner’s insurance is sold by agents representing one or more insurers, or you may be able to buy coverage online. You can get bids from several insurers to find the best prices, but you’ll also want to check each insurer’s reputation for paying claims and for financial stability before you choose a policy.

Benjamin Franklin organized the first fire insurance company in North America in 1752. It’s still doing business in Philadelphia.

WHAT’S COVERED?

Policies vary in terms of the kinds of perils or hazards they cover, and how they compensate you for a loss.

A standard, or named perils, policy provides limited protection — and lists the specific perils (for example, fire and theft) that are covered. Broader coverage gives you insurance for all types of losses except those excluded from the policy.

The insurance industry codes homeowner’s policies from HO1 to HO8 to reflect the range of coverages, with higher numbers indicating more comprehensive policies. The broader the policy, the higher the premium you’ll pay. However, you should also be aware that different companies may charge very different premiums for the same level of coverage. So it pays to comparison shop.

You can get additional insurance for valuable articles — such as jewelry, art work, and collectibles — for which you pay a separate premium. And you may qualify for a reduced premium on your policy if you have an approved security system installed.

Some policies require you to replace the damaged or stolen property, and then reimburse you for the expense. Others give you the money for the agreed-upon value, but don’t require the replacement, so you can spend the money as you see fit.

WHAT’S EXCLUDED?

Virtually no basic policy covers losses resulting from war, riots, police actions, nuclear explosion, or “acts of God.” You can sometimes get a rider, or an endorsement to your policy, to cover situations that are normally excluded, such as floods and earthquakes, but you’ll pay an extra premium for this coverage.

Because policies vary, pay attention to all of the detailed descriptions of what’s covered and what isn’t. Sometimes a policy that’s significantly cheaper than the others you consider also has many more exclusions than you might expect.

LIABILITY COVERAGE

Liability coverage can help protect you from financial losses if you’re sued for being responsible for property damage or injuring someone. Arranging for excess liability increases the amount of basic coverage and may give you added protection for a wider range of activities, such as a leadership role in community or government organizations.

WHAT’S A DEDUCTIBLE?

Every policy has a deductible, an amount you pay to settle a bill or replace lost or damaged property before you receive a payment from the insurer. Deductibles may vary from a few hundred to a few thousand dollars. You can reduce the cost of your insurance by choosing a larger deductible, but you’ll have to pay the amount of any loss up to the deductible. Some people don’t make claims for losses less than the deductible level.

THE COVERAGE YOU NEED

You should insure your house for at least 80% of its replacement value — what it would cost to repair or rebuild the house at today’s prices. But it probably makes better sense to insure your house for its full replacement value. Most companies will automatically increase your coverage and raise your premium each year to cover rising costs. It can also pay to get replacement cost coverage for the contents of your home. However, you’ll want to be sure that your policy defines replacement as rebuilding your home as it was, with its unique architectural characteristics, not simply a home of the same size.

Remember, too, that the replacement value may be substantially less than the market value, or the price at which you could sell. That’s because the market value includes the price of the land on which your home is built.

AFTER A LOSS

What you receive after a loss depends on your policy’s terms — the fine print — which you should read carefully, and discuss with your insurance agent, before you buy the policy. Not learning how much — or how little — you’ll be reimbursed until after a loss can lead to an unpleasant surprise. That may be especially true if your loss occurs during what’s described as a natural disaster, where many factors may have contributed.


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