Homeowners Insurance: An Overview
The homeowners insurance policy is actually several coverages combined for home or condominium owners, or renters. There are three different packages for homeowners, and one each for renters and condominium owners.
The following description of policy coverage and provisions is based on industry-wide revisions that took place in 1991.
Each policy provides fire, lightning, windstorm, theft and liability coverages. Various types of optional extra coverages are then added to tailor the policy to specific needs. Each policy lists the perils that are covered (a peril is the actual cause of loss). The major differences among the various homeowners policy forms are the perils included and the property covered.
Standard contents of a policy
Property Covered: Under most homeowners policies, the major property to be covered is the house or “dwelling.” In addition to living quarters, this includes such structures as an attached garage or other house additions. Detached garages, tool sheds and other structures on the insured property (referred to in some policies as “other private structures”) are also covered. Any detached structure on the premises that is rented or leased to others (except for garage purposes), or used for business purposes, is not covered under the homeowners policy—an endorsement or separate policy is needed for this.
Renters and some condominium owners do not own the building they live in and do not need to insure it. However, some condo owners may be responsible for selected building items. It is recommended to check with the condo association to determine where responsibilities lie.
Like home owners, renters and condo owners need coverage for personal property. This includes household contents and other personal belongings owned, worn or carried by you or your family. You are covered whether the loss occurs while you’re at home or away. You can also obtain coverage for the personal property of guests on your premises. Coverage for animals, such as birds and fish, is not included.
Homeowners coverage includes “Loss of Use” coverage for the increase in living expenses made necessary when your house, apartment or condominium cannot be occupied due to damage caused by an insured peril. This covers your expenses over and above your normal living expenses during the time your residence cannot be occupied (up to the limits stated in your policy).
Liability Coverage: All homeowners forms include liability coverage. This coverage protects you in the event you are sued by persons who claim that your negligence caused injury to them or damage to their property.
If a suit is filed, your insurance company covers the cost of your defense whether you are ultimately found liable or not. If you should be found liable, your insurer will pay damages assessed against you, up to the liability coverage limits in your policy. Defense costs will not affect your liability coverage limits. Lawsuits between people covered by the same policy are excluded. Liability protection covers you for accidents occurring away from your premises as well as at home. It provides coverage for accidents caused by you, a family member or your pets. If you employ one or more persons in your home or on your premises, special Ohio Workers’ Compensation laws may apply.
Medical Payments to Others: Included under the liability section of the homeowners policy is a medical payments coverage with minimum limits of $1,000 per person. This provides coverage for accidental bodily injury to others when it occurs on your premises or elsewhere if caused by you, a family member or pets. It provides coverage whether or not you are legally liable. It does not provide coverage for injury to the named insured or family members.
Damage to Property of Others: There is a $500 maximum limit for minor damage accidentally caused by you or someone in your family to another person’s property. Again, you need not be legally liable. Damage caused by children under age 13 is covered, whether accidental or intentional.
Exclusions: Homeowners policies exclude certain perils, such as earthquake, landslide, flood, surface water, waves, tidal water or tidal wave, sewer backup, seepage, war and nuclear radiation. Most of these perils are classified as “acts of God” or catastrophe exposures and are not considered normal accidental losses.
Flood insurance is available, however, through a program of the federal government to certain eligible communities (see “Flood Insurance” for more information). Earthquake insurance is also offered as an endorsement by most insurance companies. Mopeds, other motorized bicycles and other recreational vehicles are excluded from coverage under homeowners policies.
The Ohio homeowners liability section also includes exclusions. Examples include the transmission of communicable diseases, home daycare services, and businesses in the home. Coverage may be available for many excluded exposures so check with an insurance professional regarding coverage.
Types of homeowners policies
The five homeowners forms available from most companies are:
- Homeowners 2 (the “Broad” form) covers against loss by fire, lightning, windstorm, hail, explosion, riot, civil commotion, aircraft or nonowned vehicle damage, smoke, glass breakage, vandalism, burglary, robbery and theft and volcanic eruption. It also provides protection for: damage from falling objects; weight of ice, snow and sleet; sudden and accidental tearing apart, cracking, burning or bulging of a steam or hot water heating system (or appliance for heating water); accidental discharge, leaking or overflow of water or steam from within a plumbing, heating or air conditioning system and domestic appliances; freezing of plumbing, heating and air conditioning systems and domestic appliances; and sudden and accidental injury from artificially generated currents to electrical appliances, devices, fixtures and wiring (TV and radio transistors, tubes and similar components not included).
- Homeowners 3 (the “Special” form) offers the same protection as the Homeowners 2. In addition, it broadens the coverage to an “open-perils” basis for building and other structures on the property. Under an “open-perils” policy, a peril is covered unless the policy specifically excludes that peril. The personal property coverage portion is not open-perils, however, it is the same coverage as provided under Homeowners 2. Open-perils coverage on personal property can be provided by an endorsement.
- Homeowners 4 (the “Tenants” form) is for renters. It covers personal property against the same perils as Homeowners 2. It also provides coverage for additional living expenses.
- Homeowners 6 (the “Condominium” form) is a policy created to cover the special needs of condominium owners. It covers loss of personal property and building additions and alterations inside the owner’s individual unit. Endorsements are available to protect the unit owner’s interest in the common property of the condominium association and to insure against any liability created by the unit owner’s share in the common ownership.
- Homeowners 8 (the “Modified Coverage” form) is a homeowners insurance policy designed to aid the owner-occupied older home whose replacement cost far exceeds the property’s market value. This form allows the policyholder to carry lower limits of insurance rather than try to maintain 80% of replacement cost. The HO-8 policy provides varying methods of loss payment depending on whether the damaged or destroyed building is repaired or replaced.The policy insures the dwelling, certain other structures on the premises and personal property against loss by fire or lightning, windstorm or hail, explosion, riot or civil commotion, vandalism or malicious mischief, falling aircraft, vehicle damage, smoke, theft (from within premises only) and glass breakage. There is also personal liability coverage and medical payments coverage for accidents occurring on the premises to persons other than residents.
Three supplementary coverages are included in homeowner policies. The Fire Department Service Charge provides up to $500 in coverage for fire department charges when called to protect property from an insured peril such as a fire. This coverage typically does not apply if the property is located within the limits of the city, municipality or protection district that provides the fire department response.
The Debris Removal coverage pays for the cost of removing the debris of covered property that has been damaged by an insured peril, up to a stated amount.
The Credit Card Theft coverage will pay up to $500 for the theft or unauthorized use of credit cards or electronic fund transfer cards issued in the policyholder’s name.
Certain types of personal property covered by the homeowners policy are limited to specific amounts per loss. The amount designated generally suits the needs of most average homeowners. Special limits may vary with individual companies and policies. However, the following are typical limits:
- Money—limited to a total of $200. This includes bullion, coin collections, bank notes, gold, silver and platinum.
- Securities—limited to $1,000. This includes accounts, bills, deeds, evidence of debt, letters of credit, notes, passports, manuscripts, railroad and other tickets, stamps and stamp collections.
- Watercraft—$1,000 total. This includes boats, trailers, furnishings, equipment and outboard motors.
- Trailers not used with watercraft— $1,000 total.
- Jewelry, watches, furs, precious and semi-precious stones—limited to $1,000 total loss when due to theft.
- Silverware, pewterware, goldware, silver-plate—limited to $2,500 total loss when due to theft.
- Guns—limited to $2,000 total loss when due to theft.
- Business property—limited to $2,500 while located on the described premises and to $250 while off premises.
- Dual-powered electronic equipment (e.g., mobile telephones) in a vehicle—$1,000 total.
- Dual-powered electronic equipment used for business—$1,000 total.
Policy endorsements modify or extend specific coverages provided by the policy under certain conditions. They are readily available by insurers for additional charges. Common homeowners endorsements offered are:
Special Loss Settlement: An endorsement that modifies HO-2 and HO-3 policies by allowing the policyholder to carry less than 80% replacement cost and still retain replacement cost coverage on partial losses. It is used as an alternative to HO-8.
Replacement Cost—Personal Property: Most policies can be amended to include the full cost to repair or replace personal property that has been lost or damaged.
Backup of sewers and drains: Many insurance companies offer an endorsement that provides coverage for the backup of sewers and drains. Check coverage limits with your insurance agent or company representative, as they will vary.
Home Business: With changes in the business climate, more people are operating businesses in the home. While the standard homeowners policy excludes or greatly limits coverage for this exposure, several endorsements are available to modify the policy. Coverage varies from company to company, so be sure to check with your agent or company representative.
Earthquake Insurance: Although Ohio is not a prevalent earthquake region, tremors do occur occasionally like the ones in Mercer County (Jan. 2004), Lake County (June 2003) and Painesville (Apr. 2002). Earthquake protection is not provided under most homeowners policies but may be added by endorsement. Owners of frame structures pay lower rates than those in masonry buildings, since frame buildings are better able to withstand earth tremors.
A special deductible—at least $250 or an average of 5–10% of the total amount of the insurance in any one loss, whichever is greater—apply separately to the dwelling, other structures and personal property.
Identity theft: Many insurers have introduced an Identity Theft endorsement for the homeowners policy (costs about $25 to $50 for $15,000–$25,000 coverage). Generally, the endorsement provides reimbursement to ID theft victims for costs associated with restoring their ID and correcting their credit history. Coverage will vary by insurer.
|The California Department of Insurance reports that California homeowners buying earthquake insurance declined by 52% between 1999–2003, and now fewer than 15% of homes have the coverage.|
Homeowners policy change
An important change to the homeowners policy adds coverage for increased costs of construction due to the enforcement of building ordinances or laws. The limit is 10% of the coverage available to the dwelling. Two optional endorsements could be used to change the 10% limit. This change was made as a result of the problems home owners incurred following Hurricane Andrew.
Cost of homeowners insurance
Generally, the more coverage you need, the more expensive the policy premium. A Homeowners 3 policy provides broader coverage than a Homeowners 2 policy and requires a higher premium.
Other factors that affect homeowners premiums include the following:
- Loss experience of your insurance company
- Type of fire-fighting equipment used by the local fire department and the efficiency of its personnel
- Dependability of the fire alarm system
- Proximity of a water supply
- Home construction
- Home location
- Size of the deductible selected (generally, the higher the deductible selected, the lower the premium charge)
- Previous claims history
- Your credit-based insurance score
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Note: This is a general description of coverages; coverage varies based on your specific homeowners policy. It is important to read the policy and discuss any limitations or exclusions with your insurance agent or company representative.
* For personal property, applies only to property contained within a building
Note: For dwelling and other structures, the HO-3 policy form provides coverage for risks of loss that are not otherwise excluded in the policy.
Major revisions to the homeowners policy
Insurance Services Office, Inc. (ISO) introduced a new homeowners insurance policy in March 2001—the first major revision since 1991. As a result, a number of Ohio insurers have implemented homeowner policy changes.
Some of the ISO homeowner policy revisions include the following:
- The term “insured” does not include students living away from home. The limitation depends on the age of the student and the student’s enrollment status. An endorsement is available for impacted students.
- Endorsement options will be available to add unrelated members of the household as “insureds” and coverage for family members in assisted living facilities.
- The “personal property limitation” for property usually located at another residence doesn’t apply if the property is moved from the “residence premises” because the residence is being repaired, renovated or rebuilt.
- The term “business” is redefined to include a full- or part-time trade, profession or occupation and any other activity engaged in for money or compensation. Whereas many part-time incidental businesses may have previously been covered, coverage may now be excluded.
- The “vacancy” period has been extended from 30 to 60 days before excluding vandalism and malicious mischief claims.
These are just some of the revisions in the ISO homeowners policy. Check with your insurance agent or company representative to determine if these revisions affect your coverage.
|Homeowners vs. renters in US. 72.3% are owner occupied; 34% are renter occupied.|
(Census American Housing Survey 2001 from USA Today, 10/31/04)