PROPERTY INSURANCE COVERAGE
Insurance that protects you from the financial loss you would incur if some of your property were lost or destroyed due to fire, theft, vandalism, flood, or other hazard is property insurance . Property owners also are at risk of being sued by other people who are injured on their property. Because the risks of loss in such situations are high, everyone should carry property insurance.
Home and property insurance protect you against three kinds of economic loss.
1. Damage to your home or property
2. Expenses you must pay to live somewhere else if your home is damaged and must be repaired or rebuilt
3. Liability losses related to your property
Damage to Home or PropertyYou should insure your home and other expensive property for damage from fire, vandalism, unavoidable accidents, and natural disasters such as lightning, wind, and hail. If your property is damaged and you are insured, the insurance company will pay all or a portion of the cost of repair or replacement.
Additional Living ExpensesIf a fire or other disaster strikes your home, one of the first shocks you will experience is that you do not have a place to live. You may have to move into a hotel, motel, or furnished apartment while your home is being repaired.
Property insurance often includes coverage for additional living expenses. This insurance feature helps to pay for the living costs you would incur if something happened to your home.
Liability LossesThe third kind of loss, liability loss, is protected by personal liability insurance. Personal liability coverage covers claims from injuries to people or damage to property caused by you, your family, or even your pets. Suppose a neighbor slips on your icy sidewalk and it is proven you are at fault. Personal liability coverage will pay for any medical and legal costs up to a stated limit. What if a child damages a car in an adjacent driveway with a tricycle? Claims will be paid through the policy of the child's family. Specifically, the provisions that cover liability for physical damage to the property of others will be used to determine the claim amount.
These kinds of events may seem remote and rather petty. Yet court awards to those who suffer the damage or injury often are neither remote nor petty. In fact, these awards (and therefore premiums) are increasing so quickly that the insurance industry often refers to it as the insurance liability crisis. Awards to injured people for millions of dollars are not uncommon. Everyone should have some form of liability protection from economic loss.
PROPERTY INSURANCE POLICIES
When purchasing property insurance, you must first decide what you should insure. You must also decide the perils from which you should insure your property. Perils are the causes of loss such as fire, wind, or theft.
Property permanently attached to land, such as a house or garage, is real property . Property not attached to the land, such as furniture or clothing, is known as personal property . You may insure real and personal property with a homeowners policy.
Homeowners PoliciesThe most common form of home and property insurance policy sold today is a homeowners policy. . This coverage provides a very convenient package-type insurance policy designed to insure homes and property. Homeowners policies come in several forms.
Note: In the past, insurance companies also offered HO-1 (Basic Form), HO-2 (Broad Form), and HO-8 (Modified Coverage Form for older homes with a high replacement value); these policies are no longer offered by most companies.
All forms of homeowners policies cover the perils listed at the top of Figure 20-2. The special form and comprehensive form policies have become the most common types of home insurance. These policies insure against most perils except those excluded by the policy. Other home insurance policies are designed for special situations such as condominium owners and renters.
Personal liability coverage is included with all forms of the homeowners policy. With a homeowners policy, you are as protected as you would be if you bought several separate policies.
Renters PoliciesMany people rent homes, condominiums, or apartments. Their dwellings are filled with personal property. Renters have many of the same property and liability insurance needs as homeowners. A renters policy is a property and liability policy suitable for renters.
This policy covers household goods and personal belongings. This coverage provides protection against the same kinds of perils covered by homeowners policies. A renters policy may include personal liability coverage, but it doesn't protect the actual dwelling. The dwelling should be covered under the owner's policy.
Other CoverageYou can purchase policies for damage caused by flood in a flood-prone area. You can also obtain insurance to protect
Insurance that protects you from the financial loss you would incur if some of your property were lost or destroyed due to fire, theft, vandalism, flood, or other hazard is property insurance . Property owners also are at risk of being sued by other people who are injured on their property. Because the risks of loss in such situations are high, everyone should carry property insurance.
Home and property insurance protect you against three kinds of economic loss.
1. Damage to your home or property
2. Expenses you must pay to live somewhere else if your home is damaged and must be repaired or rebuilt
3. Liability losses related to your property
Damage to Home or PropertyYou should insure your home and other expensive property for damage from fire, vandalism, unavoidable accidents, and natural disasters such as lightning, wind, and hail. If your property is damaged and you are insured, the insurance company will pay all or a portion of the cost of repair or replacement.
Additional Living ExpensesIf a fire or other disaster strikes your home, one of the first shocks you will experience is that you do not have a place to live. You may have to move into a hotel, motel, or furnished apartment while your home is being repaired.
Property insurance often includes coverage for additional living expenses. This insurance feature helps to pay for the living costs you would incur if something happened to your home.
Liability LossesThe third kind of loss, liability loss, is protected by personal liability insurance. Personal liability coverage covers claims from injuries to people or damage to property caused by you, your family, or even your pets. Suppose a neighbor slips on your icy sidewalk and it is proven you are at fault. Personal liability coverage will pay for any medical and legal costs up to a stated limit. What if a child damages a car in an adjacent driveway with a tricycle? Claims will be paid through the policy of the child's family. Specifically, the provisions that cover liability for physical damage to the property of others will be used to determine the claim amount.
These kinds of events may seem remote and rather petty. Yet court awards to those who suffer the damage or injury often are neither remote nor petty. In fact, these awards (and therefore premiums) are increasing so quickly that the insurance industry often refers to it as the insurance liability crisis. Awards to injured people for millions of dollars are not uncommon. Everyone should have some form of liability protection from economic loss.
PROPERTY INSURANCE POLICIES
When purchasing property insurance, you must first decide what you should insure. You must also decide the perils from which you should insure your property. Perils are the causes of loss such as fire, wind, or theft.
Property permanently attached to land, such as a house or garage, is real property . Property not attached to the land, such as furniture or clothing, is known as personal property . You may insure real and personal property with a homeowners policy.
Homeowners PoliciesThe most common form of home and property insurance policy sold today is a homeowners policy. . This coverage provides a very convenient package-type insurance policy designed to insure homes and property. Homeowners policies come in several forms.
Note: In the past, insurance companies also offered HO-1 (Basic Form), HO-2 (Broad Form), and HO-8 (Modified Coverage Form for older homes with a high replacement value); these policies are no longer offered by most companies.
All forms of homeowners policies cover the perils listed at the top of Figure 20-2. The special form and comprehensive form policies have become the most common types of home insurance. These policies insure against most perils except those excluded by the policy. Other home insurance policies are designed for special situations such as condominium owners and renters.
Personal liability coverage is included with all forms of the homeowners policy. With a homeowners policy, you are as protected as you would be if you bought several separate policies.
Renters PoliciesMany people rent homes, condominiums, or apartments. Their dwellings are filled with personal property. Renters have many of the same property and liability insurance needs as homeowners. A renters policy is a property and liability policy suitable for renters.
This policy covers household goods and personal belongings. This coverage provides protection against the same kinds of perils covered by homeowners policies. A renters policy may include personal liability coverage, but it doesn't protect the actual dwelling. The dwelling should be covered under the owner's policy.
Other CoverageYou can purchase policies for damage caused by flood in a flood-prone area. You can also obtain insurance to protect
against economic losses caused by earthquakes. Neither of these two perils is typically covered in other policies.Making a ClaimIf you have to make a claim for a property loss, you will want to be well prepared. You should keep a list, called an inventory, of personal property that you have insured. The list should include the following information.
1. The brand name and description of each item
2. The purchase price
3. The date and place of the purchase
In addition to an up-to-date personal property inventory, insurance agents suggest keeping receipts for purchases. Taking photographs or making videos of your furniture and other property can also help to support claims.
Inventory records along with photographs or videos should be stored in a location that cannot be damaged by fire, water, or smoke. If the records are lost or damaged, it will be hard to provide the insurance company with the information it needs to make a payment for your claim. A safe deposit box in a bank or other safe location away from your home is a good storage area for property records.
The age of a personal property item is quite important. Most property becomes old, gradually wears out, and decreases in value. This decrease in value is depreciation . It may affect the amount an insurance company will pay if the property is destroyed.
For example, a sofa costing $700 that is expected to last 10 years would depreciate $70 each year ($700 cost ÷ 10 years = $70 depreciation per year). Its value after six years would be $280 (depreciation per year $70 × 6 years = total depreciation $420; original cost $700 – total depreciation $420 = $280).
In recent years, homeowners have begun to purchase replacement insurance . With this method, the insurance company actually replaces an item that has been destroyed. No depreciation is deducted. Instead, the item is actually replaced no matter what the current cost may be. A replacement cost policy would pay whatever it cost to replace your property.
1. The brand name and description of each item
2. The purchase price
3. The date and place of the purchase
In addition to an up-to-date personal property inventory, insurance agents suggest keeping receipts for purchases. Taking photographs or making videos of your furniture and other property can also help to support claims.
Inventory records along with photographs or videos should be stored in a location that cannot be damaged by fire, water, or smoke. If the records are lost or damaged, it will be hard to provide the insurance company with the information it needs to make a payment for your claim. A safe deposit box in a bank or other safe location away from your home is a good storage area for property records.
The age of a personal property item is quite important. Most property becomes old, gradually wears out, and decreases in value. This decrease in value is depreciation . It may affect the amount an insurance company will pay if the property is destroyed.
For example, a sofa costing $700 that is expected to last 10 years would depreciate $70 each year ($700 cost ÷ 10 years = $70 depreciation per year). Its value after six years would be $280 (depreciation per year $70 × 6 years = total depreciation $420; original cost $700 – total depreciation $420 = $280).
In recent years, homeowners have begun to purchase replacement insurance . With this method, the insurance company actually replaces an item that has been destroyed. No depreciation is deducted. Instead, the item is actually replaced no matter what the current cost may be. A replacement cost policy would pay whatever it cost to replace your property.
PROPERTY INSURANCE COSTS
As with any insurance purchase, a wise consumer should seek the proper protection at the lowest cost. This process involves making sure that you insure the property for the correct amount. You should also carefully consider the factors affecting property insurance costs. The value of a home and furnishings represents the largest investment that many people make. The purchase of a carefully selected insurance plan to protect these items makes good sense.
Coverage SelectionSuppose a family had a house built in 2004 for $180,000. They insured it for that amount. If today's cost of building a similar house is $220,000, the current replacement value of the house is $220,000. Yet if the house is destroyed by fire, the insurance company may pay the family only $180,000.
Some insurance companies provide for automatic increases in property coverage as the price level increases. Others will pay the current replacement value if the property is insured for at least 80 percent of that replacement value.
Building costs and property values increase almost every year. Property owners should review the value of their homes and insurance coverage on a regular basis. They should determine the cost of replacing their property. They must make sure that their insurance policies provide enough protection.
Special care should be taken to correctly estimate the value of personal property. Because personal property includes many items, some may be overlooked. Most homeowners policies provide personal property coverage at 50 to
70 percent of policy value. For example, if your home is insured for $100,000, your personal property is insured for 60 percent of this, or $60,000. The value of personal property that you obtain over the years is often high. In many cases, a homeowner's personal property is worth a great deal more than the coverage provided. Additional coverage is available for a slightly higher premium.
Insurance PremiumsPremiums paid for homeowners insurance have increased over the years. Several factors determine the price that you pay for insurance on a home and furnishings. The most important factor is the estimated danger of loss based on the insurance company's past experiences. In addition to the loss experiences, an insurance company considers the following factors in determining homeowners' insurance premiums.
As with any insurance purchase, a wise consumer should seek the proper protection at the lowest cost. This process involves making sure that you insure the property for the correct amount. You should also carefully consider the factors affecting property insurance costs. The value of a home and furnishings represents the largest investment that many people make. The purchase of a carefully selected insurance plan to protect these items makes good sense.
Coverage SelectionSuppose a family had a house built in 2004 for $180,000. They insured it for that amount. If today's cost of building a similar house is $220,000, the current replacement value of the house is $220,000. Yet if the house is destroyed by fire, the insurance company may pay the family only $180,000.
Some insurance companies provide for automatic increases in property coverage as the price level increases. Others will pay the current replacement value if the property is insured for at least 80 percent of that replacement value.
Building costs and property values increase almost every year. Property owners should review the value of their homes and insurance coverage on a regular basis. They should determine the cost of replacing their property. They must make sure that their insurance policies provide enough protection.
Special care should be taken to correctly estimate the value of personal property. Because personal property includes many items, some may be overlooked. Most homeowners policies provide personal property coverage at 50 to
70 percent of policy value. For example, if your home is insured for $100,000, your personal property is insured for 60 percent of this, or $60,000. The value of personal property that you obtain over the years is often high. In many cases, a homeowner's personal property is worth a great deal more than the coverage provided. Additional coverage is available for a slightly higher premium.
Insurance PremiumsPremiums paid for homeowners insurance have increased over the years. Several factors determine the price that you pay for insurance on a home and furnishings. The most important factor is the estimated danger of loss based on the insurance company's past experiences. In addition to the loss experiences, an insurance company considers the following factors in determining homeowners' insurance premiums.
- Value of the property insured
- Construction of the building: whether it is made of brick, wood, or concrete, and the construction of the roof
- Number of claims on the property
- Type of policy
- Distance to the nearest fire department and water supply
- Amount of deductible (the higher the deductible, the lower the premium)
- Credit rating of the insured