| For consistency, it is
assumed that you have a policy known as Homeowners-3 (HO-3), the
most common homeowners policy in the United States. Check with
your agent to see if that's what you have. If you have a more
restrictive policy, review your options under question
#15 and talk to your insurance representative.
1. Are
you covered for direct losses due to fire, lightning, tornadoes,
wind storms, hail, explosions, smoke, vandalism and theft?
Answer
Yes. The HO-3 provides broad
coverage for a large number of perils, including all those listed.
There are some limits, however, on the amount of insurance you
have.
Action
Check the dollar limits of
insurance in your policy. Make sure you are comfortable with the
amount of insurance you have for specific items. For example, the
standard policy provides only $1,000 for theft of jewelry. If your
jewelry is worth a lot more, you should purchase higher limits.
You may wish to add a floater to your policy to cover specific
possessions, such as expensive paintings or silverware. The
floater will provide both higher limits and protect you from
additional risks, not covered in your normal policy.
Also, if you live on the Atlantic
or Gulf coasts there may be some restrictions on your coverage for
wind damage. Check this out with your agent.
2. Your
house is totally destroyed in a fire. You have bought $150,000
worth of insurance to cover the structure of your house. Will this
be enough to rebuild your home?
Answer
If the cost of rebuilding your home
is equal to or less than $150,000 you would have enough coverage.
The HO-3 policy pays for structural damage on a replacement cost
basis. If the cost of replacing your home is, say, $120,000, then
that is all the insurance you need. On the other hand if the cost
of rebuilding your home is $180,000, then you will be short
$30,000. If you choose not to replace your home, you will receive
the replacement cost of your home, less depreciation. This is
called actual cash value.
Action
Make sure that the amount of
insurance you have will cover the cost of rebuilding your house.
You can find out what this cost is by talking to your insurance
representative or builders in your area.
Do not use the price of your house
as the basis for the amount of insurance you purchase. The market
price of your house includes the value of the land on which the
house is situated. In almost all cases, the land will be still
there after a disaster, so you do not need to insure it. You only
need to insure the structure.
3. Are
you covered for flood?
Answer
No.
Action
Flood insurance is provided by the
federal government, under a program run by the Federal
Insurance Administration. If you are in a flood prone area it
may be wise to purchase flood insurance. In some parts of the
country, homes can be damaged or destroyed by mudslides. This risk
is also covered under flood policies. Contact your agent or
company representative to get this insurance.
4. A
pipe bursts and water flows all over your floors. Are you covered?
Answer
Yes. The HO-3 covers you for
accidental discharge of water from a plumbing system.
Action
Check your plumbing and heating
systems once a year. While you are covered for damage, who needs
the mess and hassle?
5. Water
seeps into your basement from the ground. Are you covered?
Answer
No. Water seepage is excluded under
the HO-3. And if the water seepage is not due to a flood you will
not be covered under a flood policy. Problems like seepage are
viewed as maintenance issues and are not covered by insurance.
Action
You should see a contractor about
water-proofing your basement.
6. Are
you covered for earthquake damage?
Answer
No.
Action
Earthquake coverage is sold as
additional coverage to the homeowners policy. To determine whether
you should purchase this insurance, talk to your agent or company
representative. In earthquake prone areas, the price of this
insurance is relatively high. In other areas, it is relatively
cheap.
7. A
neighbor slips on your sidewalk and threatens to take you to court
for damages. Does your policy protect you?
Answer
Yes. The policy will pay for
damages, if the accident is the result of your negligence. It will
also pay for the legal costs of defending you against a claim.
Also, the medical payments part of your homeowners policy will
cover medical expenses arising from an injury to a neighbor or
guest.
Action
Check to see how much liability
protection you have. The standard amount is $100,000. If you feel
you need more, consider purchasing higher limits.
8. During
a storm, a tree falls and damages your roof. Are you covered?
Answer
Yes. You are covered for the damage
to your roof. You are also covered for the removal of the tree, up
to a $500 limit.
Action
Cut down dead or dying trees close
to your house. Prune branches that are near your house. It's true
that your insurance covers damage, but falling trees and branches
can also injure your family.
9. During
a storm, a tree falls and does no damage to your property. Are you
covered for the cost of removing the tree?
Answer
No. Your trees and shrubs are
covered for losses due to risks like vandalism, theft and fire,
but not wind damage.
Action
Decide if you need extra insurance
for the trees, plants and shrubs on your property. You may be able
to purchase extra insurance, which will not only cover the cost of
removal of fallen trees, but will also cover the cost of replacing
trees, and other plants. Talk to your insurance representative
about the availability and cost of this extra insurance.
10. During
a storm, the power from the electric utility is lost. All the food
in your refrigerator is spoiled and must be thrown out. Can you
make a claim?
Answer
The general answer is no. However,
there are a number of exceptions. In some states, food spoilage is
covered under the homeowners policy. In addition, if the power
loss is due to a break in a power line on or close to your
property, you may be covered.
Action
Check with your agent to determine
whether you are covered for food spoilage in your state. If not,
you can add food spoilage coverage to your policy for an
additional premium.
11. Your
golf clubs are stolen from the trunk of your car. Can you recover?
Answer
Yes. The HO-3 covers your personal
property while it is anywhere in the world. However, if your
golf clubs are old, you will only get their current value. This
normally will not be enough to purchase a new set.
Action
Consider purchasing a replacement
cost endorsement for your personal property. This way you will get
the full cost of replacing the golf clubs, less the applicable
deductible.
12. You
have a power boat with a 50 horsepower engine. If it is stolen,
are you covered? What if there is a boating accident and you get
sued? Are you covered?
Answer
If the boat is stolen from your
residence, in most cases, you can recover only $1,000. If the boat
is stolen elsewhere you are not covered.
You are also not covered for
liability arising from an accident with the boat. The homeowners
policy provides liability coverage for boats with engines less
than 25 horsepower.
Action
See your insurance representative
about getting extra coverage for your boat, including theft and
liability. Ask about the Boatowners policy.
13. Your
house is close to the ocean. You have heard that if your house is
destroyed by the wind, the town's new building code requires that
you rebuild the house on stilts. This will cost $30,000, in
addition to the cost of rebuilding your house. Are you covered for
this extra cost?
Answer
No. The HO-3 excludes costs caused
by ordinance or laws regulating the construction of buildings.
Action
Purchase the Law and Ordinance
endorsement. This will cover the extra costs involved in meeting
new building codes.
14. Am
I covered for an "Act of God"?
Answer
Yes. Normally, you are covered for
"Acts of God". The term "Act of God" usually
refers to natural disasters like hurricanes and tornadoes, as
opposed to man-made acts, like thefts or auto accidents. Most
natural disasters, with the notable exceptions of floods and
earthquakes, are covered under normal insurance.
15.
Does your policy provide less coverage than the
HO-3?
Answer
If the answer is yes, review your
coverage with your agent. Some older policies provide less
coverage than the HO-3. They may not provide coverage for water
damage, theft, or liability. They may also provide coverage for
the house on an Actual Cash Value basis, rather than a replacement
cost basis. Actual Cash Value means replacement cost less
depreciation. For example, if your roof is destroyed in a storm,
the insurance will only pay the cost of a new roof less than
amount of depreciation of the old roof. If your roof was in great
shape, this deduction will not be large. However, if the roof was
old and worn out, the deduction for depreciation may be large.
Action
Try to get an HO-3. Community-based
groups, like Neighborhood Housing Services, can help you get such
insurance.
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