Homeowners Insurance

Homeowners and Renters Policies

Homeowners insurance and renters insurance policies offer two distinct types of coverage in one package. The first coverage is designed to protect your property against loss from fire, theft, earthquake, flood, etc.

The second part – liability insurance – protects you against claims made for damages or injuries caused to others while on your property.

If you have a mortgage, the mortgage company will require you to prove you have property damage coverage. If you don’t, they’ll buy it for you. You’ll do better buying your own homeowners insurance policy.

Homeowners Insurance: Property Damage Coverage

You’ll want full replacement coverage and, if offered, some kind of protection against inflation. If you can’t get that you will have to review your policy periodically and raise your homeowners insurance coverage as the value of your house or belongings go up.

Generally you will insure you home against fire, flood, etc. for its replacement value – what it would cost to rebuild. Don’t include the value of the land in this coverage.

The insurance company will offer coverage against loss or theft of your personal belongings that will be determined by the amount of coverage you buy for your home.

For a $300,000 home, contents coverage may be around $150,000.

Read the terms and conditions of your homeowners insurance policy. Although you might have $100,000 of coverage for your personal belongings, you might find your silverware or coin collection is only covered to a limit of $2000 or so. The same goes for cash, antiques, artwork, jewelry and sometimes even electronics, like your computer and stereo.

If the basic policy isn’t sufficient, you have to buy riders – specific coverage for specific items. If you have something really valuable, like a $100,000 diamond ring, the insurance company will require an appraisal.

Your homeowners insurance policy might protect against loss or theft outside the home. Read the policy and exclusions carefully.

You also have to consider risks related to where you live.

If you live on the beach or along side a river, you need flood insurance. The only place to buy it is through FEMA and it can be quite expensive.

If you live in a tornado zone, make sure wind damage is covered – including damage to your landscaping. If you live in an earthquake zone, you need coverage against that, and it there are mudslides in your area, you need to insure against that.

Fire is not the only thing that can destroy a house.

Renters buy insurance to cover their personal belongings and to provide liability coverage. If you are subject to any of the risks listed above, make sure your insurance covers it.

A renter’s policy usually costs less than homeowners insurance policies since you are only insuring belongings and not the building itself.

If you run a business out of your home, you might find your business equipment and inventory is excluded from coverage. However an inexpensive home business rider is usually available that provides just about all the coverage a small business would need – including product liability coverage.

Homeowners Insurance: Liability Coverage

Liability coverage protects you against law suits. If someone trips on your stairs and breaks a leg, or if your dog bites a neighbor, you’re covered.

But you may also covered if your oil tank springs a leak and poisons the water supply (insurance companies are adding exclusions against pollution losses) or if your barbeque gets out of control and burns down the neighborhood.

Once of the most valuable aspects of liability coverage is the fact that the insurance company will hire lawyers to protect you. Legal fees will in many cases dwarf any damage award.

You can buy any amount of liability coverage - at least to the maximum the insurance company you are dealing with goes. However, I would suggest buying a flat $100,000 liability policy.

Do the same for your auto insurance. Then buy a $1 million or more umbrella policy. This is usually the cheapest way to get a lot of liability coverage.

We live in a litigious time and jury awards are at times outrageous. If you own a home and a car, and some nice belongings, you need $1 million coverage or more.

Not all personal injury awards are dischargeable in bankruptcy. I’ve seen entire towns have to go bankrupt because of a personal injury award.

An umbrella policy would have a $100,000 deductible and provide a million or more in liability coverage. Because of the large deductible, it’s not very expensive. It might also defend you against risks not covered by your auto or howmeowners policy, liable or slander for example.

If you work with one insurance company, they can tie your auto, homeowners and umbrella policy together for you and will probably give you a discount on the premium to boot.

Homeowners Insurance: Policy Disputes

Finally, if there is a dispute over the terms of coverage or if the damages being sought exceed the policy limits, your insurer is required to send you a “reservation of rights” letter, usually within thirty days. If you receive such a letter, the insurance company will pay a lawyer to represent your own interests.

Find an experienced litigation attorney. You will need your own representation if either of these events occur. The lawyers paid to defend the claim will have a built in conflict of interest.

[There is a new twist to homeowners insurance, doubtlessly inspired by the architects of our social welfare state. Insurance is designed to be bought before the fact. It's supposed to protect against potential, but unknown risks.

Premiums are based on the projected risk of the pool of insureds.

I have heard that New Jersey, for one, allows you to buy coverage after the fact, for example after your house burns down.

I used to live in New Jersey and am aware of the craziness that goes on there. But if true, this is simply absurd. The premium for after the fact coverage should be the amount of the loss, which I am sure is not the case.

Instead everyone else probably just pays a higher premium or a surcharge is added to everyone else's policies.

If I lived in New Jersey I would look into this. Homeowners insurance is expensive. If it doesn’t cost too much, take advantage of the kindness of the people of New Jersey and only insure yourself after the fact, if you qualify. Do the math and see if you come out ahead.

If it works for you, you’ll probably still need a separate liability policy.]

Insurance

Life Insurance

Health Insurance

Auto Insurance

Long Term Disability Insurance

Umbrella Insurance

Also see:

The Reservation of Rights Letter
What to do if you receive a reservation of rights letter from your insurance company.

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