Homeowner's
Insurance
Frequently Asked Questions
ANSWERS
Homeowners insurance covers both damage to your property (your home,
garage and their contents) and the liability of you and your family arising
from their actions (such as a lawsuit arising from your child accidentally
injuring another child during a baseball game.) "Enough" needs to take both of
these types of losses into account.
Property Insurance:
If all you want to do is pay off your mortgage and walk away from the property,
"enough" would be the outstanding balance of your mortgage.
The replacement cost of the home is the amount it will cost you to rebuild the
house with material of like kind and quality (excluding the foundation, which
is usually not damaged during a loss,) it is not any of the following:
-
The market value of the house
-
The assessed value of the house, or
-
The value the mortgage company used as its worth.
All of these values include the cost of the land and the foundation of the home.
If you want to rebuild the house and replace the contents, you will need to
insure for considerably more than the amount of any outstanding mortgage.
Unless you insure for at least 80% of the replacement cost of your home (the
building itself, not including the cost of the land and the foundation,) if you
have a loss, you will be "underinsured" and the insurance company will not pay
the full loss. While a discussion of "coinsurance" and the "coinsurance
penalty" is beyond the scope of this question, your insurance agent can give
you examples of what might happen.
You should remember that even if you insure for at least 80% of the replacement
cost of the home but less than the full replacement cost, the loss may exceed
the amount of insurance. In that case, the insurance company will only pay the
policy limit, leaving you to pay the remainder yourself. Many companies offer
some type of "guaranteed replacement cost" or "inflation guard" endorsements
which will increase the value of the property as construction costs increase.
Special valuation situations: the homeowners policy is designed
for the typical house. If your house was built before World War I, has
hand-made details, stained glass windows, or unique features not commonly found
in houses today, the homeowners policy may not provide adequate coverage. Your
agent can help you tailor the policy to your particular needs.
Liability Insurance:
The basic homeowners policy provides $100,000 of coverage, which, for many
individuals, is sufficient. Higher limits are available for an additional
premium.
If you have an umbrella policy, you should determine what limits of insurance it
requires for your primary policy.
Return to Questions
Replacement Cost is the amount to repair or replace the damaged
property using materials of the like kind and quality, without deduction for
depreciation. Depreciation is the loss of value that develops as an item ages,
wears out, or becomes obsolete. Actual Cash Value is the replacement cost of an
item, less the amount for depreciation.
Return to Questions
First, talk to the bank. Your agent should be able to help you
substantiate the replacement cost of the building. In the event of a loss, the
replacement cost is the most your insurance company would pay, even if you have
more insurance. Banks are well aware of this, but your particular loan officer
may not be.
While you are talking to your agent, you should also ask him to find out if the
house is in a flood plain, and, if it is, if Federal Flood Insurance is
available. This is relatively inexpensive, and, since your homeowners policy
excludes flood damage, can be a lifesaver if you are flooded. (In addition, if
you are in a flood plain, many banks will require you to obtain it.)
Return to Questions
Generally, insurance companies will replace the items if possible
through their jeweler because they receive a better price than if they used
your jeweler. If you decide not to replace the jewelry, your company will pay
you only the amount of money that they could replace it through their jeweler.
Return to Questions
Most homeowners policies will cover business items up to $2,500 in your
home or $250 away from you home, subject to your deductible. There are some
exceptions to this limitation on business items, but it is so important that
you check your policy in each case. You should also be aware that there are
other policies available that specifically cover business equipment. You should
contact your agent to determine the cost of the coverage for these items.
Return to Questions
Under Massachusetts law, your company must notify you of their decision
not to renew your policy, at least 45 days prior to its expiration date. Your
insurance company does not have to send you a notice by certified mail. They
are only required to use first-class mail to the address listed on your policy.
Return to Questions
Your company has the right to renew or not renew your policy. Recent
severe storm losses incurred by many insurance companies have caused them not
to renew policies in coastal areas. You have several options if your insurance
is not renewed. First, you can check with your company agent to see if they
have companies writing business in the area other than the one that is not
renewing you. Second, you can ask about purchasing insurance through the FAIR
PLAN, technically, the Massachusetts Property Insurance Underwriting
Association. It was formed by the Massachusetts legislature in 1968 to make
available insurance protection to individuals who were having problems getting
insurance for their home. Third, you could also contact the FAIR PLAN directly.
Their phone number is (617) 723-3800 or 1-800-392-6108. And do not forget to
ask your agent about the Federal
Flood Insurance Plan, especially if you are in a coastal area. It is a
good companion to a homeowners policy.
Return to Questions
Generally, damage to both the exterior and interior of a home resulting
from weight of ice and snow or ice dams is covered under that homeowners
policy. However, when a claim is evaluated, the insurance company adjuster will
look at the damage to the roof and will pay only for the area damaged in the
loss. If further damage to the roof has occurred due to wear and tear, that
part of the claim will not be covered.
Return to Questions
If the actual receipts are not available, insurance companies generally
will accept photos, warranties, owners manuals, canceled checks, credit
receipts, bills, servicing agreements, even video tapes, as proof of ownership.
We suggest that you consider video taping your home before a loss.
Return to Questions
According to Massachusetts General Laws Chapter 175, Section 99 (12),
your policy can be canceled for these reasons:
-
Non-payment of premium;
-
Material misrepresentation/Fraud. That means that they honestly believed you
planned on committing fraud;
-
Conviction of a crime arising out of acts increasing the hazard insured
against. (For example, conviction for illegal storage of fireworks);
-
Discovery of willful or reckless acts or omissions by the insured increasing
the hazard insured against. (An example of this would be not getting a gas leak
fixed);
-
Physical changes in the property insured which result in the property becoming
uninsurable. (For example, should the home become vacant for more that 60
consecutive days, there is automatically assumed to be a greater exposure to
vandalism and damage); and
-
A determination by the Commissioner of Insurance that continuation of the
policy would place the insurance company in violation of the law.
Return to Questions
Your insurance company would first confirm the value of the items with
one or more independent antique dealers. You should then be paid a dollar value
based on the dealer(s) estimate of the worth of the antique items. If you
disagree with the settlement offered by your company, then you can follow the
dispute resolution process outlines in your policy. There is a simpler way. Get
appraisals and have your company agent establish what the values are
specifically in the policy. You should also keep your appraisals up to date.
Return to Questions
Generally, your own policy should cover such a loss. Your insurance
company may be able to recover the amount it pays you for the loss and your
deductible from the homeowners insurance that your neighbor may have, in the
event that the loss occurred as a result of your neighbor's negligence.
Return to Questions
Flood coverage is generally excluded on the basic homeowners policy. However,
some homeowners policies provide coverage for backup of sewers and drains that
cause flooding in your basement. This coverage can be purchased for a nominal
premium. You should check with your company agent to see if this coverage is
provided and how much it costs.
However, if you live in a flood-prone area, you should consider purchasing a
flood insurance policy. Flood policies have certain provisions that may limit
recovery at the time of a claim. For example, unless two or more acres are
flooded, or your neighbor's home as well as yours is damaged, the National
Flood Insurance Plan will not cover your loss. It also is limited as to what it
will cover in basements. Generally, it is the washer and dryer. Your agent
should be able to inform you about the advisability of purchasing flood
insurance depending on the area in which you live and on coverage other than
for official floods.
Return to Questions
The basic homeowners policy usually does not. But, this is a popular coverage
for insurance companies to offer and you may be able to buy it for a nominal
additional premium. There is also the issue of where the power was lost. Some
policies are limited to coverage for electricity lost in the home or where the
electricity enters the home. Others will limit it to within so many yards from
the home. Your agent should be able to tell you about the availability of
coverage and how much it would cost.
Return to Questions
The Homeowners Insurance Questions & Answers were compiled to help consumers
answer some of the most frequently asked questions about homeowners
insurance.
Developed with the assistance of the
Massachusetts Department of Insurance.
Contents were written by DOI Staff.
|