HOMEOWNER'S INSURANCE

What are the answers to the following : (The bold letter is the answer)

1. Homeowner's insurance must be purchased a) before you move into the new home, b) at the time of closing, c) within one year of moving into the new home.

2. If you would like your home fully rebuilt after a total loss, insure it for what percentage of its replacement value a) 60, b) 80, c) 100

3. Most homeowners policies (those without an extra premium) pay to replace personal property a) at the value determined after adjusting for depreciation, b) up to 50%, c) fully.

4. To insure paintings and antiques a) you need no additional coverage because your basic homeowners policy covers them fully, b) you need a floater (policy endorsement), c) you need a commercial policy.

5. Insurance against flood and earthquake damage always is part of the standard homeowners policy a) true b) false

6. Unless you pay to increase the limit, most policies typically insure your belongings such as furniture and clothing for what percentage of the value you carry on your house a) 35, b) 50, c) 75

7. Unless you pay to increase the limit, a typical policy provides how much personal liability insurance for you and your household a) $25,000, b) $50,000, c) $100,000

8. If you must evacuate your home because it is being rebuilt after a fire or natural disaster, a typical policy pays additional living expenses up to what percentage of your home's coverage a) 5, b) 10, c) 25

9. A deductible is a) the amount of a loss you must pay before the insurance coverage begins, b) when your premium is automatically withdrawn from your account, c) the amount the insurance company pays toward the loss

HOMEOWNERS INSURANCE: (Money, 1994) Like everything else, it pays to do your homework. Shop around for rates but consider good ratings from the major rating companies. Apparently Chubb, Geico, Hartford, St. Paul and USAA have A+ ratings from Best and AA from S&P. You want a guaranteed policy (better than 100% coverage with an inflation rider ) and it should be reviewed independently every year or two just to be sure its kept up. Average premiums ($250 per $100,000 appraised value) can be reduced by as much as 15% by increasing deductibles from $250 to $1,000.

Add umbrella liability coverage of $1,000,000 which is a relatively small cost that covers extra contingencies not covered by the standard homeowners policy. Cost is rather low- perhaps $150 to $250 (depends on locale), though some companies will offer only if you have both the home and auto covered by the same company.

Further discounts are available from 5%to 10% if you have been a customer for three years or more. If you make your home safer- burglar alarms and smoke detectors- premiums may be further reduced 2% to 10%. Owners of newer homes less than five years old may get a 5%

to 20% discount. And you may get a discount if you are insuring your car with the same company.

HOME INSURANCE: (Kiplinger's, 1994)) In the seminars I present, I always talk about using a guaranteed policy for your home. In past years the use of a policy geared to inflation might work, but some houses (most notably from the Oakland fire) appreciated much faster (say from $100,000 to $500,000) than the rate of "regular" inflation (say only to $350,000). Disaster victims were stuck with the difference.

Kiplinger's also noted the following- some insurers won't give guaranteed policies to some older houses with fine craftsmanship since it would prohibitively costly to replace to those specifications.

A "law and order" policy is a variation on the guaranteed policy in that, even with the latter, you are not guaranteed replacement to new codes- a very costly issue in some locales. You can buy a code upgrade rider or get the law and order policy which has the code upgrades included.

Very expensive homes are not covered by many companies so you are going to have to shop around a lot and expect to PAY.

If you are unable to get guaranteed replacement, try for replacement cost. It will pay at least what the policy value states.

Another form is "actual value" which pays you the value of the property today MINUS depreciation- a rather nebulous figure at best.

Regardless s of what you get, you MUST check the policy cost each year. It was shown that policy cost increases were, in many cases, purely arbitrary and far beyond any actual increase in the value of the home.

HO, HO, HO: Contents insurance is known by HO designations.

HO-1 is very old and not in use much anyplace. The HO-1 covers 11 basic risks- fire or lightning, explosion, riot, aircraft, vehicles, smoke, vandalism, windstorm or hail, theft, damage by glass or safety glass and volcanic eruption.

HO-2 is also basic coverage and includes six more risks than HO-1. They are falling objects, weight of ice, snow or sleet, three categories of water related damage from home utilities and electrical surge damage.

HO-3 policies (Broad form) provides extended overage and covers the 17 standard perils plus any other peril not covered in the policy except for earthquakes and floods (covered separately by government flood insurance), war and nuclear accident.

HO-4 is renters insurance and covers personal property (no dwelling coverage) only under the 17 standard perils.

HO-5 is the top of the line and costs about 15% more than the HO-3. It bundles up all the extra type of riders that might be available with other policies- such as included coverage for jewelry, furs, etc. It even can include coverage for sewer backup and building code upgrades. By bundling all the extras in one policy, it invariably ends up considerably cheaper than buying a less expensive policy and adding on all the upgrades.

HO-6 covers condo and co-op owners but just for personal property and only under the 17 perils.

HO-8 is primarily for older homes of special architecture and covers for the 11 perils mentioned in HO-1. It pays for actual repairs- not rebuilding costs.

INSURANCE: (10/94) Flood insurance is offered only by the Government. But, surprisingly, it does not cover items in the basement except those specifically named mechanical and electrical items such as water heaters and furnaces.

Earthquake insurance almost always has a 10% deductible but, also surprisingly, it can actually have separate 10% deductibles. What? A policyholder found that after an earthquake that there was a 10% deductible on the house, another separate 10% deductible on the garage and a another separate 10% deductible on the contents.

FLOOD INSURANCE: (1997) Even in view of the record floods, it's hard to imagine that only but a few people had flood insurance. Many didn't want to pay- others thought their homeowners insurance covered for such contingencies. In high risk areas, the costs is about $3 per $1000 of coverage. The policies cover for up to $250,000 for a dwelling and $100,000 for contents. Outside of high risk areas, the costs is about $100 annually. For information about special flood hazard areas call the Federal Emergency Management Administration at 800 358-9616. The National Flood Insurance Program has info about flood insurance at 800 427-4661.

Review Homeowners Insurance Policies. 2001 Another excellent article for homeowners from Bloomberg Personal Finance. "Recent natural disasters including the Oakland, CA fires of 1991, Hurricane Andrew in 1992 and the Northridge, CA earthquake of 1994 have caused many insurance companies to reevaluate and modify their homeowners policies. "The most widespread change has been the demise of guaranteed replacement cost. In its stead, companies have instituted coverage known by such terms as 'insured to value,' 'extended replacement cost,' and 'extra replacement cost.'" These policies provide replacement cost plus 20 to 25 percent. In areas of natural disaster, however, it may actually cost more to replace a home than what was previously defined as "replacement value" due to shortages of supplies and excess demand on new home construction. In addition, many times the replacement value is undervalued when the policy is purchased. Because the modified policies of insurers require homeowners to make up the difference between replacement value and actual rebuilding costs, it is important to keep the policy values as close to actual rebuilding costs as possible. Chubb Insurance Company "is one of the few firms that still sell guaranteed-replacement cost insurance." The company has an in-house appraisal department and are confident in their estimates of replacement cost. Another change many insurers have made is percentage deductibles versus a flat deductible for weather borne damage. The percentages assigned range from 2% to 15%. The percentage applies to the value of one's home, not to the claim, which can amount to a significant deductible. In some states you can pay an extra premium amount to have a flat fee deductible. "Used for both vacation homes and primary residences, percentage deductibles are in effect in certain regions of Alabama, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Kansas, Louisiana, Maine, Maryland, Massachusetts, Mississippi, Montana, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, South Carolina, Texas, Virginia, West Virginia, and Wyoming." (Bloomberg Personal Finance, "Changes in the Fine Print"/Bamford, October, 2000"

Homeowners insurance: (WSJ 2002) Hundreds of thousands of policyholders are being dumped or are paying sharply higher rates as insurance companies large and small rethink the way they price and sell policies.

a Cincinnati consulting firm that counts more than 300 insurers as clients, says insurers are declining to renew 6% of their policyholders, about double recent historical rates.

In some cases, it's much worse: After suffering a $15.5 billion loss from Hurricane Andrew, insurers dropped many customers as their policies expired, and they refused to take on new ones. Allstate alone canceled 90,000 policies, 8% of its Florida business pre-Andrew.

Most insurance experts believe the nonrenewal crisis won't be a long one, provided insurers receive approval from states for more rate increases that will make writing homeowners insurance worth their while. That, of course, means that homeowners likely will be paying still higher rates over the next few years.

Homeowners insurance: (2002)An extraordinary number of catastrophes, the high cost of home repairs and excessive jury awards due to the emergence of mold claims are pushing the cost of homeowners insurance upward -- an average of 8 percent nationwide in 2002 and a projected 9 percent in 2003, according to a new report by the Insurance Information Institute (I.I.I.).

Going way up: (Insurance Information Institute 2002) An "extraordinary" number of catastrophes, the high cost of home repairs, and excessive jury awards for toxic mold claims will raise your home insurance premiums an estimated 9 percent in 2003. And that's on top of the 8 percent increase you're probably paying in 2002.

Insurers have paid out more than $100 billion in catastrophe-related losses over the past 12 years. In 2001 alone, home insurers paid out $8.9 billion more in losses and expenses than they received in premiums, the second-worst year on record since 1992 when Hurricane Andrew cost insurers $11.5 billion.

HOMEOWNERS INSURANCE:  The seven basic policies

Homeowners insurance: (2003) Profits on the homeowners line are a rarity; collectively, U.S. insurers have lost money on the line every year for more than a decade. The companies stomached the losses, hoping to attract customers for their larger auto-insurance business. But after suffering big losses on the homeowners line in 2000 and 2001 -- and at the same time seeing their investment-portfolio gains dwindle -- insurers began pushing through big rate increases. In Texas, for instance, the average rate increase in 2001 was 57%. In the first quarter of last year alone, Allstate raised rates in 23 states by an average 19.8%.

For every dollar Allstate collected in premiums in the first quarter, it paid about 80 cents in claims and related expenses. The comparable number a year earlier was a money-losing $1.08.

Homeowners Insurance: (2003) non-renewals and premium increases are becoming more common in the current homeowners insurance market. The national survey determined that nearly 2.5 million households have lost their homeowners coverage in the last 24 months. More than half of the households that lost coverage (approximately 1.3 million) are located in the South. Approximately 73 percent of non-renewed households were able to find other coverage.

approximately 51 million households (about 42 percent of all American households) experienced a homeowners insurance rate increase in the last 24 months. Of those households, the rate increases were as follows: -- Up to 10 percent rate increase - 56.7 percent, -- 11-25 percent rate increase - 23.2 percent , -- More than 25 percent rate increase 13.8 percent - (6.3 percent were undetermined)

Most insurers will not cover for the full value of your home (WSJ) all but a few insurers will pay claims only up to a certain maximum percentage above the insured value stated in the policy. State Farm and Allstate, for instance, will pay up to 120% of the insured value. If your policy was written for a $200,000 home that would cost $300,000 to replace, those companies would cap their claim payments at $240,000.

every $1,000 increase in a home's insured value causes the premium to rise about $4.

Property Insurance: (WSJ 2004) As many as 60% of U.S. homeowners wouldn't be adequately insured if disaster struck and their home was totaled according to industry reps. I think that is close.

Unlike a decade ago, most insurance companies no longer guarantee replacement of your home if you don't carry enough coverage; now, they generally shell out no more than 120% or 125% of the policy's face amount. So if you have a $200,000 policy on a home that costs $400,000 to rebuild, the insurer might pay out $250,000.

Policies generally include up to 50% of your total coverage amount for contents inside the home.

MetLife Auto & Home advises consumers to consider the following before purchasing home insurance:

-- What's covered? Understand what the policy will cover-and what it will not. Determine in advance what your expected out-of-pocket responsibility will be in the event of a loss.

-- Does the insurer place a cap on what it will pay for property damage? Many insurers will only pay up to the amount listed on your policy, whether or not that amount is sufficient to cover the actual rebuilding costs, which rise over time due to increases in the cost of labor and materials. There are insurers, however, that offer "uncapped" coverage, meaning you receive full payment, even if it is more than the amount of your coverage-providing greater peace of mind.

-- Is an inflation factor built into the policy? Look for a company that offers an "inflation guard." Your level of coverage will automatically increase every year to keep up with the level of home repair inflation in your area.

-- Does the insurer offer replacement cost coverage for contents? Insurance companies will cover a home's contents for "actual cash value," which includes depreciation: roughly, the older the age of the contents, the less they are worth. Some carriers, however, allow you to purchase coverage for contents on a replacement cost basis.

-- In the event of a loss, can the insurer guarantee the work performed? Many insurers have developed a familiarity with local contractors. If you choose one, they can offer guarantees that these reputable, licensed service providers will stand behind necessary repairs.

Finally, an important consideration is flexibility. For instance, insurance needs for a brand new home are different than that of a Victorian. Talk to your agent and select the level of coverage you need, including additional coverage for important items, such as jewelry or computers.

It is my opinion that financial planners will have to get licenses in property and casualty insurance along with continuing education. It's too important an item to cover in just 2 hours max as part of the educational package for CFP's.

Federal Emergency Management Agency Disaster Assistance Process for Individuals

Property Insurance: (2004) Policy should have replacement value plus building code update. Property owners who have felt the wrath of a hurricane, fire or earthquake are having lots of problems with insurance adjusters. Apparently many adjusters are not well trained and are offering low ball offers. Worth magazine suggested the use of an PA or Public Adjuster who is an independent person you can hire to represent your claim. They take about 15% of any claim that's received, but considering comments from many who had disasters and tried to work with the insurance companies, it's apparently well worth it. The real unfortunate issue is that much could be avoided if the insured's had actually READ their policy. Further, most insured's had NO video, pictures or receipts of anything they owned. So I have to ask, whose fault is it if the insurance

Homeowners Insurance Tips (CPCU 2005)

1) Take interest in identifying the proper amount of coverage for your home. Don't rely on your agent or your mortgage lender to pick the right amount of coverage.

2) Check your home's replacement cost amount at least once a year.

3) Update your policy. Make sure you have building code and ordinance coverage on your policy.

4) Be overly conservative in your estimate of the replacement value. It's better to have more coverage than you need than to end up short.

5) Get an appraisal or inspection if you can afford it.

6) Don't let your voluntary policy expire. If you fail to renew your voluntary policy, your mortgage company will probably buy a policy for your property, which could be very expensive without providing the same broad coverage as most voluntary policies.

"A major catastrophe is not necessary for a homeowner to find out they are grossly underinsured. Anyone who suffers a major fire, water or other loss may discover that they do not have enough coverage on their home. If the loss is serious enough to require major reconstruction of the home, the owner may find that because of inflation, building code changes, location of the property and other factors, that they simply have not bought enough coverage to rebuild their home,"

Homeowners insurance: (Helen Huntley)

Five questions about your homeowners coverage: (2005)

1. How much property coverage do you have?

Building: Your house should be insured for at least 80 percent of its value, not including land. If you have other structures on your property, such as a detached garage or a screen enclosure, see if they are covered. Some companies will not insure screen enclosures.

Personal property: A rule of thumb is to have personal property insured for about half of your home's value, but you may need more if your furnishings are especially valuable. Lower limits typically apply to jewelry, electronics, guns and business equipment unless you opt for extra coverage.

Loss of use: This is a standard policy feature that covers extra costs if you have to move out of your house while damages are repaired.

2. Is your coverage replacement cost or actual cash value?

Replacement cost pays for a new roof if yours is blown away. Actual cash value deducts depreciation based on the age of your roof. For replacement coverage, your house generally must be insured for at least 80 percent of its value. Some policies are capped at your policy limits, while others offer "extended" replacement, which will pay 20 to 25 percent above those limits if needed. Even if you have replacement coverage on your house, your personal property may be insured for actual cash value. If you don't have replacement coverage, ask your agent how much more it would cost.

3. Which catastrophes are covered?

All policies cover losses from fire, lightning, explosions, riots, smoke, sinkholes, vandalism, theft, volcanoes and aircraft or vehicles crashing into your house. Many cover additional perils such as damages from falling objects, freezing and burst water pipes.

Most policies cover wind damage, including hurricane damage, but if you live in certain coastal areas, you may have to buy a separate wind damage policy from Citizens Property Insurance Corp. to get coverage. Policies typically exclude damages from flood, war, earthquakes and nuclear accidents. For flood coverage, you must buy a separate flood insurance policy.

4. What are your liability limits?

How much would your policy pay if someone is injured on your property? Do you need more to protect your assets from court judgments in case you are sued for damages? Check for lower limits and exclusions for animal bites and injuries related to certain equipment such as trampolines, diving boards, watercraft and offroad vehicles.

5. How big is your deductible?

Most policies have a $500 or $1,000 deductible for claims other than those related to hurricanes. When the National Hurricane Center declares a hurricane watch or warning in Florida, the deductible for windstorm claims increases to 2 percent of the insured value for most policies in affected areas. You could reduce your premium by increasing your deductible for nonhurricane claims.

Hurricane Homeowner tips:   (2006) Or just move to Alaska

Renters Insurance:  (2006) Almost 25 million U.S. families renting their homes are going bare on insurance coverage, leaving themselves vulnerable to serious property and liability losses. Many renters without coverage own valuable, high-tech equipment and face higher risk related to pets. The new survey uncovers a persistent lack of awareness or understanding about property and liability risks faced by renters. Two-thirds (67 percent) of U.S. families that rent lack coverage.

Some 35 million homes were rented in 2005, or about 31 percent of all American households. Among those respondents who said they don’t have renters’ insurance, 26 percent feel that the coverage is too expensive and another 17 percent said they didn’t know they needed it. Moreover, another 8 percent have never heard of renters’ insurance

Homeowners Insurance:  (2007) The Insurance Information Institute reports that water damage and freezing account for approximately 17% of all homeowners insurance claims, while wind and hail account for close to 50%. The average claim for water damage and freezing is $5,095. Standard homeowners insurance policies protect homes against most types of damage caused by freezing, such as a water pipe bursting, or in situations where ice forms in a rain gutter and causes water to backup and seep into the house. Most importantly, home owners must understand that most homeowners insurance policies do not cover against flooding. Unfortunately, many learned too late after their homes were destroyed by the floods that followed Hurricane Katrina. Home owners should consider a separate flood insurance policy to complement their protection, depending on their proximity to possible flooding, because even flood damage caused by storm drain backups are a separate and extra endorsement to a standard policy.

Regardless of the season, the most common mistake people make with regards to their homeowners policy is to undervalue their home and possessions. In fact, experts estimate that 60% of homes in the U.S. are not adequately insured to cover their full replacement cost value. Remember, the full replacement cost value is how much it would cost to rebuild the house on the land it sits on now — not the value for which you could sell your house today. Be sure to also report any recent home improvements to your insurance agent and keep an up-to-date home inventory list so that you can accurately adjust your coverage to protect these items.

Homeowner Insurance- Chubb  60% of U.S. homes are underinsured by more than 20%.