WealthEffect — What To Look For In A Homeowner Policy?

Homeowner

What To Look For In A Homeowner Policy?
by Jay Kantrowitz, CPCU, CLU, CHFC
Contributing Editor to WealthEffect.com

Perils Covered

Endorsements & Deductibles

Insurance-Company Reputation

1. There are several standardized policy forms with respect to the perils which are covered. The three standardized forms cover basic perils, broad perils and special perils (also called all-risk).

Basic perils include fire, smoke damage, lightning and windstorm. Broad perils include all the basic perils plus additional perils such as pipe break, weight of ice/snow and falling objects. Special perils cover all direct physical loss to covered property unless specifically excluded.*

All homeowner policies exclude floods as perils; flood insurance must be obtained through a separate policy. Earthquakes are another force of nature which is excluded.

In addition, all homeowner policies have property exclusions (eg. swimming pools and damage to retaining walls are not covered) and limitations (eg. jewelry, watches, furs, cash, firearms, collectibles and fine arts are covered only up to a set limit). Some companies will offer higher limits than others in the basic policy — you should compare these limits when analyzing policies.

By adding an endorsement to the policy, you can purchase additional coverage. The insurance company may request recent appraisals on scheduled items for increased coverage. Other endorsements to look for are: replacement cost on contents and a dwelling-replacement guarantee.**

Lastly, compare deductibles. In coastal areas, insurance companies are placing separate windstorm deductibles which are a percentage of the dwelling limit — the percentage can run between 1% and 5%. If your home is insured for $300,000 and you have a 5% windstorm deductible, you will be responsible for the first $15,000 in windstorm damage.

Homeowner claims are not as standardized ("boilerplate") as are auto claims. Types of home construction vary; contents of homes vary; standards of living and lifestyles vary. The claim mentalities of insurance companies differ just as our lifestyles differ. Some insurance companies are known for their fair and swift claims-settlement practices; other companies, unfortunately, are known for low-balling settlements or for finding reasons not to pay claims. Check with your State Insurance department — pay particular attention if you find complaints which have been upheld against any company you are considering.

* Each policy form may vary as to what perils cover each type of property. For example: The Homeowner 1 policy covers both the dwelling and contents for basic perils. The Homeowner 2 policy covers the dwelling and contents for broad perils. The Homeowner 3 policy covers the dwelling for special perils and the contents for basic perils. The Homeowner 5 policy covers both the dwelling and contents for special perils.

** The dwelling-replacement-guarantee coverage may vary between companies. For example: One insurance company may have a limit of no more than 125% of the original insured dwelling amount while another insurance company may have no limitation.

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