“Homeowners Insurance 101”
Not all homeowners have the same insurance needs. Gilmartin Insurance Agency feels it is important that you understand the coverages homeowners insurance policies include as well as the optional coverages you can purchase. Coverages Included:
- Dwelling: (coverage A)
provides property coverage that protects your house and attached structures if damaged by certain events; including fire, wind damage (i.e.: hurricane, tornado) and weight of ice, snow or hail. You should always carry an amount of insurance equal to a minimum of 80% of the full replacement cost of the dwelling. Replacement cost is the amount it would take to replace or rebuild your home or repair damages with materials of similar kind and quality, without deducting for depreciation. - Other Structures: (coverage B)
provides protection to other structures at your premises that are not attached to the dwelling. Items covered include detached garages, tool sheds, etc. Coverage is normally limited to either 10% or 20% of the Dwelling limit. However, you may purchase more coverage for an additional premium. - Personal Property: (coverage C)
provides protection for the contents of your home and other personal belongings owned by you or family members who live with you. Coverage is limited on certain types of property that are especially susceptible to loss, such as cash, securities, jewelry, furs and guns. - Loss of Use: (coverage D)
this coverage will help with additional living expenses if your home is damaged by a peril insured against to the extent that you cannot live in your home. These expenses include, but are not limited to, housing, meals and warehouse storage. - Personal Liability: (Section II coverage)
this section of the homeowners policy will provide coverage in the event you or a resident of your household is legally responsible for injury to others or damage to others’ property. Due to our litigious society and in order to protect your assets and retirement, we recommend at least $300,000 of coverage.
Optional Coverages You May Want to Consider:
Your homeowners policy will not protect you or your property in all situations. All of the exclusions and specific language can be found in your policy. Common examples of coverages not included in the basic policy that many of our clients have purchased for an additional premium include:
- Enhancement Endorsement:
this endorsement to your policy packages many important coverages together at a reduced premium. Coverages in this endorsement include sewer & drain backup, increased special limits on personal property. We highly recommend this endorsement to all of our clients. - Flood Insurance:
homeowners policies DO NOT cover flood damage. Flood coverage is available to everyone, and even if your home is not in a designated flood plain, do not assume you will never incur flood damage. - “Floaters” on Valuable Items:
high value property such as jewelry, furs, guns, coins and fine arts are covered on a very limited basis in the basic policy. A “floater” covers possessions of high value for their full value. - Water Backup and Sump Overflow:
losses from water backup and sump overflow are not covered under your homeowners insurance policy. This coverage is available as an endorsement. - Home Business Coverage:
more and more of our clients are conducting business from their homes. Your homeowners policy places limitations on coverage for business property and liability. There are several options available to cover a home business. We would be happy to discuss these options with you. - Coverage to Replace Obsolete Siding and/or Roofing Materials:
if your home has older siding and/or roofing materials that are no longer available, you should consider this endorsement. After a covered loss, this endorsement will pay to reimburse you for the cost of replacing undamaged siding and/or roofing when the materials found on the covered loss area are no longer available. - Earthquake:
your homeowners policy does not provide any coverage for damage due to earthquake. In areas where earthquakes are uncommon, this coverage is very inexpensive. Many of our clients purchase this coverage due to the low premium. - PCL:
if higher limits of protection are desired, a personal catastrophe liability policy can be written which can extend your protection to $1,000,000 or more.
Homeowners insurance is a contractual agreement between an insurance company and an insured, which, in exchange for premium, provides financial protection for risks associated with owning or renting a residence and its contents.
What is the policy?
The insurance contract is called a policy and includes three distinct parts. First, the Declaration Page lists what coverages are in effect, the limit of coverage and the dollar amount of coverage. Second, the Text of the contract tells you who and what is covered and not covered. Third, the Endorsements section of the contract changes, limits or modifies the text.
Do I have to buy homeowners insurance?
Pennsylvania state law does not require you to carry homeowners insurance. However, the financial institution that holds the mortgage on your home will require you to cover the property (collateral) in the event of loss.
What does the homeowners policy cover?
The homeowners policy is a package policy designed for a single family home. Most packages include liability, dwelling property, personalproperty, medical payments and additional living expense coverage. Policies do vary, however, in what events (perils) you are protected against. There are two general approaches: a named peril basis, which insures against a list of perils, and an open peril basis, which insures against all perils except those specifically excluded.
What are the named perils?
Basic coverage perils: Fire, lightning, windstorm, hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, vandalism and malicious mischief, theft and breakage of glass.
Broad coverage perils: All of the above basic coverage perils and volcanic eruption, falling objects, weight of ice, snow or sleet, collapse of building, accidental discharge of water or steam, sudden or accidental tearing apart, cracking, burning or bulging, freezing, or sudden or accidental damage from artificially generated electrical current.
A deductible is the amount of the claim for property loss or damage that you agree to pay, or the part that is deducted from your claim check. The basic policy deductible varies from company to company but the most common is $500 per loss. The higher the deductible that you choose the lower your premium will be. The lower the deductible that you choose the higher your premium will be.
When would I use loss of use coverage?
If your home was damaged and during repairs was not livable, or the government evacuated your home following a covered loss, you can get reimbursed the living expenses you incur that exceed your normal living expenses. This would be for lodging, meals and laundry facilities for a reasonable amount of time. The coverage limit can be expressed by either a dollar limit or by the phrase “LOSS SUSTAINED NOT TO EXCEED 12 CONSECUTIVE MONTHS”.
Liability covers you for your legal obligations in the event an accident by you or a member of your family injures another person or causes damage to another person’s property. Most insurance policies provide at least $100,000 in liability coverage with the option to purchase up to $1,000,000. If you want higher limits than provided in the policy you could purchase an umbrella liability policy or personal catastrophe liability policy in million dollar increments.
Why do I need medical payments coverage if I have liability coverage?
Medical payments coverage is a no-fault coverage. If someone injures themselves while on your property, you may have the medical payment coverage respond, regardless of whether you are at fault or not. This coverage does not extend to you or your family members or any employees.
This coverage is often referred to as “good will coverage”. Medical payment coverage limits vary from company to company, ranging from $1,000 to $5,000.
Similar to other financial service providers like banks and credit unions, an insurance company uses your personal information for a variety of purposes including verification and record keeping. They may also run an insurance score which might effect the rate they charge based on factors like bill paying history. Just like financial service providers, the insurance company and insurance agents are bound by state and federal privacy laws and may not release your personal information to others without your permission except as allowed by law.
If you live in an area like Pennsylvania that doesn’t experience a lot of earth quakes you can purchase coverage for this peril for a very low premium. Although there isn’t a lot of earth quakes in Pennsylvania they still do occur from time to time and you should stay on the safe side and purchase this coverage. A substantial deductible (often a percentage of the amount of insurance that applies to the destroyed or damaged property) is in effect.
Does windstorm include tornado? Since the policy specifically refers to windstorm as a covered cause of loss, some residents have wondered what exactly windstorm includes. Tornadoes, hurricanes, high winds, thunderstorms and blizzards are all included in the definition of windstorm. Your homeowners policy also provides ‘loss of use’ benefits to cover additional living expenses while repairs are being made to your home.
- While caring for a child for a fee, the child is injured in your home. The parents expect you to cover the hospital bills.
- You replace your friend’s car brakes for a “few bucks” and the car is damaged or your friend is hurt in some way. He expects compensation.
- A friend slips on an icy walk or trips on a toy while picking up the craft item she paid you to make. She expects you to cover medical bills.
- You use your detached garage for a small woodworking business and the garage is damaged in a windstorm. You want your garage rebuilt.
- You do word processing for a fee from your home. Your computer is stolen. You want it replaced.
- You are a self-employed sales representative with an office in the home. While entertaining a client in your home, the client is injured and expects compensation.
Since flood damage is excluded under your homeowners coverage, you should be aware that flood insurance is available from the National Flood Insurance Program which can be purchased through Gilmartin Insurance Agency.
This endorsement provides protection for direct loss caused by water that backs up through sewers, drains or sump pump wells. Just as flood insurance excludes coverage for sewer back-up, this endorsement excludes any coverage for damage due to flooding. This coverage is very important to have if you have a sewer drain in your basement or a sump pump. It is also very important to have if you have a finished basement or have contents that can be damaged from sewer and drain backup.