|
After seeing news reports of fires,
floods, earthquakes or hurricanes, people worry that they too
could become victims of disasters. They also wonder whether they
have the right insurance coverage to enable them to rebuild their
homes and lives.
This information, prepared by the Insurance Information
Institute, explains what is covered in your standard homeowners
policy and what is not. Where gaps in coverage may exist, it tells
you how to fill them.
The document was designed to answer the most common coverage
questions posed by consumers to claims adjusters and the National
Insurance Consumer Helpline.
Remember, no amount of information can replace a thorough
review of your policy with your agent or company representative.
For ease of explanation, it is assumed that you have a policy
known as Homeowners-3 (HO-3), the most common homeowners policy in
the United States. Check with your agent to make sure that's what
you have. If you have a more restrictive policy, you should review
your options under question #15.
Question #1:
Are you covered for direct losses due to fire, lightning,
tornadoes, wind storms, hail, explosions, smoke, vandalism and
theft?
Answer:
Yes. The HO-3 provides broad coverage for a large number of
perils, including all those listed. There are some limits,
however, on the amount of insurance you have.
Action: Check
the dollar limits of insurance in your policy. Make sure you are
comfortable with the amount of insurance you have for specific
items. For example, the standard policy provides only $1,000 for
theft of jewelry. If your jewelry is worth a lot more, you should
purchase higher limits. You may wish to add a floater to your
policy to cover specific possessions, such as expensive paintings
or silverware. The floater will provide both higher limits and
protect you from additional risks, not covered in your normal
policy.
Also, if you live on the Atlantic or Gulf coasts there may be
some restrictions on your coverage for wind damage. Check this out
with your agent.
Question #2:
Your house is totally destroyed in a fire. You have bought
$150,000 worth of insurance to cover the structure of your house.
Will this be enough to rebuild your home?
Answer:
If the cost of rebuilding your home is equal to or less than
$150,000 you would have enough coverage. The HO-3 policy pays for
structural damage on a replacement cost basis. If the cost of
replacing your home is, say, $120,000, then that is all the
insurance you need. On the other hand if the cost of rebuilding
your home is $180,000, then you will be short $30,000. If you
choose not to replace your home, you will receive the replacement
cost of your home, less depreciation. This is called actual cash
value.
Action:
Make sure that the amount of insurance you have will cover the
cost of rebuilding your house. You can find out what this cost is
by talking to your insurance representative or builders in your
area.
Do not use the price of your house as the basis for the amount
of insurance you purchase. The market price of your house includes
the value of the land on which the house is situated. In almost
all cases, the land will be still there after a disaster, so you
do not need to insure it. You only need to insure the structure.
Question #3:
Are you covered for flood?
Answer:
No.
Action:
Flood insurance is provided by the federal government, under a
program run by the Federal Insurance Administration. If you are in
a flood prone area it may be wise to purchase flood insurance. In
some parts of the country, homes can be damaged or destroyed by
mudslides. This risk is also covered under flood policies. Contact
your agent or company representative to get this insurance, or
call 1-800-427-4661.
Question #4:
A pipe bursts and water flows all over your floors. Are you
covered?
Answer:
Yes. The HO-3 covers you for accidental discharge of water from a
plumbing system.
Action:
Check your plumbing and heating systems once a year. While you are
covered for damage, who needs the mess and hassle?
Question #5:
Water seeps into your basement from the ground. Are you
covered?
Answer:
No. Water seepage is excluded under the HO-3. And if the water
seepage is not due to a flood you will not be covered under a
flood policy. Problems like seepage are viewed as maintenance
issues and are not covered by insurance.
Action:
You should see a contractor about water-proofing your basement.
Question #6:
Are you covered for earthquake damage?
Answer:
No.
Action: Earthquake
coverage is sold as additional coverage to the homeowners policy.
To determine whether you should purchase this insurance, talk to
your agent or company representative. In earthquake prone areas,
the price of this insurance is relatively high. In other areas, it
is relatively cheap.
Question #7:
A neighbor slips on your sidewalk and threatens to take you to
court for damages. Does your policy protect you?
Answer:
Yes. The policy will pay for damages, if the accident is the
result of your negligence. It will also pay for the legal costs of
defending you against a claim. Also, the medical payments part of
your homeowners policy will cover medical expenses arising from an
injury to a neighbor or guest.
Action:
Check to see how much liability protection you have. The standard
amount is $100,000. If you feel you need more, consider purchasing
higher limits.
Question #8:
During a storm, a tree falls and damages your roof. Are you
covered?
Answer:
Yes. You are covered for the damage to your roof. You are also
covered for the removal of the tree, up to a $500 limit.
Action:
Cut down dead or dying trees close to your house. Prune branches
that are near your house. It's true that your insurance covers
damage, but falling trees and branches can also injure your
family.
Question #9:
During a storm, a tree falls and does no damage to your
property. Are you covered for the cost of removing the tree?
Answer:
No. Your trees and shrubs are covered for losses due to risks like
vandalism, theft and fire, but not wind damage.
Action:
Decide if you need extra insurance for the trees, plants and
shrubs on your property. You may be able to purchase extra
insurance, which will not only cover the cost of removal of fallen
trees, but will also cover the cost of replacing trees, and other
plants. Talk to your insurance representative about the
availability and cost of this extra insurance.
Question #10:
During a storm, the power from the electric utility is lost.
All the food in your refrigerator is spoiled and must be thrown
out. Can you make a claim?
Answer:
The general answer is no. However, there are a number of
exceptions. In some states, food spoilage is covered under the
homeowners policy. In addition, if the power loss is due to a
break in a power line on or close to your property, you may be
covered.
Action:
Check with your agent to determine whether you are covered for
food spoilage in your state. If not, you can add food spoilage
coverage to your policy for an additional premium.
Question #11:
Your golf clubs are stolen from the trunk of your car. Can you
recover?
Answer:
Yes. The HO-3 covers your personal property while it is anywhere
in the world. However, if your golf clubs are old, you will only
get their current value. This normally will not be enough to
purchase a new set.
Action:
Consider purchasing a replacement cost endorsement for your
personal property. This way you will get the full cost of
replacing the golf clubs, less the applicable deductible.
Question #12:
You have a power boat with a 50 horsepower engine. If it is
stolen, are you covered? What if there is a boating accident and
you get sued? Are you covered?
Answer:
If the boat is stolen from your residence, in most cases, you can
recover only $1,000. If the boat is stolen elsewhere you are not
covered.
You are also not covered for liability arising from an accident
with the boat. The homeowners policy provides liability coverage
for boats with engines less than 25 horsepower.
Action: See
your insurance representative about getting extra coverage for
your boat, including theft and liability. Ask about the Boatowners
policy.
Question #13:
Your house is close to the ocean. You have heard that if your
house is destroyed by the wind, the town's new building code
requires that you rebuild the house on stilts. This will cost
$30,000, in addition to the cost of rebuilding your house. Are you
covered for this extra cost?
Answer:
No. The HO-3 excludes costs caused by ordinance or laws regulating
the construction of buildings.
Action:
Purchase the Law and Ordinance endorsement. This will cover the
extra costs involved in meeting new building codes.
Question #14:
Am I covered for an "Act of God"?
Answer:
Yes. Normally, you are covered for "Acts of God". The
term "Act of God" usually refers to natural disasters
like hurricanes and tornadoes, as opposed to man-made acts, like
thefts or auto accidents. Most natural disasters, with the notable
exceptions of floods and earthquakes, are covered under normal
insurance.
Question #15:
Does your policy provide less coverage than the HO-3?
Answer:
If the answer is yes, review your coverage with your agent. Some
older policies provide less coverage than the HO-3. They may not
provide coverage for water damage, theft, or liability. They may
also provide coverage for the house on an Actual Cash Value basis,
rather than a replacement cost basis. Actual Cash Value means
replacement cost less depreciation. For example, if your roof is
destroyed in a storm, the insurance will only pay the cost of a
new roof less than amount of depreciation of the old roof. If your
roof was in great shape, this deduction will not be large.
However, if the roof was old and worn out, the deduction for
depreciation may be large.
Action:
Try to get an HO-3. Community-based groups, like Neighborhood
Housing Services, can help you get such insurance. Look up their
number in the phone book. You may also call the insurance
industry's helpline at 1-800-942-4242.
Question #16:
Where do I get more information?
Contact your agent or company representative. You may also call
the National Insurance Consumer Helpline at1-800-942-4242, or
visit our web-site at www.iii.org.
Insurance Information Institute
110 William Street
New York, NY 10038
(212) 669-9200
Reviewed and approved by the United States Office of Consumer
Affairs
|
