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Common Questions Asked by Homeowners about
iii Insurance Information Institute
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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