Homeowners and Renters Insurance Basics
Homeowners policies are designed to protect the physical assets owned, leased, rented, or used by individuals and families. People who rent a home or apartment from others are eligible for Tenant or Renters policy.
Renters insurance offers the same personal property coverage and liability protection as a homeowners policy. Personal property includes the contents of your home or apartment and includes personal belongings used, owned, worn, or carried by you. Liability protection provides for legal obligations owed to others and for the additional expenses for you to temporarily live elsewhere when your home has suffered damage and is being repaired. If you go out and leave the stove on and an ensuing fire causes extensive damage to the entire building, you may be held liable to the landlord. Renters insurance is surprisingly inexpensive because you are not insuring a building. Like all property-casualty policies, the insurance company weighs the value of your property and other risk factors to determine your premium.
Homeowners insurance policies vary but they usually cover damage to personal property caused by:
- Fire or lightning
- Windstorm or hail
- Riot or civil commotion
- Theft or vandalism (sometimes called malicious mischief)
- Falling objects
- Freezing of a plumbing, heating, air conditioning or other such household system
- Weight of ice, snow or sleet
Personal property coverage is provided on a worldwide basis. So, if you travel to Europe and take clothing, cameras, and other items with you, your homeowners policy protects you from loss to those items. Of course, whatever caused the loss either to the neighbor’s property or to yours while in another country must be a covered cause of loss.
The liability coverage also extends well beyond the boundaries of your home or apartment. If you are legally at fault for injury or loss to another individual, you would be covered even if the incident occurs while you are on vacation. There are limits and exclusions to personal liability coverage. For example, you are not covered for injuries or damage you purposely cause. If a fight with a neighbor turns physical and you end up hitting him, your homeowners insurance will not cover the injury or any resulting lawsuit.
A homeowner’s policy contains a deductible that applies to every loss to covered property. The minimum deductible is $250, but this amount may be increased, resulting in lower insurance premiums.
Medical Payments to Others
It is important not to confuse this coverage with the medical payments coverage under the Personal Auto Policy (PAP). In the case of the PAP, medical payment is provided for the insured and people who are riding in the insured vehicle. In Homeowners, it is quite the opposite. This portion of a homeowner’s policy never applies to anyone included within the definition of “insured” but covers other people that visit your home. A typical insured is you (named insured) and family members residing with you in your household. You would not have medical payments coverage — but your invited guests would have coverage. The purpose of medical payments coverage under the homeowners policy is to provide some level of protection for accidents that occur on the premises or arise out of the insured’s activities away from the premises, but for which the insured may or may not be legally responsible.
The basic limit for this coverage is $1,000, but this amount can be increased by an endorsement to the policy. It is not necessary to establish legal liability for medical payments to apply. In fact, voluntary payment of medical expenses will hopefully convince an injured person not to sue for additional damages.
Flood and Earthquake Coverage
Flood and earthquake activity is more widespread than many people realize. For example, almost 90 percent of the U.S. population lives in seismically active areas. Since 1900, earthquakes have caused damage in all 50 states. And if your home is located in a flood-prone area, you are 26 times more likely to suffer a flood loss than a loss from fire.
Check with your insurance agent about special catastrophic policies for normally excluded conditions like floods and earthquakes. Of course, the cost of such extra coverage may reflect the high risk involved. If you live along a shoreline, for example, expect to pay a higher premium for flood coverage than someone living on a mountaintop would pay.
Replacement Cost Coverage Endorsement
Personal property is covered on an actual cash value basis unless you request an endorsement to change the loss settlement provision to replacement cost. Actual cash value is replacement cost of the item minus depreciation. For example, a new television set may cost $500. If your 7-year-old TV set gets damaged in a fire, it might have depreciated 50 percent. Therefore, you would be paid $250 for that set.
Scheduled Personal Property Endorsement
Some of the personal property limits, such as the one applying to jewelry, may be too low. Many people have engagement rings that well exceed the limit provided in the basic policy. Limitations vary by insurance carriers and by state you reside in but they can be as low as $1,500. Therefore, you may need to purchase this endorsement that provides a specific limit for any items that are of value. A list of the items to be insured is included in the endorsement and a limit is chosen for each one. The coverage is provided on an “open perils” basis and no deductible applies. Open Perils is broader than the normal perils on the homeowner policy and includes mysterious disappearance. You will need appraisal or receipt to establish the value of the item, along with detailed description. This endorsement can be used to cover other items such as cameras, sporting equipment, coin collections and other collectibles or valuable items.