When buying or renting a house in the United States, it is necessary to understand the details of homeowners insurance. This article will lead you to understand the details of homeowners insurance, policies, scope of claims, precautions, and how to reduce insurance premiums and other important issues related to homeowners insurance.
Why we need homeowner insurance?
Homeowner Insurance or Hazard Insurance: Generally refers to the insurance purchased by home buyers for their own house, which is the most basic insurance. It mainly protects homeowners from receiving compensation claims to reduce property losses caused by accidents or disasters.
Tip: Homeowner insurance mainly compensates for the damage caused to the house by fire, so some people also refer to it as fire insurance. However, homeowner insurance also compensates for many other losses caused to the house or personal property by various reasons, as well as accidents that may occur to guests or even passersby.
Buyers with a mortgage: The mortgage bank will definitely require home buyers to purchase homeowner insurance before the transfer of ownership, otherwise the loan will not be approved.
Buyers paying full cash: Although the law does not explicitly require the purchase of homeowner insurance, in order to avoid the losses that may occur if something happens to the house, homeowners usually also purchase homeowner insurance as protection.
What is covered by homeowner insurance?
Compensation for the homeowner or the mortgage bank after a disaster.
The house itself, including the walls, garage, driveway, swimming pool, etc.
Personal property, including furniture, appliances, books, collections, documents, etc.
Additional living expenses incurred when the homeowner cannot use the house due to a disaster, as well as the extra expenses during the repair period.
Homeowner liability insurance, which provides compensation for accidents that may occur to the homeowner or guests inside or outside the house.
Tip: When purchasing homeowner insurance, the homeowner must inform the insurance company whether the house is for rent or personal use.
Personal use- The insurance company will add insurance coverage for personal property inside the house.
For rent- The homeowner does not need to insure the personal property inside the house, which can save on insurance premiums. (Usually, tenants can purchase "renter's insurance" to protect their own property interests in the rented property).
What are the common claims covered by homeowner insurance in the United States?
The common claims covered by homeowner insurance can be divided into the following categories, and the following figure roughly illustrates some of the main insurance coverage:
1. Coverage for the Home's Structure
Coverage A - Dwelling Coverage: Covers the main structure of the home. (For Condo Insurance, this does not include exterior walls or common areas as those are the responsibility of the HOA).
Coverage B - Other Structure on Your Property: Covers buildings other than the main structure on the property, such as detached garages, tool sheds, etc. The coverage limit for this is typically 10% of the main insurance policy (actual coverage may vary based on policy terms).
2. Individual Property Coverage
Coverage C - Personal Property / Contents: Covers all personal property inside the home, such as furniture, appliances, phones, clothing, etc. If personal property is lost or damaged due to a disaster or theft, it may be covered by insurance.
3. Coverage for Temporary Living Expenses
Coverage D - Loss of Use: Covers additional living expenses incurred when the insured cannot live in the home due to damage or repairs. The coverage limit for this is typically 20% of the main insurance policy (actual coverage may vary based on policy terms).
4. Legal Responsibility
Coverage E - Personal Liability Insurance: Covers legal expenses if someone is injured or there is an accident on the insured's property, such as slipping on stairs, a worker getting injured, a child playing ball in the house and damaging a neighbor's valuable item, etc.
5. Medical Payment
Coverage F - Medical Payment coverage: Covers medical expenses for those who are injured on the insured's property but do not sue. For example, if someone slips on your stairs but does not sue you, they may still be able to make a claim for medical expenses under this coverage.
6. Others
Deductible (All Peril): The amount the insured must pay out of pocket before insurance kicks in for any of the above coverage areas, unless otherwise specified. The insurance company will cover any costs that exceed the deductible amount.
Water Backup and Sump Overflow: Covers damage caused by water backing up from a sewer or sump overflow. However, a broken sewer line is not covered by Water Backup or Sump Overflow coverage.
What are the commonly used homeowner insurance polices?
In the United States, the commonly used home insurance policies include the following types: (HO stands for Home Owner)
HO-1 Basic Coverage
This policy provides coverage for damage caused by fire, lightning, smoke, windstorm, hail, theft, vandalism, explosion, glass breakage, aircraft, vehicles, riot, and civil commotion, as well as bodily injury, damage to others' property, legal fees, medical expenses, personal property inside the home, and additional living expenses incurred after the home is damaged.
HO-2 Broad Coverage
This policy provides coverage for all perils listed in HO-1, as well as damage caused by electrical current, weight of ice, snow, or sleet, accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning, or automatic fire-protective sprinkler system, or from a household appliance, and falling objects.
HO-3 Special Form
This is the most common type of home insurance policy purchased. It provides coverage for all perils listed in HO-1 and HO-2, except for war, nuclear hazard, flood, earthquake, and sinkhole. It also provides coverage for accidents that occur to guests inside and outside of the home, accidents that occur to pedestrians outside of the home, and pet bites that result in medical and legal expenses.
HO-4 Tenant's/Renter's Policy
This policy provides coverage for personal property of tenants/renters inside a rental property.
HO-5 Comprehensive
This policy provides broader coverage than HO-3 and typically comes with a higher premium.
HO-6 Condominium Coverage
This policy provides coverage for condo owners and personal property inside the condo, accidents that occur to guests and pedestrians inside and outside of the condo, and losses from fire, theft, and water damage. Condo owners should carefully review the condo HOA bylaws to determine the required level of insurance coverage.
HO-7 Mobile Home Coverage
This policy provides coverage for mobile home owners and personal property inside the home, accidents that occur to guests and pedestrians inside and outside of the home, and losses from fire, theft, and water damage. Mobile home owners should carefully review the mobile home park rules to determine the required level of insurance coverage.
HO-8 Older Home Policy
Older homes may have a lower market value than the cost of rebuilding. The HO-8 policy allows homeowners to insure their homes for the market value rather than the cost of rebuilding.
What type of home insurance should I buy?
Here are some guidelines based on the type of property you own:
Single Family House: Purchase HO-3
As the owner of the entire house, foundation, and land, you are responsible for everything. In the property appraisal report, there is a section called "Total Estimate of Cost-New," which estimates how much it would cost to rebuild the house. The insurance coverage required by the lender is the lower of the loan amount and the Total Estimate of Cost-New. It is recommended to purchase insurance based on the Total Estimate of Cost-New. Some insurance companies offer add-ons for 120%, 125%, or 150% of the Cost to Rebuild New/Replacement Cost coverage (also known as 20%, 25%, or 50% Extended Dwelling Coverage). For example, under 150% Replacement Cost Coverage, if the homeowner purchases $200,000 in Dwelling Coverage, the actual maximum payout is $300,000.
Townhouse: Purchase HO-3
The ownership and liability rights of a townhouse owner are similar to those of a single-family house owner. If there is an HOA, provide information on the Master/HOA Insurance.
Condo: Purchase HO-6
The lender typically requires HO-6 and Master/HOA Insurance. If the Master Insurance of the Condo includes insurance for the interior of the unit, in addition to the common areas, there is no need to purchase HO-6 separately. The ownership of a condo owner is limited to within the walls of the unit, so the insurance only covers this part. The roof, corridors, elevators, pipes between walls, house structure, community roads, public facilities, etc., are the responsibility of the HOA and are typically covered by Master/HOA Insurance. Therefore, condo insurance premiums are usually much cheaper than those of a single-family house or townhouse. The lender typically requires Dwelling Coverage of at least 20% of the appraisal value.
Tips:
For any type of insurance, the deductible should not exceed 5% of the Dwelling Coverage.
Depending on the location of the property, some additional insurance, such as earthquake or flood insurance, may be required by the lender.
Other considerations:
For any type of insurance, the deductible should not exceed 5% of the Dwelling Coverage.
Depending on the location of the property, some additional insurance, such as earthquake or flood insurance, may be required by the lender.
How to reduce home insurance premiums?
Home insurance premiums can vary by hundreds of dollars due to coverage, deductible, and different insurance companies. Knowing the following details to choose home insurance can help save a lot of premiums.
Compare prices from three different companies. Although it takes time, it can save you a lot of money. Asking for quotes from multiple companies can not only help you better understand the details of insurance terms, but also learn about the quality of service provided by different insurance companies. By doing so, you can find the most suitable home insurance for yourself, and don't forget to ask them what they can do to help you save on premiums.
Increase your deductible. The deductible is the amount of loss that the homeowner must pay for before the insurance company begins to make a claim. Nowadays, most insurance companies recommend a deductible of $500. If you increase the deductible to $1,000, you can save about 25% on premiums. ※ However, if you live in an area prone to disasters, it is recommended that the insurance terms have a separate deductible for these special types of losses. For example, if you live in an earthquake-prone area, it is best to have a separate deductible for earthquakes.
Do not confuse the purchase price of the house with the cost of rebuilding. The land under the house is not at risk of theft, storms, fires, and other risks covered in your home insurance policy. Therefore, when deciding on the insurance amount, do not include the value of the land, otherwise the premium to be paid will be higher.
Bundle home and car insurance together. If you buy home and car insurance from the same insurance company, the insurance company usually offers a 5% to 15% premium discount. (Some exceptions apply, so please compare before deciding.)
Increase the disaster resistance of the house. For example, increasing storm shutters, strengthening the roof, renovating old houses, and strengthening the power system can save on premiums.
Improve home security. For example, installing smoke alarms, burglar alarms, and locks can get a 5% premium discount. Some insurance companies even offer a 15% to 20% premium discount for installing automatic fire and theft alarms that notify police, firefighters, or monitoring stations. ※ However, these systems are usually not cheap, and not every system is eligible for discounts, so please calculate whether it is really cost-effective and understand which systems are supported by the insurance company before making a decision.
Understand other discounts. For example, retired people usually stay at home longer, so they have the advantage of reducing the risk of theft or discovering fires early. Some insurance companies offer partial premium discounts for retirees over 55 years old.
Good credit history. In addition to home insurance, having a good credit record can help reduce premiums for any type of insurance.
Become an old customer of the insurance company. Some insurance companies offer a 5% premium discount for 3 to 5 years of old customers, and even a 10% discount for old customers over 6 years. (Of course, it is still recommended to compare prices to see if it is really cost-effective.)
Condition of the house itself. If the house is located near a fire hydrant or in a community with a professional fire department, you can pay less for premiums. If the electrical, heating, and plumbing systems are not more than ten years old, the premiums will also be cheaper. Additionally, houses made of strong brick materials in the east with good wind resistance, or houses with good earthquake resistance on the west coast can also reduce premiums by about 5% to 15%.
What are some things to keep in mind when buying home insurance?
If you're unsure, don't hesitate to ask!
Regardless of what type of insurance you purchase, it's important to pay attention to not only the premium but also the coverage and deductible. To choose the right home insurance policy, consider the following details to avoid any potential losses:
Understand the coverage and maximum compensation limit: For example, most insurance policies do not cover water damage or earthquakes, so you may need to purchase additional coverage separately.
Understand the insurer's claim limitations: For example, many insurance companies will not cover stolen jewelry unless you have a separate policy for it.
Understand the cost of rebuilding your home: For instance, if you insure your home for $150,000 but the cost of rebuilding is $180,000, the insurance company will only cover $150,000.
Understand the actual cash value of your home: If your home is destroyed and you choose not to rebuild, the insurance company will compensate you based on the depreciated cost of construction, which is known as the actual cash value.
What are other types of insurance related to home insurance?
To put it simply, there are several types of insurance related to homes in the United States:
Before buying a home: Owner's Title Insurance is used by the seller to guarantee the title of the property to the buyer, ensuring that the seller truly owns the property and that there are no hidden risks such as third-party property rights, inability to enter all the land, inability to list the property for sale, and unpaid bills on the property. The insured amount is the purchase price of the property, and the premium is a one-time fee paid by the seller.
After buying a home: Home Insurance is required for all homebuyers as a safeguard, and lenders usually require the inclusion of home insurance terms on the policy.
Additional protection: Earthquake Insurance usually covers natural disasters that are excluded by most insurance policies, including earthquakes, wars, and floods. Standard home insurance often does not cover flood damage or earthquake losses, so homeowners should purchase additional coverage for those risks if their property is located in areas prone to such disasters. Most insurance companies offer separate earthquake insurance policies, and California law requires insurance providers to offer earthquake insurance, with the premium based on the likelihood of earthquakes in the area.
FAQ:
Q: How do I switch home insurance policies?
A: Once you have selected a new home insurance policy and determined the effective date of the new policy, call your previous insurance company to cancel your policy ("I would like to cancel my policy as of [date]"). Also, don't forget to notify your mortgage lender.
Q: Will my home insurance cover roof leaks?
A: If you experience a roof leak, home insurance will only cover financial losses resulting from water damage to furniture, flooring, carpets, etc., and will not cover the cost of repairing the roof because this is a loss caused by an aging or poorly maintained roof and is not covered by insurance. However, if the roof is damaged due to a storm, strong winds, falling trees, or power lines, home insurance will cover the cost of repairing the roof.
Similarly, if the water pipes in your home burst due to aging and cause flooding, insurance will only cover the financial loss caused by the flooding, but will not cover the cost of replacing the pipes or any other repairs.
Tip: Most standard home insurance policies provide coverage for accidental water damage caused by water in pipes, but do not cover any repair costs for the pipes themselves. The cause of water damage is often difficult to determine, so after reporting to the insurance company, the company will send an adjuster to the residence to investigate and determine whether it falls within the coverage of the policy.
Q: Will my home insurance cover sewage backup?
A: Sewage backup is generally not covered by standard home insurance policies and often requires additional coverage that homeowners need to purchase. Sewage backup can be caused by blockages or tree roots that have infiltrated the sewage system.
Q: Can my jewelry and other valuables be covered by home insurance?
A: Generally, standard insurance policies only provide about $1,000 to $2,000 in insurance for stolen jewelry (depending on the policy). If the value of jewelry or other collectibles in your home is higher, it is recommended that you purchase a higher level of insurance.
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The content here is provided as general information only and should not be construed as a recommendation to buy or sell any insurance or financial instrument. All material presented herein is believed to be reliable but we make no representation as to or accept any responsibility or liability for, the accuracy or completeness of the information contained herein or any decision made or action taken by you or any third party in reliance upon the data.
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