Homeowners Insurance Law

Your home is likely your largest financial (and most emotional) investment. Yet it is also a vulnerable one, subject to natural disasters, burglary, vandalism, and liability from injuries suffered on the property. In order to insulate your home from such financial risk, you will most likely want to buy the proper level of homeowners insurance.

Minimum Hazard Insurance

While the term varies from region to region, all mortgage lenders require homebuyers to purchase a base level of “hazard” or “homeowner’s” insurance (HOI). This base level generally consists of coverage for property damage from fire, wind, hail, theft or other similar damage, though it may include more or fewer terms depending on the requirements of your lender.

Multiple Lines of Coverage

While the HOI your lender requires will cover unintentional structural damage to the home itself, it may fail to cover furnishings and other personal property, personal liability for injuries, and any other structures on the land (pool, garage, etc.). Homeowners would be wise to explore and purchase insurance which covers multiple lines of damage and/or liability.

Liability Insurance

Most standard HOI policies cover, to some extent, personal liability for injuries to others that occur on your property. For example, if a utility worker is bitten by your dog or a loose window shutter falls and injures him, a liability line of your HOI would cover the cost of his medical bills and other damages, like lost wages and rehabilitation, up to the policy limit.

Personal Property Insurance

In case of theft or natural disaster, you will also want to protect the personal property contained within the house. To this end, personal property coverage should also be considered seriously. Most standard lender insurance requirements do not include personal property, yet personal property often makes up much of the value in your home. When purchasing personal property policies, you should take a personal inventory of all of your personal property and keep a copy of the list in a safe place outside of the home (more below on home inventory).

If you have valuable works of art or jewelry in your home, there are also policies above and beyond average personal property coverage. There are also additional policies that cover natural disasters, such as tornados, floods, earthquakes, etc., which should be considered for those living in areas prone to such events.

Obtaining Homeowner’s Insurance.

Homeowners insurance is an enormous industry, yet affordable coverage is getting harder to come by. According to the Insurance Information Institute, home insurance premiums went up 2.2% in 2008, after going up 5.2% in 2007. The theories for the increase vary (some blame the increase in mold damage claims, others an increase in payouts due to natural disasters), but the bottom line is that even during a prolonged housing market slump, homeowners insurance is more expensive, and is only going up.

As a result of the increase in premiums, homeowners are finding it increasingly difficult to buy homeowners insurance at a reasonable price. Prospective home buyers can seek protection in the event they can’t find affordable insurance by making the home purchase conditional upon obtaining homeowners insurance at a reasonable premium.

Cost Saving Tips

With the rise in premiums, homeowners will be tempted to cut costs by dropping certain lines of insurance or reducing the amount of existing policies. Before doing so, you should stop to reflect on the wisdom of that strategy and whether there’s a more effective way of reducing your premiums while maintaining an adequate level of coverage.

During a depressed market like the current housing crunch, some homeowners may be tempted to reduce the amount of insurance to reflect the lower price of the home. Homeowners insurance is intended to cover the cost of reconstructing the home, however, which will inevitably cost more than the current depressed value of the home. If you reduce your policy to match the drop in real estate value then your policy will not cover the cost to replace your home.

Instead of dropping your coverage to a level which wouldn’t cover your cost to replace the home, consider increasing your deductible. According to the Insurance Information Institute, raising your deductable from $500 to $1,000 could save you up to 25% on your premium.

Raising the deductible would mean that you would have to take care of small to medium sized issues out of pocket, but it would also help to assure that your premium doesn’t rise because of your filing multiple claims. Filing two or three claims often results in a rise in your premiums and possibly even cancellation of your policy. One way to keep the premium low is to file as few claims as possible. A high deductible means lower premiums and (most likely) fewer claims filed.

Also, think twice before cancelling your flood insurance. According to the Insurance Information Institute, 25% of flood losses occur in low flood risk areas. For high risk homes, flood insurance is a necessity. For low risk homes, you should explore strategies which mitigate the effects of flooding.

Home Inventory

One of the easiest strategies to lower cost, calculate exactly how much insurance you need, and get claims settled faster is doing a home inventory. A home inventory requires you to simply go through your home, room to room, and document every piece of personal property you own that is valued at around $50 or more. While the process may be cumbersome, it is an important task which has the added benefit of making you consider better ways to prevent losses.

You should be as precise as possible about what’s in each room and the details of each piece of property (make, model number, serial number, value, etc.). Go through each room and take pictures with a still or video camera, and include things like CD or record collections (each individual piece may be worth less than $50, but taken together, they are worth much more), tools, jewelry, electronic equipment, etc.

Some suggest marking expensive items with a personalized number such as your driver’s license ID, in order to better identify them to police should they be stolen.

After collecting the information, you can formalize the results by creating a spreadsheet or using a downloaded inventory form. Once you have the results, either on paper or as a computer file, you should store a copy in a safe place away from your home. Leave them with a trusted friend or neighbor, place them in a safe deposit box, or email the file to yourself so that it is always readily available.

A proper home inventory should be updated periodically and is useful not only when there is damage to the home, but in cases of theft as well. You will always know what was in a certain room or area and be able to give the list to the police or insurance claims adjuster for quicker processing.