We thought it might be good to list some basic questions many people have about homeowner’s insurance. Key factors that can influence your insurance rates, as well as some typical coverages and exclusions in a standard homeowner’s policy can be found here. You can also learn more about what to do when you have to file a claim, or if you have an issue with a claim.
What are the Types of Homeowners Insurance Policies?
There are several types or “forms” of homeowners insurance with different levels of coverage, and most include liability coverage. All insurance policies have notable exceptions, limitations, and exclusions, as well. The following list can give you a look at the different policy types and a quick outline of coverages:
HO-1: Most states have stopped selling this type of policy and it only covers a few named perils.
HO-2: Often called the “broad form,” this type of policy offers named coverage for dwelling and personal belongings for about 16 covered perils.
HO-3: The most popular of the types and often called a “special form,” the HO-3 is open coverage on dwelling and personal belongings for everything except what they outline as an excluded peril.
HO-4: Type of policy specifically for rental properties.
HO-5: Type that provides coverages for dwelling and personal belongings, as well as replacement cost coverage, for high value properties.
HO-6: Type of policy that specifically covers condos.
HO-7: Type of policy that specifically covers manufactured or mobile homes.
HO-8: Type of policy that covers high-risk homes that do not usually qualify for standard coverage.
What are the 3 Levels of Coverage?
Actual Cash Value: Covers the cost of your house and belongings for what they are currently worth, after deducting depreciation.
Replacement Cost: Covers the actual cash value of your home and belongings without depreciation deducted which allows you to rebuild or repair up to the homes original value.
Guaranteed or Extended Replacement Cost: Provides a cushion of financial coverage to completely rebuild or replace your home or property as it was even if it exceeds the estimated replacement cost (inflation, materials cost, increased construction costs, etc.)
What Factors Influence Your Homeowner’s Insurance Rates?
Although the national average annually for homeowner’s insurance is around $1,445, premiums can vary greatly state by state, as well as vary by the risk of damages to that particular geographic location. While one homeowner living in Delaware could pay $598 a year, another can live in Oklahoma and pay upwards of $2,559 per year for their coverage. Texas, for instance, places 3rd in the most expensive states for Homeowner’s Insurance, just after Oklahoma and Kansas who pack a premium punch thanks to their potential for destructive tornadoes. Below are the key factors that help determine your insurance rates:
State and Zip Code: When calculating a rate, insurers take into account where you are located by state and zip code, especially considering areas prone to elements such as earthquakes, hurricanes, wildfires, tornadoes, and hail storms.
Credit Score: A significant factor in your insurance rate in most states, insurers weigh payment history, debt, length of credit history, and other considerations where poor credit can increase your premium by an average of 127% versus someone with excellent credit.
Insurance Score: As with your credit score, your insurance score measures the amount of financial risk to an insurer and having a low score can return higher rates or possibly no coverage at all.
Claims History: Insurers can raise your rates as they consider previously filed claims will increase the likelihood of a future claim, even if you’ve changed residence.
Marital Status: Much like you see in financial breaks in taxes, married homeowners can also find they get better rates than those of single owners.
Policy Type: Obviously the type of policy coverages you choose can affect your premium, as some homeowners find they need additional coverages or more liability protections than others.
Replacement Cost: Different from market value and easily a big mistake if underinsured, the replacement cost of your home is the money to build the exact home if it were destroyed or damaged which can impact your premium.
Deductible: It is an important decision but generally the higher the deductible you choose, the lower the premium (and possibly more money saved on your premium.)
Liability Limits: The standard $100,000 in personal liability insurance can often times be inadequate, especially when you consider a serious injury or possible lawsuit in your home, but your rate is raised with added liability coverage.
Home Construction & Age: Newer homes that are damaged or destroyed tend to cost less when they have to be rebuilt, whereas older homes often use materials which are more costly to repair or replace.
Condition of the Roof: Some insurers can increase rates or decide not to cover an older roof entirely, as new or recent roofs usually better withstand the elements.
Location/Close to Water: Homes along a coast, near a body of water or located in high-risk flooding areas typically require separate flood or windstorm/hurricane insurance coverages and are generally more expensive to insure.
Remodeling: As remodeling raises the value of a home and you want to protect and reflect that in your coverage, there may also be an increase to your premium for the improvements.
Home-Based Business: Sometimes you can additionally purchase an endorsement or specific in-home business policy to protect home-based equipment and other property in the event of damage or loss to business.
Certain Dog Breeds: Some insurers may opt out of coverage or have you sign a liability waiver for certain breeds in case you are sued by someone that is bitten or attacked.
Hot Tub or Swimming Pool: Although typically a minor increase to your rate, there is added liability coverage in case someone is injured and decides to sue.
Wood-Burning Stoves: A wood stove could increase rates by an average of 2%, but you could reduce a premium spike if they meet codes or have proper smoke detectors or fire extinguishers nearby.
What does Homeowners Insurance Cover?
Generally, you’ll find that homeowners insurance covers damage or destruction to a home’s interior and exterior, loss or theft of personal possessions, as well as protect you against personal liability for any harm to others. A standard homeowner’s insurance policy will cover things like:
Dwelling: The most basic coverage you find in a policy is for protection of your dwelling which covers the structure of the home (foundation, walls, and roof), as well as certain structures that are attached to the home like the garage or deck.
Other Structures: Standard insurance policies generally cover other structures on your property that are separate from your dwelling, such as a fence, detached garage, or tool shed.
Personal Property: This provides coverage for your personal belongings such as clothing, furniture, electronics, appliances, and other items if they are stolen or destroyed by an insured peril.
Liability: This type of protection covers you in the event there is a lawsuit for bodily injury or property damages caused by you, a family member, or a pet to other people.
Additional Living Expenses (ALE): The additional costs you accrue living away from home in the event it becomes uninhabitable from an insured disaster (such as rent, hotel stay, restaurant meals, storage fees, and other types of expenses you would not have had had the event never occurred.)
Medical Payments: Covers medical expenses of someone injured on your property regardless of who is at fault. It also covers medical expenses if you, a family member, or your pet injures someone off of your property.
What Damages are Typically Covered on a Homeowners Insurance Policy?
Although there can be variations depending on the policy type and the insurance carrier (as well as certain limitations or exclusions of coverage) most standard homeowners insurance cover perils like:
Fire or Lightning
Hail or windstorms
Riots or civil disturbances
Damage caused by vehicles or aircraft
Weight of ice or snow
Sudden damage from a power surge
Overflow or accidental discharge of water or steam from household systems such as plumbing, air conditioning, heating, fire-protective sprinkler systems, or other household appliance
Sudden or accidental tearing, cracking, bulging, or burning of a hot water, steam, air conditioning, or fire protective system
Freezing of a plumbing, air conditioning, heating, fire-protective sprinkler systems or household appliance
What is Generally Not Covered by Homeowner’s Insurance?
Acts by the Government: Homeowners insurance will not cover damages to your property or personal belongings if a governmental or public authority is responsible which includes seizure and eminent domain.
Acts of War: If the Government officially declares an event as an act of war, damages to the home will not be covered by insurance. Terrorist attacks may not be specifically referenced in a policy but damages to property due to explosions, fire, smoke, and acts of vandalism are typically covered.
Business-Related: If you are doing business in or out of your home (even small business), its best to talk to someone about business insurance because standard home insurance policies do not cover business-related claims.
Dog Breeds: Certain dog breeds are considered aggressive and denied coverage by certain carriers.
Earth Movement: Perils such as earthquakes, sinkholes, or mudflows are typically not covered or are required as an add-on to your policy to be covered.
Intentional Damage: Intent to cause damage to your own property is not included, although vandalism or criminal acts by another are usually covered.
Flooding Damage: Flood damages usually require a flood insurance policy to be covered.
Law or Ordinance: Upgrades or damages resulting from an area of your home that is not up to standard building codes or regulations.
Luxury Items: There are often high-valued collector’s items, such as jewelry or artwork, that are not covered in a standard policy’s limits and take a separate policy to be covered.
Mold Damage: Mold is considered to be something that is preventable and grows over time before it affects your health or home, therefore is generally not covered.
Natural Disasters: Depending on your geographic location, certain natural disasters such as Earthquakes, Wildfires, Hurricanes, etc. are not included in a policy or require you to purchase coverage in a separate policy.
Negligence: If you neglect or fail to properly maintain the repairs or upgrades to your property.
Nuclear Accidents: Insurance does not cover any type of nuclear hazard, accident, or disaster.
Normal Wear and Tear: Since insurance is typically designed to cover sudden events and accidents, it wouldn’t typically cover normal wear and tear.
Power Failure: It is typical to find that damages or loss relating to a power outage would not be covered.
Swimming Pools, Diving Boards, Hot Tubs, Tree Houses or Trampolines: Considered to frequently cause injuries, these high-risk factors are often excluded or require you to purchase additional coverage.
Termites, Bedbugs and Other Infestations: Some infestations are considered preventable, others are considered to be brought into the home and are normally excluded.
Watercraft: Oftentimes there are very limited or strict conditions for watercraft to be covered so you would have to consider additional boat or watercraft coverage.
Water Damage: Damages that result from things like water or sewer backup, sump overflow or discharge, are usually offered as add-ons to a standard policy. Some damages caused from things like a burst pipe could be covered, so it is good to understand exactly what your policy covers.
What Should I Do If I Have to File a Claim?
1. Notify the Insurance Company Immediately
It is extremely important to contact the insurance company as soon as possible for multiple reasons. First, the insurance provider could have a time limit on accepting claims after a damage occurs (24-48 hours is not uncommon). Secondly, once you’ve notified the insurance company, it triggers deadlines that your carrier must follow to stay compliant with the law. They must acknowledge your claim and begin the investigation process.
2. Document, Document, Document
Although the storm was hard enough to go through and adding any added burden could be a struggle at this time, we cannot stress this point enough. Documenting everything that happens with your claim is extremely crucial. Having excellent or incomplete records can absolutely make or break your claim. We’ll list some key areas that will help build your case:
Fully inspect all areas of your property including commonly hidden areas (such as the attic or crawl spaces) for damage or moisture. See our list of common hidden storm damages.
Take photos and video of your damages, even if minimal.
Begin a journal or log of everything that happens, including dates and times, contacts you speak to, summaries of what happened or what was said, etc.
Start a file and keep any printed correspondence (such as letters, emails, or reports from the insurance company, repair/service quotes, etc.) as well as any purchase receipts for repairs all together in that same file.
If any of the contents of your home were damaged, make an inventory list of those items and include any purchase receipts you have saved for them (such as computers, TVs, appliances, furniture, etc.)
Get quotes on repairs from trusted contractors and service professionals which can be used to calculate your claim
Gather together invoices, purchase orders, policies, and other key documents that will be included in your claim
Send a follow up email with a brief summary of any verbal communication you had in-person or by phone
3. Cooperate with your Insurance
Once you’ve notified the insurance company of your claim, it is your responsibility to continue to cooperate with them by providing any necessary and reasonable documentation they request as they investigate your claim. Be present and make your property available for the adjuster that will be inspecting the damages. Provide the adjuster with information they need to perform their inspection, and make sure to point out any and all areas that sustained damages. Have the adjuster inspect all damages, even in tight areas like attics or crawl spaces. Be polite and courteous with the adjuster and do your best to answer questions, return phone calls, and send all documentation and pictures of damages to your property. Again, it is always best to send a polite summary email to the adjuster and to log your in-person communication as a brief record of what happened on the visit.
4. Your Rights in the Processing of your Claim
Insurance companies must follow the law and insurance codes to acknowledge, investigate, and process your claim. Deadlines are usually within 15 calendar days to acknowledge your claim and request documentation from you. Generally, they must approve or deny your claim, in writing, 15 calendar days after they receive your requested documentation. Once approved, the insurance company should process a payment to you within 5 days.
Important Note: When the Department of Insurance declares a weather-related event as a catastrophe or natural disaster, they offer deadline extensions of up to 45 days for the insurance providers to approve or deny your claim, and an additional 15 days to make payment to you – provided they notify you and give reason for the extension. This could mean longer wait times for an adjuster, claim acceptance, claim denial, or payment.
If an insurance company does not comply with the law, they can be held liable for statutory interest penalties.
What if your Claim is Delayed, Denied, or Underpaid?
Often many property owners find they have little trouble filing an insurance claim for their damages. Other times - usually when the stakes are much higher and the damages are more extensive - there is a greater chance for dispute. If you disagree with the amount of money the insurance is offering you, or you were denied coverage, you have a few options available.
You can provide a bid or quote for your repair from a reputable contractor or service company, and ask for the insurance company to reevaluate your claim. Sometimes an insurer will adjust the amount of your claim with valid quotes for the repair of your damages.
Another option is to hire a public claims adjuster. Public adjusters can be very valuable to help assess the full extent of your damages and negotiate for a higher settlement with your insurance company, but it is fair to note that they have no position of authority or legal power over the insurance company. Therefore, insurance companies have no legal obligation to accept a public adjuster’s report, and oftentimes disputes can still arise.
You could also contact an insurance claims attorney to review your case. An attorney can examine your policy, documentation, and insurance estimate to evaluate your options. They can send a letter to the insurance company to represent you on your claim, as well as generate a demand letter for the maximum settlement. They collect all important evidence, calculate accuracy in your damages, and will negotiate on your behalf.
Most attorneys and public adjusters work on a contingency-basis, which means there are no upfront, out-of-pocket costs and any fees that are generated would be paid out of a settlement that is won for you (which would NOT include any original payment that was sent by your insurance company.) No win, no fees. This gives property owners a chance to understand their rights, and to pursue legal options to get a fair settlement on their claim without upfront or premium hourly attorney rates.
When Should You Consider Hiring an Attorney?
You might consider an insurance claims attorney when:
You have questions regarding your policy coverages
The insurance adjuster’s estimate is lower than expected
Damages are extensive and claims are more complex
Claims are delayed or denied
You might also like to read Why Hire an Attorney vs. a Public Adjuster?