What to Know About Homeowner Insurance

What You Need to Know About Home Insurance...

Homeowners insurance is not required by law. The purpose of insurance is to make you “whole” again should your property experience a loss. Your home is likely to be your most asset, and protecting this asset is essential.

Pete Sabine and Leslie Whitney interview Alie Lopez with Pro Insurance Solutions. You will learn about the right questions to ask and important information to understand about homeowner insurance. 

Why is home insurance needed?
The purpose of insurance is to make you “whole” again should your property experience a loss. Your home is likely to be your most valuable asset, and protecting this asset is essential. Also, if there is a lender involved, homeowners’ insurance is a requirement.

How do you decide how much coverage is needed?
Most insurance companies have minimum replacement cost standards, in California we do not recommend insuring for less than $350 per square foot, depending on the property modifications.
Insurance companies have a replacement cost estimator tool on their websites. When a policy binder is issued, the insurance company completes an inspection and confirms the coverage.

If I am buying a home does the amount of the coverage need to cover the amount of the home loan?
One thing to note is that the replacement cost is usually less than the purchase price of the home. The reason is the purchase price includes the value of the land. Replacement cost applies to rebuilding only the structure if there is a total loss. A lender will often ask for a copy of the replacement cost estimator previously mentioned to confirm that the coverage is sufficient for their specific requirements.

If you do not own a home, can you buy renter’s insurance?
Yes. Renters insurance will cover all your personal property, provide liability coverage as well as loss of use if you are under evacuation and need temporary housing until you can move in after damage repairs are completed.

What is the most common standard coverage provided? 
A basic Homeowners policy with a standard company in the San Francisco Bay Area is for home with $750,000 in replacement cost and below. Usually, the liability coverage is $500,000 to $1,000,000.

What about basic coverage available for events that cause property damage such as fire, wind, and theft?
These items are covered perils under a Homeowners policy. If any of these events occur and there is significant damage to the structure, the dwelling limit is what pays out for damage repairs, replacement, etc., subject to the deductible amount. For example, wind knocks a tree onto your roof and the roof needs replacement, or fire damage that is now common in California.
Theft loss is covered under personal property.

What are the additional coverage items in a typical policy?
Ancillary structures, such as any structure on the property not directly attached to the home. Personal property, all your belongings. Loss of use provides coverage for renting temporary housing while repairs are completed. Liability coverage from personal injury on your property resulting in litigation if you were found to be negligent.

What are the differences between an actual cash value and replacement cost policy? 
Replacement cost is the cost of replacing your personal property. Actual cash value is the current market value less any accrued depreciation. 

Is it worth the additional premium cost for a replacement cost policy to ensure your home can be restored to its former glory with only your deductible as your payout?
In California, replacement cost is applied to personal property contents only, but for the dwelling structure, you are provided with extended replacement cost coverage.

This is a percentage and varies from 110%, 125%, 150% & 200% depending on the insurance carrier. If an insurance carrier offers 200% extended replacement cost, it is most definitely worth the extra premium expense.

Are home repairs covered at replacement cost?
Not always, it depends on the dwelling coverage limits.
Is personal property such as your furniture, appliances and clothing replaced at actual cash value?
Basic policies will provide actual cash value for personal property contents.

Can you upgrade your policy to have your personal property insured at replacement value?
Yes, if you have the option to have your contents insured at replacement value, it is recommended that you do so.

Do most policies place a limit on claims for luxury items such as fine art or jewelry?  
Yes, most sub-limits for fine art and jewelry are between $1,000 and $10,000. If you have jewelry or art worth more than $10,000, you can purchase a personal articles policy.

Are you covered no matter how your home is damaged? 
There is no coverage if you intentionally set your own house on fire and there are specific exclusions depending on the insurance carrier.

Is Flood damage covered in a standard policy?
No, flood damages are specifically excluded. Some companies like AIG will offer coverage as an endorsement.

What about other natural disaster damage coverage from earthquakes?  
Earthquake damage is specifically excluded as is damage from landslides. You can sometimes add coverage by endorsement if the carrier offers coverage. You can also purchase separate flood and earthquake insurance policies.

What are endorsements, and how do you know if they are included on a policy? 
Endorsements are amendments or changes to the policy. An endorsement can include adding or removing a lender to the policy or adding or removing a coverage line. Policies have a section for endorsements. You can always ask your insurance agent to review each line item.

Can identity theft coverage can be added to your policy with an endorsement?
Yes. Some insurance carriers include coverage at no extra cost.

Am I fully covered if someone is injured in my home?
This is where liability coverage comes in. Injuries vary, so carrying the highest amount of liability coverage is the best way to guarantee you will be fully covered.

Where do you find the maximum amount the insurance company will pay in legal bills and damages if you are sued?
Under Liability Coverage, the limits vary from $100,000 to $1,000,000.

What is an umbrella insurance policy?
An umbrella liability policy covers many different exposures, including your home, rental properties, vacation homes and anyone listed on your auto or boat policies.

For example, if you were involved in a car accident and found to be at fault with multiple vehicles and the underlying liability coverage is insufficient, the umbrella coverage will add more protection for your assets. When someone is injured on your property and suffer damages that cost more than the liability coverage on your Homeowner policy, the umbrella policy provides additional coverage beyond the limits of the Homeowner policy.

What is usually excluded from a home insurance policy?
Damage from earthquakes, floods, and landslides.

What is the easiest way to reduce your monthly premium? 
Bundling Homeowner, auto, and umbrella policies will significantly lower your monthly premium cost.

Can you save money for an alarm system, non-smoker credits, and retiree discounts?
Yes. Centrally monitored alarm systems for fire, burglar, or even water flow alarms to prevent water damage claims. Retiree affiliations, such as AARP, or alumni affiliation credits are sometimes applied.

Will it cost less to insure a newer home compared to an older home? 
Newly constructed homes will have lower monthly premiums because the systems and components such as the roof, electrical and plumbing meet current building and safety codes.

If you own an older home, will bringing the home up to current building codes or doing renovations can help to lower your premiums?
Remodeling a home to meet current building codes and updating the home will not only help with the premium cost, but it will help with eligibility for coverage. Most insurance carriers do not want to insure older homes built prior to 1945 without any updates to systems and components.

If you make substantial improvements or remodeling to a home, should you modify your insurance coverage?
Yes. Any improvements as well as increasing the square footage, can change the overall dwelling limit coverage for the home.

What can you expect when you make a claim? 
If you work with an insurance broker, always check with your account manager for advice on filing a claim. Sometimes it helps to have a designated account manager to assist with a claim does not go smoothly. Otherwise, claims adjusters from the companies ultimately determine the claim pay out amount and eligibility.

What are some of the challenges and costs for homes located in a high fire risk or wildfire hazard zone?
The biggest challenge now is finding insurance carriers to accept a home in a high wildfire hazard area. Carriers are scaling back tremendously on where they are offering new coverage.
This leads into another challenge, non-renewals. Not only are carriers not wanting to take on new coverage, but they are cancelling existing policies due to the specified high-risk locations.
Another challenge is if a carrier will accept your property in a high wildfire area. Do not be surprised if the premium is three times the amount you used to pay. Some of these policies have annual premiums as high as $30,000 to $50,000K because of the dwelling limit and a location within a high-risk wildfire area.

What do you recommend for people who are in the process of buying a home to make sure coverage is available?
Check insurability and related cost BEFORE making an offer on a home or before removing your investigation of property contingency. The cost of insurance can make or break a deal if the insurance is too high.

Should a home buyer have back-up quotes handy in case your current agent or broker is not able to bind a policy to close escrow?
Yes, do not assume that if you have been with a company for many years, they would insure you no matter what. That is not always the reality. Buyers get into panic mode and scramble at the last minute to find a policy so always have a back- up plan with more than one insurance quote and commitment.

How to you check to confirm if a home is in a flood zone during the home buying process?
Ask your insurance agent or broker or your Realtor to check on your behalf.

What can a home seller do to prepare your home before going on the market to help insurability for buyers?
Make any updates you can if you have an older home, have any work orders that show completion of any updates.  If you could pick one major update, focus on the roof. Carriers want to see that it has been updated within 20 years. If you have a wood shake roof, replace the roof before offering the home for sale.
Other items include making sure handrails are not wobbly, tree limbs are not touching the structure, remove any firewood from near the house. Create as much defensible space as you can. Lastly, make sure there are no open insurance claims.

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Pete Sabine & Lesley Whitney
Call or Text 925.297.5335
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