Home/Residential Insurance

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Introduction to Homeowner's Insurance

Getting the Most for Your Insurance Dollar

The premiums charged for homeowners and renters insurance vary widely from company to company, so it pays to take the time and effort to shop around in order to get the best value for your insurance dollar.

The cost of homeowners and renters insurance depends on a number of factors such as location, local fire protection, age and construction of building, choice of deductibles, application of discounts and the scope and amount of insurance coverage you purchase. Under California law, each insurance company calculates its own rates, subject to California Department of Insurance (CDI) approval. Since each company's loss experience differs, the rates will differ as well.

It is wise when shopping to review and compare all quotations to determine if the coverage, deductibles, and limits are similar to each other. Make a list of what is important to you and be sure to discuss it with the agent.

Shopping for Insurance

Insurance companies compete for your business on the basis of price, quality and service and use various marketing methods such as telephone, mail, television advertising, Internet Web sites, agents or sales offices, to make you aware of their products. Many insurers use independent agents to sell their products. An independent agent may represent one or more licensed insurance companies, and when you deal with an independent agent, you are, in effect, dealing directly with the company. The agent is paid a commission by the insurer for the services he or she provides. Other insurance companies are direct writers that use only their own employees or sales representatives and Internet Web sites. You may deal with a direct writer by telephone, the Internet, mail, or a visit to their sales office.

Many companies have their own methods of premium installment or payment plans, so ask for the details regarding premium installments or payments available through the company you consider for coverage.

 

Dealing with a Broker-Agent

An insurance broker is an independent go-between who searches the marketplace for an appropriate policy in the interest of clients and is not an insurance company employee. The broker represents you, the customer.

A broker-agent acting in a broker capacity can charge you a broker fee for the services you receive. In order to charge a broker fee, a broker must meet the following requirements:

  • The consumer agrees to the fee in advance, after full disclosure.

  • The fee is not being charged in a FAIR Plan submission.

  • The broker is not an appointed agent of the insurer with which coverage is or will be placed.

  • The broker provides the consumer with a specific disclosure form.

  • The consumer and broker sign a Broker Fee Agreement containing certain standard information.

  • The broker has an in-force broker bond on file with the Department.

 

Discounts

Sometimes companies offer discounts for burglar alarms and fire protection devices such as smoke detectors, alarms, and sprinklers. Ask about the discounts available through the companies you are considering.

What Is Covered By Homeowners Insurance?

The homeowners policy contains two sections. Section I provides property coverages (A, B, C and D) while Section II provides liability coverages (E and F). A brief description of the individual coverages follows:

  • Coverage A - Dwelling

  • Coverage B - Other Structures

  • Coverage C - Personal Property

  • Coverage D - Loss of Use

  • Coverage E - Personal Liability

  • Coverage F - Medical Payments to Others

 

Coverage A - Dwelling

Coverage A provides major property coverage that protects your house and attached structures if it is damaged by a covered peril.

 

Coverage B - Other Structures

This coverage provides protections to other structures on the residence premises that are not attached to the dwelling. Items covered include detached garages, tool sheds, etc. Coverage B is normally limited to 10% of the coverage A limit. However, you may purchase more coverage for an additional premium.

Coverage C - Personal Property

This coverage provides protection for the contents of your home and other personal belongings owned by you and other family members who live with you. Coverage C is normally 50% of coverage A or is subject to an established amount agreed upon by you and the insurance company.

Coverage is limited on certain types of property that are especially susceptible to loss, such as:

  • Jewelry

  • Furs

  • Fine Arts

  • Silverware

  • Antiques

  • Collectibles

  • Firearms

  • Money

 

Additional amounts of insurance may be purchased. You may want to consider scheduling these items separately. Ask your agent for specifics.

Coverage D - Loss of Use

This coverage will help with additional living expenses if your home is damaged by a peril insured against to the extent that you cannot live in your home. These expenses include, but are not limited to, housing, meals and warehouse storage.

Coverage D is normally limited to 20 percent of Coverage A.

 

Coverage E - Personal Liability

This section of the homeowners policy will provide coverage in the event you or a resident of your household are legally responsible for injury to others. Coverage E normally provides a defense and will pay damages, as the insurance company deems appropriate. There are some exceptions. The liability coverage will not protect you in all situations, such as an intentional act. All of the exclusions and specific language can be found in your policy.

Coverage F - Medical Payments to Others

This coverage pays for reasonable medical expenses for persons accidentally injured on your property. For example, if a neighbor's child is injured while playing in your home, the medical payments portion of your homeowner's policy may pay for necessary medical expenses. medical payments coverage does not apply to your injuries or injuries of those who reside in your household. It is not a substitute for health insurance. Business activities are also excluded. All of the exclusions and specific language can be found in your policy.

Perils Generally Covered by a Homeowners Policy if Damage is caused by:

  • Fire or lighting

  • Windstorm or hail

  • Explosion

  • Riot or civil commotion

  • Aircraft

  • Vehicles

  • Smoke

  • Vandalism & malicious mischief

  • Theft

  • Volcanic eruption

  • Falling objects

  • Weight of ice, snow, sleet

  • Sudden & accidental water damage

  • Breakage of glass

Perils Generally not covered by a Homeowners Policy if Damage is caused by:

  • Flood

  • Earthquake

  • Earth movement

  • Termites

  • Insects, rats or mice

  • Water damage cause by seepage or leaks

  • Losses to house vacant for 60 days or more

  • Mold

  • Wear and tear or maintenance

  • War

  • Insurrection

  • Tidal wave

  • Neglect

  • Nuclear hazard

Renters Insurance

To protect your belongings, you should consider purchasing renter's insurance, also known as "tenant's insurance." The renter's policy may be used to provide coverage for your personal contents located in the property that you occupy. Coverage is also provided for loss of use, personal liability protection and medical payments to others.

 

Coverage generally Provided under a Renter's Policy:

  • Coverage C - Personal Property - An amount, designated by the insured, subject to a minimum as determined by your insurance company

  • Coverage D - Loss of Use - 20% of Coverage C

  • Coverage E - Personal Liability - Generally subject to a minimum of $100,000

  • Coverage F - Medical Payments to Others - Generally Subject to a minimum of $1,000

 

How Protected Are You as a Renter?

 

If you are a renter residing in California, by law the building owner is required to maintain insurance on the dwelling he or she rents. All this means is that the house or apartment you rent,the building itself,is insured by the owner, and should something happen to this structure as the result of fire, water damage, etc, the building owner is entitled to file a claim. However, the landlord's insurance does not protect you as a renter. If this same fire or water damage should ruin your sofa, clothes or other personal items, you are not protected against the loss of these items unless you buy a California Renter's Insurance policy. Moreover, if someone becomes injured while on the premises you rent, you could potentially be held liable for any medical and hospital expenses.

 

What is Renter's Insurance?

 

Renter's insurance, also known as "tenant's insurance" is a type of policy offered by most major California insurers. These policies provide protection for your valued assets as well as liability protection in the event someone becomes injured at your residence.

What is Covered in a California Renter's Insurance Policy?

 

Renter's insurance typically covers loss or damaged caused by:

  • Fire

  • Smoke

  • Thef

  • Vandalism

  • Windstorm or hail

  • Lighting

  • Explosion

  • Falling objects

  • Weight of snow, ice or sleet

  • Water (caused by plumbing failure, appliance failure, fire sprinklers or other accidental discharges of water)

  • Electrical surges

It also covers:

  • Injuries that others sustain while at your home (including medical expenses and any resulting lawsuits)

  • Damage that you cause to other people's property (ex: you break a neighbor's window while playing ball)

  • Housing costs. If your rental unit is damaged and you need to live elsewhere while it's being repaired, your renters insurance will pay for your additional living expenses

What Your Insurance Will Pay to Replace:

Your renter's insurance policy will pay to replace any property that is stolen, damaged or destroyed by a covered cause. This includes, but is not limited to:

  • Electronics

  • Clothes

  • Furniture

  • Sports equipment

  • Appliances

  • Jewelry (limited)

  • Collectibles (limited)

Important Note: Renter's insurance protects your belongings even when you're away from home. So, if your laptop gets stolen from your car or your bike gets taken from the rack at work, your renter's insurance will pay to replace them.

Additional Coverage Options:

Need more protection than the basic renter's insurance policy provides? You can add additional riders for:

  • High Value Item Coverage - a good idea if you own jewelry, artwork, antiques, collectibles or firearms with a total value that exceeds your policy's maximum pay out for such items.

  • Earthquake or Flood Coverage - a must-have if you live in an area prone to such conditions. A standard renter's insurance policy does not include coverage for a flood or earthquake.

  • Sewer and Drain Back Up Coverage - back-ups happen more often than you would think, and they cause a lot of damage when they do.

  • Replacement Value Coverage - If you make a claim, you'll be reimbursed for the full replacement cost of your items - rather than the depreciated cash value of your items.

  • Home Business Coverage - Most insurance policies offer very little coverage for business equipment. If you work from home, consider adding a home business rider to boost your equipment and liability coverage.

  • Business Merchandise Coverage - If you store your business' inventory at home, an additional rider will be needed to insure it properly.

California Renter's Insurance Policy: Things to Remember

  1. Before purchasing a policy, take the time to conduct a complete inventory of all your personal belongings, taking photos or a video of things like furniture, jewelry and expensive electronics items. Calculate the replacement costs for these items and double check with your insurance agent to make certain you are fully protected against any type of loss.

  2. Most insurance companies offer discounts to a policyholder to lower the cost of premiums. Companies may offer discounts for smoke detectors, dead bolts.

  3. Choose the coverage according to your property. If you have a lot of electronics, choosing a policy that provides replacement cost coverage instead of actual cash value coverage might be the best renter's insurance option for you.

  4. Make sure that the policy has liability coverage. The best renter's insurance policies will also include liability coverage for medical and legal costs if someone gets hurt in your renter residence.

  5. The best renter's insurance policies will also include emergency living expenses. This means that if you have to vacate the property due to damage, the insurance company will pay for you to live somewhere else.

Condominium Insurance

 

Condominium insurance covers the unit-owner and is similar to renters insurance. Coverage includes interior damage to your unit, personal property and improvements. Loss of use is generally limited to 40 percent of the contents limit. The condominium association generally purchases insurance for the building structure and common areas, such as corridors. Loss Assessment Coverage can be an important policy provision for you. It covers you for certain assessments the condominium association makes. However, you should check if it covers you for earthquake losses and how much it will provide you in the event of an earthquake loss. You should also carefully analyze the type of insurance your association has and how it would affect you in the event of a loss. Most condominium association policies cover the common areas and walls.

What Limits should I set on My Policy?

The "dwelling" limit should be the amount it would cost to replace your home. This may have nothing to do with the purchase price or the current market value of your home, as homeowners insurance does not generally cover the land value of your insured property. Your insurance policy is not governed by the real estate market, but by the cost of the materials and labor involved in rebuilding your home. Insurance companies have formulas that they use to evaluate the replacement cost of your home. Since the formulas developed are unique for each company, different insurers may suggest or require different limits of coverage for your dwelling limit.

 

The following information can assist you to determine if the limit set by your company accurately reflects the price it would cost to rebuild your home in the event of a total loss:

  • Contact your agent or broker for assistance in evaluating your dwelling limit. In order to prevent a "he said, she said" situation from arising in the future, you need to document your discussions and inquiries in writing.

  • Review your dwelling limit initially and upon renewal. Discuss any changes to your home in writing to your agent, broker, or insurer that may cause your dwelling limit to increase or decrease.

  • Know the replacement cost of your home. Be familiar with the building materials that make up your home including the construction type and any special features.

  • Stay informed as to the current building costs in your area. Contact local general contractors and ask what the current price per square foot is for a home similar to your own.

  • Keep accurate records of updates, renovations, and improvements to your home. Save receipts and samples of materials used when possible and contact your insurance agent or broker to increase the dwelling limit when appropriate.

  • Contact your agent, broker, or insurance company to request a comprehensive inspection of your home if you believe your policy limits may be inadequate.

The "contents" limit is generally around 50% of the dwelling amount; however, this is a guideline only, as the most competent source on the replacement value of your personal possessions is you. Be sure to take into account all of your personal property when calculating the contents limits. Read and understand the limited coverage amounts for specific types of personal property such as:

  • Jewelry

  • Fine arts

  • Silverware

  • Antiques

  • Collectibles

  • Firearms

  • Computer hardware and software

  • Business personal property

  • Money

The limited coverage amounts for specific types of personal property are not separate limits in addition to the contents limit. These limits are included in the overall contents limit and represent the maximum paid out for that specific type of personal property. Therefore, it is very important to add an endorsement (sometimes referred to as a "rider" or a "floater") to coverage which specifically schedules and takes into account the value of personal property that you may own above the special limits.

 

Contact your agent or broker to discuss how to adequately cover any personal property that is valuable, falls above the limits, or is in any way out of the ordinary. Also, make sure to take into account commonplace household items when calculating your contents limit. Often, people concern themselves only with big ticket items purchased for use in their homes and neglect to account for all the many things you need to run your household and enjoy your home such as small appliances, kitchen utensils, linens, window coverings, and sundries. Remember, personal property also includes clothing, shoes, accessories, and personal items.

Two major problems suffered by homeowners on their Residential Property/Homeowners insurance policies in the Northern and Southern California fires were:

(a) Many of the dwellings were under-insured, i.e., insured for amounts inadequate for rebuilding. Insurers sometimes refer to this as inadequate insurance-to-value.

(b) The problem of increased cost of construction was evident in many situations. When rebuilding, homeowners have to comply with new building code requirements. In some instances the difference between the dwelling limit and the code upgrades was a significant amount. Also, the extreme heat of some fires (and some new building code requirements) necessitated building new foundations along with appropriate debris removal. This is a situation that can be easily overlooked when determining building limits.

An important part to owning any property is protecting the property to the best of your ability. Homeowners insurance is a vital component to the protection of your property. By knowing and understanding the coverage and limits of your policy, and by making sure that values are current, your greatly add to you and your family's peace of mind in any loss situation.

Will My Policy Completely and Totally Replace My Home If It Is Destroyed?

This depends on whether your policy is a replacement cost value policy or an actual cash value policy. If your policy is an actual cash value policy, it will not.

Actual cash value recovery is determined as follows:

  1. In case of total loss to the structure, the policy limit or the fair market value of the structure, whichever is less, or

  2. in case of a partial loss to the structure, the amount it would cost the insured to repair, rebuild, or replace less fair and reasonable deduction for physical depreciation, or the policy limit, whichever is less.

If you have a replacement cost policy, the chances that you will be able to completely rebuild your home are better; however, there are many types of replacement cost policies, so you need to be careful to purchase a replacement cost policy that best meets your needs. A policy cannot be sold as a "guaranteed replacement cost" policy unless it will pay to completely rebuild the home. Other types of replacement cost policies will pay your policy limits, plus a certain percentage above those limits.

 

Some policies do not have building code upgrade (ordinance or law) coverage. Cities and counties periodically change their building codes. Unless your policy has this coverage, your insurance company may not pay for changes you may need to make to the structure of your home to bring it up to current building codes. As discussed earlier, your agent , broker, or insurer can assist you in establishing a limit that is adequate to rebuild your home. It is important to update that limit periodically to maintain a limit that reflects current construction costs. You may want to ask your agent, broker, or insurer if they automatically review or increase limits on a regular basis or if they offer an automatic inflation guard option that increases limits according to current inflation information.

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Disclaimer

  1. This is for informational purposes only.

  2. The actual terms of an insurance policy and related law prevail over the information provided here. 

  3. In the case of a dispute, the insurance policy is controlling and a court of law will rely on the policy as it is written to resolve the dispute.

  4. The policy is the only document that describes what the insurance company will pay.

  5. The information contained here does not create rights or obligations on the part of the insured, the insurer, the agent, the broker, or the state.

  6. This information is not intended to be a substitute for the actual insurance policy.

Info and facts provided by California Department of Insurance*

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