NJVS - Personal Financial Literacy - Unit 6.3: Home and Property Insurance

**TRUE or FALSE: Mark rents his home. He does not need renters insurance because his personal belongings are covered by his landlord's policy?

FALSE

**TRUE or FALSE: Will making a home inventory help you to decrease your premium by 5%

FALSE

**TRUE or FALSE: Will making a home inventory help you to determine how much liability coverage to purchase

FALSE

**Most home insurance policies cover all of the following perils except

Floods and Earthquakes

4 Categories of Homeowner's Insurance

Homeowner's Insurance There are four main categories of coverage in all homeowners policies: structural damage coverage personal property coverage liability coverage additional living expense coverage.

**Scenario A storm damaged Mr. Smith's roof allowing rain water to leak into the house. Mold began to grow. It cost $5,200 to repair the roof and $2,500 to clean up the mold. Mr. Smith's policy has a $500 deductible that excludes mold damage. How much did the insurance company pay Mr. Smith?

$4,700 $5,200 - $500 deductible = $4,700 The Mold clean up is not included because it is an EXCLUSION

**TRUE or FALSE: Will making a home inventory help you to determine how much personal property coverage to purchase

TRUE

**TRUE or FALSE: Will making a home inventory help you to get your claim settled faster

TRUE

Keeping The Cost of Home Insurance Down

1) Shop around. 2) Raise your deductibles. 3) Buy more than one type of insurance from the same company, such as auto and home insurance. 4) Make your home more disaster resistant. For example, you can use fire-resistant building materials or buy stronger roofing material. 5) Improve your home security. You can usually get discounts of at least 5 percent for a smoke detector, burglar alarm, or dead-bolt locks. 6) Maintain a good credit record. Insurers are increasingly using credit information to price homeowners insurance policies. 7) Review the limits of your policy and the value of your possessions at least once a year. You want your policy to cover any major purchases or additions to your home. But you do not want to spend money for coverage you do not need.

Medical Coverage

A second form of liability insurance that covers medical costs in the event that someone is injured on your property regardless of fault and does not want to sue you. Medical payments covered could include doctor's fees, x-rays, hospital stays, and similar expenses. It is usually limited to an amount between $1,000 and $5,000.

Liability Coverage

Are you covered by insurance if your dog bites a neighbor? How about if your baseball goes through a neighbor's window or your tree falls on a neighbor's fence? And what if you're sued when someone slips and falls on your front walk? The answers are in the liability section of your homeowners policy. Liability coverage protects you and your family in case someone gets hurt in your home or on your property. It also offers some limited coverage for damage that you, your family members, or your pet cause off your property. Liability coverage will pay for your legal defense if you are sued for something that is covered under the policy. Most homeowners insurance include liability coverage.

Condominium Insurance

Homeowners in a condominium own their individual living spaces and they share ownership of the overall building and common areas, such as lawn areas and elevators. The condo owners' association usually has an insurance policy for the building and shared spaces. BUT Individual owners need their own separate policies for things not covered by the association's insurance. You will need the coverage provided by a condominium for (HO-6) policy (see below)

Manufactured Home Insurance/Mobile Home Insurance

If you own a manufactured or mobile home you might need an insurance policy specifically designed for these homes. Coverage varies but usually includes structural damage, limited personal property, and liability protection.

** If your dog bites your mail carrier which part of the homeowner's policy would be involved in paying medical bills?

Liability Coverage

** What are basic categories of coverage in a homeowner's policy?

Liability Coverage Structural Damage Additional Living Expenses Coverage Personal Property Coverage

Home & Property Insurance

Protects furnishings, clothes, appliances and most personal possessions from theft, fire, and damage.

Renter's Insurance

Renter's Insurance Your landlord probably has insurance on the building, but your landlord's policy doesn't cover any of your personal property. Tenant's form (HO-4, see below) is designed to provide the coverage renters need most. At a minimum, renters insurance will cover your personal property such as furniture, clothing, and electronics in the event of theft, fire, or natural disaster. Renters insurance may also provide protection for you in the event that someone is injured while at your residence.

How much Coverage Do I need?

Six basic questions everyone should ask before buying or renewing a homeowners insurance policy: 1) What will be the cost of rebuilding my home? 2) How much is the personal property in my home worth in the event of a total loss? Take an inventory of your personal possessions. An up-to-date inventory of all your possessions will help you to determine how much insurance to purchase. In addition, having this list will help get your claim settled faster. There are various inventory forms offered online that will help you to get started. 3) How much liability protection do I need? 4)What level of additional living expense do I need in case I have to move temporarily to a motel or apartment? 5) Should I buy a separate flood and/or earthquake insurance policy? 6) Do I qualify for any discounts? The type and amount of coverage you need also depends upon your personal finance and whether you have a mortgage on your property. Banks and other borrowers who lend money for home loans require borrowers to have a homeowner's insurance for at least the amount of the mortgage.

Personal Property Coverage

The contents of your home are your personal property. This includes furniture, appliances, and clothing. Most homeowners policies will automatically cover your personal property, depending on the carrier, up to 50% of the amount of insurance that you have on the home itself. For example, if your home is insured for $200,000, then the personal property, or contents of the home, is insured for $100,000. Some people pay extra for added coverage. The costs of the home and belongings can be paid in one of two ways depending on the type of coverage chosen: Actual Cash Value (ACV) pays the depreciated value of the damaged property. Replacement Cost (RC) pays the amount it costs to replace the damaged property with something of a similar type and quality at its current market value. This type of coverage is more expensive.

Additional Living Expenses Coverage (ALE)

This coverage will pay for living expenses if you have to live elsewhere while damage to your home is repaired. The amount of coverage for ALE differs from insurance company to company and depends on the specific homeowners policy. Many policies provide coverage equal to about 20% of the amount of insurance on the home. For example, if the dwelling coverage is $500,000, ALE coverage would be $100,000. Some policies also have time limits; i.e. once the covered event occurs, the policyholder's ALE coverage will cover expenses for a certain period beyond that date. Homeowners policies offer a choice of three levels of protection: basic form (HO-1), broad form (HO-2), and special form (HO-3) (see below).

Structural Damage Coverage

Those who own their homes need structural damage coverage in case the house is damaged or destroyed by a disaster. Perils are things or events that can damage or destroy a home or its contents. A home insurance policy lists the perils it covers, which may include fire, lightning, wind, hail, frozen plumbing, theft, explosion, vandalism, riots, falling aircraft, and few others. Perils that most home insurance policies DO NOT cover are floods and earthquakes. The coverage may be purchased if needed, but the cost is high for locations that are at increased risk. Some policies cover damage to other buildings on the property, such as a separate garage, some do not. There are different coverage packages available and each package protects against certain specified perils. Make sure you understand your insurance policy and talk to the insurance agent if you have any questions.

Personal Liability Insurance

Used to cover you against lawsuits for injuries or property damage caused by the policyholder, family member, and pets. This coverage applies whether you are at home or elsewhere. Liability insurance usually pays for your defense in court, if necessary, and for any damages the court says you must pay - up to the maximum amount allowed in the policy. Most homeowners policies provide a standard amount of liability coverage of $100,000, but most experts recommend at least $300,000 of liability coverage.

**Mr. John's house got robbed and all electronic equipment was stolen. Mr. John has personal property insurance coverage. Which of the following will happen?

Whether Mr. John will receive the depreciated value of his stolen items or the amount it will cost him to replace the items will be determined by the type of coverage he has.

Personal Property Coverage

Will cover you against loss or damage to your personal possessions due to theft, fire, water, smoke, vandalism, lightning, plumbing, etc. People who have renters insurance need to estimate the value of their belongings to determine appropriate coverage. It is important to determine an accurate value for your personal property or you may find yourself under-covered. The personal liability protection will protect you in case you are sued due to an injury incurred by someone while visiting your residence. It will also pay for your defense in court if needed. If the additional living expenses coverage is a part of your renters insurance policy, the insurance will pay for you to live elsewhere while it is repaired.

Liability Exclusions

You should note, though, that you're typically covered only for negligence (carelessness); you aren't covered for intentional injuries and damage. The liability insurance section of your homeowners policy contains an exclusions section that denies or precludes coverage in specific instances. These exclusions are listed and described. Make sure you understand your insurance policy.