Protecting property and home

The two ways to protect your home, and everything you keep there, are homeowners insurance and renters insurance – depending, of course, on whether you own or rent your place of residence.

Homeowners and renters insurance can turn what might otherwise be a financial catastrophe into a manageable headache, by covering unexpected damage to your home and possessions, accidents on your property, theft, and more.

Homeowners insurance

Homeowners insurance covers the structure of the house as well as what is in it. It also provides protection in case someone sues you, or additional living expenses if you have to live outside the home while it’s being repaired or renovated.

Standard homeowners insurance doesn’t cover damage from earthquakes or floods, but it may be possible to add this coverage. Homeowners insurance is also sometimes referred to as “hazard insurance.”

There are a number of coverage types within a policy that can save you from financial disaster, with limits often set as a percentage of the total amount of coverage, referred to as the “dwelling amount.” For specific limits, you’ll have to check the guidelines for your policy, or the policies you’re considering. Typically, homeowners insurance covers:

• Your belongings, often up to 50 percent of the dwelling amount.
• Certain structures outside your house, such as your garage or fence, often up to 10 percent of the dwelling amount.
• Loss of use, meaning additional living expenses you incur if you can’t live at home due to damage. This could include hotel bills, restaurant meals and laundry costs, often up to 20 percent of the dwelling amount.
• Liability, for cases where you are sued for damages or injuries to someone else.
• Medical bills for people injured on your property or by your pet.

Note that you may need extra coverage for valuables such as jewelry, computer equipment, antiques, and other pricey possessions whose value exceeds your policy’s coverage limits. Other items may be covered under your home insurance, with specific limits for each, so check your policy or ask your agent about:

• Downed trees,
• Replacement of lawn, trees and shrubs
• Debris removal
• Power outages, including food spoilage
• Grave markers, and
• Unauthorized charges to your credit cards.

Many homeowners pay for their insurance as part of their monthly mortgage payment: You make your insurance payments to the lender, and the lender keeps the portion of the payment for insurance in an escrow account. When the insurance bill is due, the lender pays it from the escrow account.

You may need extra coverage for valuables such as jewelry, computer equipment, antiques, and other pricey possessions.

Homeowners insurance is not optional when buying a home. When you purchase a home, the approximate cost of your homeowners insurance, as well as any similar insurance that protects your property, is listed on page one of your loan estimate, in the “Projected Payments” section. However, it’s usually a good idea to do your own research into exactly how much homeowners insurance costs – you can shop separately for homeowners insurance, and choose the provider and plan that’s right for you.  

When you get a mortgage, your lender wants to make sure your property is protected; that’s why lenders generally require proof that you have homeowners insurance. If you don’t have insurance, your lender is allowed to buy it for you and charge you accordingly – but your lender must give you advance notice. If your lender buys insurance on your home because you did not keep up your homeowners insurance, that insurance may only cover the lender, and not you. It may also be more expensive than what you could buy on your own.

Renters insurance

Like homeowners insurance, renters insurance is meant to rescue you from the unexpected. When it comes to personal property, renters face the same risks as homeowners – your landlord or condo association may have insurance, but that only protects the building itself, not your personal items. And yet, only 41 percent of renters have insurance, according to the Insurance Information Institute.

The good news is that you may be able to protect all your belongings for less than $200 a year: According to Insure.com, the average yearly renters insurance premium is $197, but that figure varies from state to state.

When it comes to personal property, renters face the same risks as homeowners… [but] you may be able to protect all your belongings for less than $200 a year.

The standard renters insurance policy is called the HO-4, and covers damage from 16 types of dangers:

1. Fire or lightning
2. Windstorm or hail
3. Explosion
4. Riot or civil commotion
5. Damage caused by aircraft
6. Damage caused by vehicles
7. Smoke
8. Vandalism or malicious mischief
9. Theft
10. Volcanic eruption
11. Falling objects
12. Weight of ice, snow, or sleet
13. Accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning, or automatic fire-protective sprinkler system, or from a household appliance
14. Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot-water heating system, an air conditioning system, or an automatic fire-protective system
15. Freezing of a plumbing, heating, air conditioning, or automatic fire-protective sprinkler system, or of a household appliance
16. Sudden and accidental damage from artificially-generated electrical current (not including loss to a tube, transistor, or similar electronic component)

Just as with homeowners policies, renters insurance won’t cover damage from “earth movement,” which includes earthquakes, mudslides, and landslides. Also typically excluded:

• Floods
• War
• Nuclear hazard
• Neglect (meaning your failure to save your property at the time of loss or after)
• Intentional loss (meaning your intentional destruction of your property), and
• Governmental action, such as seizure of your property.

In some coastal regions, you might need to buy additional coverage for wind damage from hurricanes.

You’ll likely find that your renters insurance policy states specific dollar limits for certain items. If particular items are more valuable than the policy provides for, you’ll need to purchase riders to fully cover them. Here are examples of items that often have dollar caps on coverage, along with typical limits:

• Cash: $200
• Securities, passports, and stamps: $1,500
• Jewelry, watches, and furs: $1,500
• Firearms: $2,500
• Silverware, goldware, and flatware: $2,500
• Unauthorized charges to your credit card: $500

Liability protection for property-damage and bodily-injury lawsuits against you is generally standard with renters insurance policies. This means that if someone in your unit slips and falls, then sues you, you’re covered for any costs up to your liability limit. The insurance company will also pay for your legal defense.

If your rental becomes uninhabitable due to a fire, burst pipes, or any other reason covered by your policy, your renters insurance will cover your “additional living expenses.” Generally, that means paying for you to live somewhere else.

Actual cash value vs. replacement cost

Knowing which types of problems are covered is a good first step in deciding on a policy. In the case of both homeowners and renters insurance, you’ve got two more options to consider for covering your belongings: through “actual cash value” (ACV) or “replacement cost coverage.”

As the name implies, ACV coverage will pay only for what your property was worth at the time it was damaged or stolen. For instance, if you bought a television five years ago for $500, it would be worth significantly less today. While you’d still need to spend about $500 for a new TV, your insurance company will pay only for what the old one is worth (minus your deductible).

Replacement cost coverage will cost you more in premiums, but it will also pay out more if you ever need to file a claim.

Replacement cost coverage, on the other hand, will pay what it actually costs to replace the items you lost (minus the deductible). Replacement cost coverage will cost you more in premiums, but it will also pay out more if you ever need to file a claim. Let your agent know about any particularly valuable items you have – jewelry, antiques, and electronics might be covered only up to a certain amount, which may not pay for a replacement.

Take inventory

To ensure you’re compensated for any belongings you lose from a fire, storm, or other catastrophe, you should document all of your personal belongings, listing each item, its value, and (where possible) its serial number. Photograph or videotape each room, including closets, open drawers, any storage buildings, and your garage. Keep receipts for major items in a fireproof place.

To make things easier, the National Association of Insurance Commissioners (NAIC) offers the myHOME Scr.APP.book app, letting homeowners capture images, barcodes, serial numbers, and descriptions of their property, and storing them electronically for safekeeping. If you’d rather have a hard copy, the NAIC also has a printable inventory checklist you can fill out and keep somewhere safe. Tip: If you go the paper route, take a picture of the checklist with your phone camera to keep it on you!

Saving money on insurance

Whether purchasing homeowners or renters insurance, your premium levels depend on a number of factors: where you live, your past claims, your deductible, your insurance company, and whether you need any additional coverage.

Common ways to save include:

• Increasing your deductible (the amount you pay before your coverage kicks in)
• Asking for discounts for smoke and fire detectors, and security systems
• Buying your car insurance from the same company, called a “multiline” discount, and
• Paying your insurance bill in full, rather than in installments.

And if you’re thinking about getting a dog, be sure to check with your coverage provider: Some insurance companies are reluctant to write policies for owners of certain breeds.

Need leads for reliable providers? Insure.com’s annual customer satisfaction study can help you find the best home insurance companies.

Adapted from this piece by the Consumer Financial Protection Bureau, and from this piece and this piece on Insure.com

FOR MORE INSIGHT

On homeowners insurance
Best home insurance companies (Insure.com)
Hitting a home (insurance) run (Insure.com)

On renters insurance
The best renters insurance companies of 2018 (Reviews.com)

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