There are good reasons periodically to take a hard look at your homeowners
Even though home values have dropped over the last few years in most areas
of the U.S., it is estimated that more than one half of homes are still
underinsured. In the event of a catastrophic loss, owners of these homes
may not receive adequate compensation for their losses.
Homeowners insurance premiums continue to riseand the increases are larger
for some companies than for others. An insurer that was low priced a few
years ago may be just average now.
Many insurance companies have begun to refuse to renew the policies of
customers who make as few as two claims during a two-year periodor even
a five-year period in some cases. After being dropped, these customers
are forced to shop for insurance elsewhere, and since other insurers likely
consider them high-risk customers, they will have to pay much higher
premiums than before. Youll want to make sure you do everything possible
to avoid being dropped.
Changes in how insurance companies package and market standard coverages,
plus options for (often expensive) add-ons, have made an already confusing
homeowners insurance marketplace even more complex.
To get the coverage you need at the best possible price, youd like to
be able to get advice from honest, competent insurance agents and help
from company websites. Thats not easy. We found the companies websites
werent always able to provide accurate rate quotes. And many insurers
dont have online-quote systems; instead, you have to call an agent. Although
we found some agents were highly competent, we were amazed at how many
agents gave our shoppers inaccurate information and misleading advicethe
kind of help that would lead to wasted money, inappropriate coverage,
It was common, for example, that two different agents for the same company,
when asked about the same type of coverage for exactly the same property,
would recommend coverage levels differing by $100,000 or more. We also
repeatedly found that different insurance agents quoted substantially different
premiums for the same home, the same policy, and the same coverage level
written by the same insurance company.
In this article, well try to help you get the coverage you need for a
good price. Well describe the most common types of homeowners insurance
policies, what each type of policy will and wont cover, how to determine
how much insurance to buy, and the various options you have for buying
Even if your coverage is right, its wise to shop around every few years
to get the best rate. As we have shopped rates over the years, we have
found that companies that have the best rates for a specific location and
type of home in one year often stack up much worse a few years later. Our
cost comparisons for the insurance companies that sell most of the
homeowners insurance in the state should help get you started in your search.
An important point to keep in mind is that theres no reason to wait until
your current policys term is up to shop around for a better rate and/or
coverage. While it is true that most insurance companies charge a small
administrative fee to cancel a policy early, this fee will be quite small
compared to the possible savings you might get elsewhere.
Well also advise you on filing claims, how to get all you have coming
if you have a claim, and what to do if your insurer wont renew your policy
because youve made claims.
For the most part, homeowners insurance writers offer industry-standard
policies with roughly the same coverage. By using standard policy language
that has been tested in the courts, companies limit the risk of surprise
interpretations. This uniformity makes price comparisons easier than it
would be if each company sold a unique product. But keep in mind that the
policy limits included with standard coverage can vary from company to
Insurers offer four types of policies for single-family homes. They are
generally referred to in the industry by the labels HO-2, HO-3, HO-5,
and HO-8, though individual companies often market them under other names.
The HO-3 policy, which is by far the biggest seller, covers your house
against all types of risksincluding fire, windstorms, theft, vandalism,
frozen pipes, accidental damage, etc.except risks that are specifically
excluded. The risks that most companies exclude under this policy form
are: floods; sewer backups; earthquakes; damage from termites, pets, or
other animals; damage from mold, mildew, dry rot, and wet rot (unless the
damage was the result of a covered peril, such as a water-pipe burst);
war; and nuclear accidents and explosions. But some companies may exclude
additional risks, so it is important to check. The HO-3 policy also covers
your personal property, but only for named perilsgenerally the same list
of perils covered by the HO-2 policy, described belowand covers the personal
property for replacement cost after adjustment for depreciation, not the
full replacement cost.
The HO-5 policy form gives the same coverage as the HO-3 form except that
HO-5 policies include replacement cost coverage for personal property and
insure personal property against all perils except specifically excluded
perils. (We discuss personal property coverage later in this article.)
If youre thinking about buying an HO-5 policy, make sure that you cant
get an HO-3 policy with a special provision for full replacement cost coverage
on personal property for a lower premium.
The HO-2 policy form, which was developed and used for many years before
the HO-3 and HO-5 forms were developed, covers only named risks. But the
list of risks is long. As a practical matter, the main difference from
the HO-3 and HO-5 forms is that an HO-2 policy wont cover damage from
accidental lossesfor example, if you drop a ladder through your bay window
or if you knock over a bucket of paint onto your new carpet. Since such
accidental losses are likely to be small relative to the total value of
your house, you might decide that you can accept the risk and just purchase
an HO-2 policy. But most companies dont even offer HO-2 policies today,
and most homeowners opt for the HO-3 form since its extra costs are low.
If you own an older home, you might have to purchase an HO-8 policy. The
main difference between an HO-8 policy and the HO-2, HO-3, and HO-5 policies
is that an HO-8 policy typically will pay only for damages up to the actual
cash value of what is lost, while the other policies allow you to insure
for full replacement cost. HO-8 policies are intended to take into account
the fact that older homes often have ornate woodwork and other features
that are very expensive to replace; since replacing these features may
cost more than the home is actually worth, HO-8 policies will promise to
repair or replace what is damaged, but dont promise to pay for an exact
replica of what was lost.
Another difference between HO-8 policies and the other homeowners insurance
forms is that HO-8 policies cover only named risks, which do not include
certain risks for which older homes are vulnerable, such as sudden bursting
Insurance companies also offer coverage for renters and condominium owners.
Renter coverage doesnt include full coverage for the dwelling itself,
since insuring it is the responsibility of the landlord. Instead, renter
coverage insures the tenants personal property and provides liability
insurance. Policies for condominium owners are similar.
Both renters and condominium owners can get coverage for damage to portions
of the dwelling for which they are responsible, including additions and
improvementssuch as carpeting, cabinets, or interior wallsthat they have
made to the premises. Click here for more information on insurance for renters and condominium owners.
All of the homeowners insurance policy forms provide compensation for damage
to, or destruction of
Your dwelling (your homes structure).
Other structures on your property (detached garages, toolsheds, gazebos,
etc.). Most insurance policies automatically come with coverage for other
structures up to a limit of 10 percent of the amount for which the dwelling
is insured. For example, if your dwelling is insured for up to $350,000,
other structures are insured up to $35,000.
Most kinds of personal property (furniture, clothing, appliances, etc.),
either on your premises or owned by you and away from your premises. Policies
typically include coverage for personal property for up to 50 to 75 percent
of the value for which the dwelling is insured.
Increased living expenses (for example, for hotel rooms or for a furnished
apartment if your family is forced to move out of your house because of
an insured loss). Policies typically include this coverage for up to 30
percent of the dwelling coverage, but with some policies there is no limit;
instead, the company reimburses for all increased living expenses incurred
for up to one year.
Liability coverage, which pays for injuries or damages to others caused
by any member of your family residing in your home, a pet, or some dangerous
feature of your property itself. The most common limit in homeowners policies
is $300,000 per incident.
Medical payments to others. Policies usually include this coverage with
a $1,000 to $2,000 limit.
Although we describe the typical, standard amounts of coverage for each
type of loss listed above, you can arrange higher coverage for specific
loss typesextra coverage for detached structures or extra personal property
coverage, for instancefor an additional premium. This figure illustrates the
costs of raising the limits on a few aspects of coverage.
All policies also include provisions for a deductible: an amount you have
to pay out-of-pocket for a loss before the company pays anything. You can
choose from a range of possible deductible amounts, with lower premiums
for higher deductibles.
None of the standard policy forms covers certain risks, such as, damage
from termites or other animals, war, earthquakes, sewer or drain backups,
or floods, but you can buy special coverage for some of these risks.
Click here for information on purchasing earthquake coverage
With most companies, you can add coverage for sewer or drain backups for
$30 to $60 per year.
If you are interested in obtaining flood insurance, you can ask your agent
for information, or contact the National Flood Insurance Program at 800-427-4661
or visit www.floodsmart.gov. Flood insurance is sold by most agents
but is available only to houses in qualifying flood plain areas and only
in communities that have chosen to participate in the National Flood Insurance
Program (almost all communities in the area participate). To get maps showing
flood plain areas, you can visit www.floodsmart.gov or call 800-358-9616.
When you buy homeowners insurance, you will probably be forced to purchase
a certain amount of insurance (which may actually be more coverage than
One reason for this is that insurers bundle into their standard policy
forms minimum insurance amounts for various coveragesfor example, personal
property is almost always insured up to an amount equal to 50 to 75 percent
of the dwelling insurance amount, other structures are almost always insured
up to an amount equal to at least 10 percent of the dwelling insurance
amount, etc.and you wont be able to simply decline coverage for certain
options or to lower coverage below these preset limits. Also, if you have
a mortgage, your lender will likely require you to maintain a certain amount
of insurance on your home.
Although the preset, bundled amounts of coverage prescribed by the standard
insurance forms or required by mortgage lenders will sufficiently meet
the needs of most homeowners, your home and other financial characteristics
may warrant purchasing insurance with higher limits for certain aspects
It is important that you obtain an accurate estimate of your homes replacement
cost, which will be used to determine how much dwelling insurance you need
to buy. The replacement value of your home is not the same as its market
value, since your homes market value includes the value of the land the
home sits on and the cost of your homes foundationtwo expensive components
of your homes market value that dont need to be insured, since a fire
is unlikely to ruin your lot or your foundation.
Instead, replacement value is calculated using construction costs and is
an estimate of what it would cost to rebuild your house completely on the
land that you own. In the Puget Sound area, the replacement cost of a home
is usually less than the homes market value. Make sure that insurance
quotes you receive from agents are based on replacement cost; many unscrupulous
insurance agents try to sell customers too much insurance by basing dwelling
coverage on their homes full market value.
To determine replacement cost, most insurance companies will provide an
appraisal at no charge at the time you take out your policy. Replacement
costs are usually estimated by multiplying the square footage of your house
by the average construction costs per square foot in your area, and then
factoring in features of your home that may be costly to replacetop-of-the-line
appliances, wood flooring, or marble tile, for example. Some companies
routinely send out appraisers for on-site inspections; others calculate
replacement costs based on information collected by completing a questionnaire
with the homeowner over the phone.
Unfortunately, it appears that it is a challenge for many insurance companies
to estimate replacement costs accurately. While gathering information for
this article, we were quoted widely disparate replacement costs for the
same housefrom $180,000 to over $400,000, for one sample home.
This imprecision is troubling for two reasons: if you over-insure your
house, you will pay premiums on coverage you dont need and could never
make claims on; worse, if you under-insure, you will not be fully covered
in the event of a total loss. If, for example, your home is insured for
$200,000 and burns to the ground and it turns out to take $300,000 to rebuild
it, the most you will receive from your insurer is $200,000even if the
insurer estimated your replacement cost at $200,000.
Maintaining too little insurance is a serious problem across the country
since in the last decade construction costs have risen far faster than
the rate of inflation, and neither insurance companies nor policyholders
have been diligent about keeping replacement costs up to date. According
to Marshall & Swift/Boeckh, a firm that tracks construction costs for insurers,
over 60 percent of homes in the U.S. are underinsured, by an average of
There are steps you can take to ensure your home isnt underinsured
Purchase a policy with a guaranteed replacement cost provision. This provision
places in the insurance companys hands the responsibility for keeping
your policy limit high enough to guarantee full replacement cost payments
for losses, since with this provision the insurance company agrees to rebuild
or replace your dwelling regardless of the expense, even if it exceeds
the limit of your policy. In order to give you this guarantee, the company
will require you to purchase coverage equal to 100 percent of the houses
appraised replacement cost, and you will be required to accept annual premium
increases, as determined by the company, to account for increases in construction
Although guaranteed replacement cost policies used to be the norm in the
homeowners insurance business, only a handful of insurers offer them anymore,
and for the most part they are now available only to those who own very
Purchase a policy with extended dwelling coverage. Instead of guaranteed
replacement cost policies, most insurers now offer customers an extended
replacement cost or additional replacement cost limit, which provides
a cushion by automatically increasing dwelling coverage by 20 percent,
25 percent, or 50 percent above the coverage limit on the policy. Some
insurers automatically include a certain level of extended dwelling coverage;
others allow their customers to decide how much extra coverage to buy.
Usually, if you have a policy with an extended dwelling coverage provision,
youll have to accept annual dwelling coverage increases each year to account
for rising construction costs. As these adjustments are made, of course,
premiums go up to cover higher limits.
But keep in mind that you wont be fully protected in the event of a total
loss even with a policy with an extended dwelling coverage provision if
the replacement cost of your home is higher than the dwelling coverage
plus the extension.
Have your home appraised on a regular basis. Although it is ultimately
your responsibility to buy adequate insurance coverage for your home, you
will at least be in a position to argue for proper compensation in the
event of a total loss if youve had your home appraised on a regular basis,
especially if the appraisal was conducted by the insurer. Every year, ask
your insurer to re-estimate your homes replacement cost and adjust your
dwelling coverage accordingly. Since we found that insurers often didnt
agree on replacement costs, you may want to ask several different insurers
to estimate your cost to determine whether or not there is a degree of
consensus among them.
Another good source to estimate replacement costs can be found at www.accucoverage.com.
We tested this tool and think it did an adequate job at calculating accurate
replacement costsfor a fee of only $7.95 per report.
Alternatively, you can get an independent appraiser to give you an estimate,
which will cost $300 to $500. If you decide to hire an appraiser, its
a good idea to get one who is accredited by the American Society of Appraisers.
The appraiser should be an expert in replacement costs; many appraisers
specialize only in determining the market value of homes.
Consider signing up for an inflation-guard endorsement. All insurers offer
an inflation provision that automatically increases dwelling coverage each
year based on inflation or increases in construction costs. Some insurers
include this provision for no cost, some give a discount if you take it,
and some charge a $10 to $30 annual fee for it.
If you sign up for an inflation endorsement, make sure to ask your insurer
how it calculates increases. A policy that increases coverage based on
general inflation rates, as opposed to inflation in construction costs,
wont protect you if construction costs rise faster than inflation.
Promptly report improvements you make to your home. If you make substantial
improvements, such as adding a room or a deck, remodeling a bathroom or
kitchen, or finishing your basement, it is a good idea to increase your
dwelling coverage accordingly.
Even if you do what is necessary to cover your house for full replacement
costindeed, even if you get guaranteed replacement cost coveragethere
is, unfortunately, still a loophole. Some insurance policies stipulate
that the dwelling coverage is for rebuilding the home exactly as it was,
not as it should be. This stipulation may be a problem for you if parts
of your home are no longer up to your areas building codesfor example,
if codes for proper plumbing and electrical fixtures, roofing materials,
or stairway construction have changed since your home was built. Depending
on your policy and whether or not you can get a waiver from your local
government, your insurance company may not be responsible for paying the
cost of rebuilding your home to the standards required by current codes.
To close this loophole, insurance companies now offer clients ordinance
and law coverage, which calls for the insurance company to pay more than
the cost of replacement if complying with current codes makes such expense
necessary. This coverage usually is limited to an increase in the companys
liability by 10 percent above what it otherwise would be. Some companies
include this coverage for no additional premium; others charge about $10
to $60 for it.
You may be tempted to save money by taking a risk and buying less dwelling
coverage than necessary to rebuild your home. So long as you insure for
at least 80 percent of your dwellings replacement cost, you will receive
full replacement cost reimbursement for any covered losses that you experience
up to the value of your coverage. If actual replacement cost is $300,000,
you buy $240,000 in coverage (80 percent), and you suffer a loss that costs
$40,000 to repair or replace, youll get the full $40,000 (less the deductible).
If the home is completely destroyed, on the other hand, youll get only
$240,000, the amount of your coverage, not the full $300,000 needed for
replacement. By purchasing 80 percent, rather than 100 percent coverage,
you will reduce your insurance premium by 20 percent or so, but you incur
the risk of getting less than full replacement cost in the unlikely event
of a total loss. It is important to think about how you will be affected
by a total loss before you opt for this minimal coverage.
Be sure not to buy coverage for less than 80 percent of the replacement
cost of your home. Drop below 80 percent and you become a co-insurer
of your property. As a co-insurer, you will be expected to pay a share
of the cost to fix any damages to your house no matter how small.
For example, if the replacement cost of your house is $300,000 and you
purchase a policy with a limit of $210,000 (70 percent), then you are a
co-insurer and you will not be fully covered even for a claim, such as
$10,000 in damage from a kitchen fire, which is less than the limit of
your policy. Instead, as a co-insurer, you will receive a partial payment.
This payment will usually be based on the following replacement value formula:
(amount of insurance divided by an amount equal to 80 percent of the dwellings
replacement cost) times (the amount of your loss minus your policys deductible).
The payment for a $10,000 kitchen fire, according to this formula and assuming
a $1,000 deductible, would be only: ($210,000 divided by $240,000) times
($10,000 minus $1,000) = $7,750. As a co-insurer you would be expected
to pay $2,250, including the deductible.
Before considering buying coverage for less than 100 percent of your houses
replacement cost, keep in mind that most mortgage lenders require you to
maintain dwelling coverage for your homes full replacement cost.
Homeowners insurance policies typically automatically cover your personal
property for either 50 percent or 75 percent of the amount for which you
insure your dwelling. If your dwelling coverage amount is for losses up
to $300,000, and your personal property coverage is for 50 percent, you
will be covered for personal property losses up to $150,000. Even if your
possessions are worth considerably less than $150,000, you probably wont
be able to purchase personal property coverage below the 50-percent level
Personal property coverage applies to your possessions whether they are
at home or away. If you are on vacation, your clothes, your luggage, and
your watch are covered. In most cases, the only items that are specifically
excluded are pets, cars (and car stereos), and airplanes, but you need
to check exactly what is excluded under any policy you are considering.
Personal property is protected only against named perils. Earthquakes,
war, floods, and other perils excluded from coverage on your dwelling are
also excluded from personal property coverage. In addition, accidental
losses of a kind that would be covered on your dwelling under the popular
HO-3 policy form are not covered if they happen to personal property. For
example, if you accidentally spill paint on your brand-new leather sofa
or drop and break your fancy flat-screen TV while trying to mount it on
the wall, the loss is not covered. Nor are you covered if you drop your
wedding ring in a lake or if a power surge knocks out your computer. You
can insure your personal property against accidental losses by buying a
special provision to an HO-3 policy or by buying an HO-5 policy, but these
policies are more expensive.
Another difference between personal property coverage and coverage on the
dwelling structure is in the way your reimbursement is calculated. Standard
homeowners policies cover personal property at actual cash valuereplacement
cost minus depreciation. To illustrate how this calculation works, assume
a bicycle you bought six years ago for $400 is stolen and that you can
replace the bicycle with a comparable model for $500 today. Most companies
depreciate bicycles by 10 percent per year. Ten percent of the $500 replacement
cost is $50. So, over six years, depreciation comes to $300 ($50 per year
times six years), and you will be reimbursed for $200 ($500 minus $300),
less your deductible. Since you very likely have been just as happy with
a six-year-old bicycle as you were when you bought it and since you wont
be able to buy anything comparable for $200, youll probably be disappointed
with the insurance companys payout under the actual cash value arrangement.
If you were to lose several items in the same burglary or fire, your disappointment
might be rather grave.
The response of most insurance companies is to offer a special provision
that will change your policy to cover full replacement cost of personal
property. If your bicycle will cost $500 to replace, thats what youll
get (less your deductible) to replace it. (If you dont actually intend
to replace it but intend just to keep the cash, you may still get only
the actual cash value.) In order to get a replacement cost provision, however,
most insurers will require you to accept at least a 70-percent coverage
limit for personal property.
Policies written under the HO-5 policy form automatically come with replacement
cost provisions for personal property.
Depending on the insurer, arranging for your policy to cover the replacement
cost of personal property adds 10 to 15 percent to the cost of the policyalthough
a few companies provide this enhanced coverage for no extra fee. For many
consumers, especially those with relatively little personal property, this
extra coverage is not worth having to pay the additional premium.
If, on the other hand, you have much valuable personal property relative
to the value of your dwelling structure, you might want not only to get
the replacement cost provision but also to increase your personal property
coverage limit beyond the standard 50 to 75 percent of the limit on your
dwelling. Depending on the insurer, each 10-percentage-point increase in
personal property limits will cost you from three percent to 10 percent
more on your overall premium.
Regardless of what general personal property limits you get, your coverage
will be specifically limited on certain categories of personal property
losses. The following are typical limits for HO-3 policies:
$1,000 to $1,500 for loss by theft of jewelry, watches, furs, and precious
and semiprecious stones.
$1,000 to $5,000 for computers.
$200 on money, bank notes, bullion, gold other than goldware, silver other
than silverware, platinum, coins, and medals.
$1,000 to $1,500 on securities, accounts, deeds, evidences of debt, letters
of credit, notes other than bank notes, manuscripts, passports, tickets,
$1,000 to $1,500 on watercraft, including their trailers, furnishings,
equipment, and outboard motors.
$1,000 to $1,500 on trailers not used with watercraft.
$1,000 to $5,000 on grave markers.
$2,000 to $2,500 for loss by theft of firearms.
$2,500 for loss by theft of silverware, silver-plated ware, goldware, gold-plated
ware, and pewterware. This includes flatware, hollowware, tea sets, and
trays and trophies made of or including silver, gold, or pewter.
$2,500 on property, on the residence premises, used at any time or in any
matter for any business purpose.
$250 to $500 on property, away from the residence premises, used at any
time or in any manner for any business purpose.
Companies sometimes put similar coverage limits on works of art, antiques,
musical instruments, and cameras. You should be sure to read your policy
carefully for any limits that may leave your coverage short.
Remember that these special limits are for categories of items. If your
house is burglarized and a thief steals a $500 watch and a $5,000 ring,
the most you will collect is $1,000 on your entire claim, assuming your
companys limit on that category (which includes watches and rings) is
If you have any articles that will put you over these special limits, you
should consider buying additional coverage for them. If you own any valuable
items that do not fit in the categories mentioned, be sure to ask your
agent if the items are fully covered in your policy.
There are two ways to go about increasing the limit of coverage on specific
valuable items. Usually the less expensive way is to increase the special
limits of liability for the particular categories to which your valuable
items belong. Most companies will increase the limit on any category of
items mentioned, in $1,000 increments. For example, you could raise the
limit of the jewelry category from $1,000 to $5,000. But most companies
have ceilings on the amount you can increase a limit. Usually there is
a maximum increase of $10,000 or less for any one category. In addition,
a maximum payment of $1,000 per individual item is common; if your collection
of jewelry is stolen, for example, you could collect up to the limit stated
for the jewelry category, but the most you could collect for any one item
in that collection would be $1,000.
Increasing special limits is not cheap, compared to the increased protection
they offer. For example, increasing the limit on the jewelry, watches,
and furs category from $1,000 to $5,000 is likely to add more than $25
to your annual premium.
If you have any very valuable items that cant be adequately covered by
increasing your policys special limits, youll probably have to resort
to an option that can be even more expensive. You will probably need to
purchase a personal-articles floater for those items. Although floaters
are expensive, they do have an advantage over simply increasing your policys
special limits: floaters give you all risk coverage. So if your ring
is covered by a floater and you drop it to the bottom of a lake, youll
be covered for the loss.
To determine how much personal property coverage you need, you will have
to take an inventory of all your possessions. Taking an inventory also
gives you the information you will need to make a claim for all that you
have coming in the event of a loss.
To take an inventory, go room by room and through each drawer, recording
each item individually, making note of prices paid, approximate dates of
purchase, and any model numbers. To aid you in this task, most insurance
agents will supply you with an inventory form. It is also a good idea to
take pictures or videos of each room in your house from different angles
to capture every item. Lay drawers out on the floor so that you can get
a picture of the contents. When you have finished your inventory, store
a copy in a safe place away from your house.
As we mentioned above, standard homeowners insurance policies automatically
also include coverage for several other loss categories
All structures on your property that are not attached to your house, like
a gazebo or a freestanding garage, are insured through a policys other
structures coverage. This coverage insures detached structures against
the same perils your dwelling is insured against, usually for up to an
amount equal to 10 to 30 percent of your dwelling coverage. The coverage
does not apply, however, to structures used for business purposes.
Some homeowners policies include coverage for up to five percent of your
dwelling limit for replacement of trees, shrubs, plants, and lawns, with
certain limitations. However, in recent years, many insurers have done
away with this provision.
A homeowners policy also pays for living expenses you incur as a result
of being forced out of your house by a covered peril. If you have a fire
and must vacate your home, your policy will cover the additional costs
incurred from living in a hotel, eating at restaurants, and most other
expenses necessary to maintain a normal standard of living. This loss
of use coverage also pays for lost income if a portion of your house that
you rent out becomes unusable.
Many policies cover loss of use expenses for up to 30 percent of the value
of the dwelling coverage, and additional coverage is available at about
$2 to $4 per $1,000 of additional coverage. Other insurers have higher,
or even unlimited, loss of use coverage built into their basic policies.
Under a policy with unlimited loss of use coverage, the insurer will pay
your actual costs for up to one year.
You likely wont be able to purchase coverage for these categories below
the automatic limits set by insurance companies, but you can raise your
limit in any of these categories (for an additional premium, of course).
The coverage on your dwelling and personal property will compensate you
for loss of property you own. Liability coverage protects you from claims
by others for bodily injury or property damage for which you, members of
your family, your pets, or hazards on your property are at fault. Under
this coverage, your insurance company will hire legal representation to
defend you and pay damages up to limits you have contracted for if you
are found legally liable. The claims paid to others may be for wage losses,
medical expenses, rehabilitation costs, or pain and suffering. Your policy
wont cover bodily injury or property damage caused through business pursuits
or resulting from automobile accidents (the liability coverage in your
automobile policy covers this). Without adequate liability coverage, your
home, your savings, and your future income are vulnerable.
The basic liability insurance limit in most policies is $100,000. But you
can purchase additional coverage inexpensively. Most insurers offer increased
liability coverage at $300,000 for an additional premium of only about
$5 to $15 per year; for only $5 to $25 extra per year, coverage can be
increased to $500,000. Most consumers consider these extra costs a bargain
for increased peace of mind.
If you want to protect your assets and your future income from claims in
excess of $500,000, youll want to consider an umbrella policy. Such
a policy gives you liability protection in addition to that provided by
your homeowners and your automobile insurance. Umbrella policies are generally
available in million dollar increments. The cost is typically about $100
for the first million dollars in coverage, then less for additional millions.
In addition to protecting you from claims by others for bodily injury and
property damage, an umbrella policy will protect you against suits for
other types of injuries, such as libel, slander, defamation of character,
false arrest, and invasion of privacy, which are not covered by your homeowners
policy. Umbrella policies usually do not take over except when a claim
is beyond the coverage provided through your auto and homeowners policies.
Before selling an umbrella policy, many insurance companies will require
you to increase the liability coverage in your homeowners and automobile
policies to the maximum amount offered under their standard policies.
In addition to general liability coverage, homeowners policies include
provisions for payment of medical expenses incurred by others for injuries
that occur on your property or that are caused by members of your family
residing with you, your pets, or your domestic employees. Injury to you
or a family member is not covered. Unlike liability claims, claims under
the medical payments provision will be paid even if you would not be legally
liable. If a guest drops an object and injures his or her foot while in
your home, for example, medical payments will be provided even though the
injury is entirely the guests fault. Keep in mind that medical payments
coverage is usually limited to $1,000 or $2,000 per person unless you pay
extra for an increased limit.
Most insurers now offer identity theft coverage with limits of $10,000
to $30,000. Some companies include coverage with their standard homeowners
insurance policies, but most charge an extra $25 to $50 for it.
Unless your insurer includes identity theft coverage in its standard policy
for free, we do not generally recommend purchasing it, since the premium
costs of these policies are high compared to the actual risks and potential
It is important to recognize that identity theft insurance does not promise
to clear your credit history and record for you; it merely covers the expenses
you incur to do so on your own. The Federal Trade Commission estimates
that 9 million Americans are victims of identity theft each year, and that
number is on the rise. But of those who are victimized, the average out-of-pocket
cost to remedy the effects of the crime is well under $1,000.
Although identity theft is a serious problem, our reason for not recommending
that you insure against it is that most of the damages inflicted by identity
theft are not out-of-pocket, measurable costs, but rather the time and
effort you have to devote to repairing the damage. Although some identity
theft policies will compensate policyholders for lost wagesclaims are
usually limited to $2,000the reality is that most consumers arent able
to take unpaid leave from work to clear up their credit record, and therefore
wont be able to file claims for lost wages.
Another reason to forgo buying special identity theft coverage is that
even if your homeowners insurance carrier doesnt offer the coverage for
free, you may be able to get a similar policy for free from another source.
Many banking institutions, including credit card banks, offer identity
theft protection for free. Also, you already have some protection from
fraudulent credit card chargesthe most common form of identity theft injuryunder
the federal Fair Credit Billing Act, which stipulates that you arent responsible
for fraudulent charges of more than $50 per card.
The cost of your insurance policy depends not only on the coverage you
select, but also on a number of other factors.
Some factors, such as the location of your home, its age, the materials
with which it is made, and your age, are largely or entirely beyond your
Where You Live
Insurance companies divide the areas in which they write policies into
territories (usually using county and city boundaries as territory lines).
Companies use these territorial boundaries as one way to determine their
premiums. As you can see from As you can see from our cost comparison tables, we found that prices varied somewhat from territory to territory
for the areas we looked at.
Differences in average rates among territories are influenced by the losses
companies experience in each territory. Loss experience, in turn, is influenced
by such factors as the quality of police and fire departments, the incidence
of crime, and the general level of maintenance of the housing stock.
Within territories, companies set rates according to fire protection classifications.
The fire protection classification for your homes location depends on
how close you are to a fire station and how close to a fire hydrant, and
on the quality of the fire department and the water supply for firefighting.
Rates are usually much better for homes in protected areas, which are
areas within five miles of a fire station and within 500 or 1,000 feet
of a fire hydrant. Costs for homeowners insurance in unprotected areas
are typically 40 to 60 percent higher than costs in protected areas.
Another way in which location affects premiums is the impact of construction
costs, but theres not much variation in construction costs within different
parts of the Puget Sound area.
The material with which your house is constructed will also have an effect
on your premium. Companies will rate your house as frame, masonry, or superior
construction. The lowest premiums go to houses in the superior construction
category. This category is for houses in which all floors, the roof, and
all exterior walls are constructed from noncombustible materials like concrete,
metal, or gypsum. The masonry construction category includes houses with
exterior walls made of a noncombustible material like brick, stone, or
adobe but that have floors or roofs made of combustible materials. The
most expensive rating is for houses of wood frame construction, including
houses with wood, vinyl, or aluminum siding.
If your house is a combination of frame and masonry, it will generally
be rated as frame if the exterior walls are over 20 percent frame. The
same is true of homes with brick veneer exterior walls. Some companies,
however, will allow a house that is as much as 33 percent frame to be classified
Superior construction will save you about 15 percent on your overall
premium compared to masonry. At a location with good fire protection, frame
construction will cost you on average eight percent more than masonry construction.
At a location with poor fire protection, construction materials matter
more because the risk that a frame house will totally burn is greater.
In such a location, you can expect your total premium to be about 20 percent
higher for a frame house than for a masonry house.
While frame construction is a disadvantage in the event of fire, it is
an advantage in an earthquake. If you decide to purchase earthquake coverage,
your overall homeowners premium will be substantially lower for a frame
house than for a masonry house.
How Old or Historic Your House Is
If your house is less than 10 years old, most companies will give you a
premium discount, and some companies give you a discount if your home is
less than 25 years old. This discount can be as high as 50 percent for
a brand-new house but will be only about half as much for a five-year-old
house and is likely to be five percent or less for older homes.
If your house was built before 1900, you may not be able to qualify for
an HO-3 policy. Instead, you may be offered an HO-8 policy, which will
not cover damage caused by accidents such as bursting pipes or electrical
shortages, more likely to occur in an older home.
If your home is located in an historic district, you can expect to pay
much higher premiums, since historic districts usually require that if
your homes exterior is damaged, you will have to have it repaired so that
it replicates its original features and appearance. Also, if you own a
home in an historic district, youll likely be limited in your choice of
insurers, since many insurers wont write policies in these neighborhoods.
Some insurerssuch as, Chubb and Firemans Fundspecialize in insuring
old or historic homes.
Features of Your Home
Insurers will likely charge you a higher premium if your home has features
One or more fireplaces or wood-burning stoves;
A pool, tennis court, trampoline, or outdoor hot tub;
A basement that is fully or partially finished;
An electrical system that has not been updated with a circuit breaker;
A roof made with wood shingles;
A roof that is over 20 years old; or
A furnace that is more than 20 years old.
If You Have a Dog
Although your homeowners insurance wont insure your home for damage to
your property caused by animals, the liability portion of your policy may
cover claims by others if your dog bites someone. For this reason, most
insurers charge higher premiums to those who own a Rottweiler, Pit Bull,
or another breed of dog that has a propensity to attack strangers, and
most insurers will charge higher premiums to those who own a dog that has
ever bitten a stranger. Some insurers have begun specifically to exclude
from their liability coverage damages caused by dog bites. (If your dog
has ever bitten a stranger, you may also have trouble shopping around for
insurance, since many companies refuse to write new policies for homeowners
whose dogs have a history of biting.)
Some companies give discounts to seniors. Some set the age cutoff at 55,
others at 50. Most cut the premium for qualifying homeowners by five to
Although theres much you cant control with regard to how your homeowners
premium is determined, you do have control over many choices and factors.
Most important is how much insurance you choose to purchasewhether to
get replacement cost coverage on personal property or to raise coverage
beyond the standard limits, for instance. Weve discussed these options
above. But you also have control over several other factors that determine
how your insurance premium is set.
Youll need to ask insurance agents youre working with what discounts
are offered, then decide whether any cost or inconvenience of qualifying
is justified by premium savings. Discounts such as one offered by some
companies for non-smokers might not be mentioned if you dont ask.
Making too many claims can drastically increase your premiums, so youll
want to try to limit the number of claims you make. The most costly effect
of making too many claims is that your insurer may refuse to renew your
policy. This has become an increasingly common problem for many consumers,
as many insurers have begun to refuse to renew policies that have had as
few as two claims during a two-year period, or even a five-year period.
If your insurer decides not to renew your homeowners policy, youll likely
pay a steep price as a result. You may have trouble finding another reasonably
priced insurer that will agree to write you a new policy, and even if you
find another insurer, youll be considered a high-risk customer and will
have to pay high premiums. As a worst-case scenario, if you cant find
an insurer to cover you, youll be forced to get coverage with Washington
States FAIR plan, which can be expected to charge premiums that are higher
than even the most expensive private insurers.
Even if your claims history doesnt cause your insurer to drop your policy,
making claims will probably have an effect on the premium you pay. Some
insurers offer steep discounts for customers who have not made any claims
on a policy during a two-to-five-year period. Other insurers simply increase
rates for policyholders who make claims.
All homeowners insurance policies come with deductibles that apply to claims
for damage to your property. Your loss must exceed the deductible amount
before the insurance companys coverage takes over. Most companies apply
a standard deductible of either $500 or $1,000. All companies, however,
will allow you to raise your deductible above the basic level.
By taking as high a deductible as you can, you will cut your premiums substantially.
Moving from a $500 deductible to a $1,000 deductible will lower your insurance
premium by an average of about 12 percent. A deductible of $2,000 will
save you on average about 20 percent compared to a $500 deductible.
By taking a high deductible, youll also reduce the likelihood of filing
small claims that may result in future premium hikes.
Keep in mind that the purpose of insurance is to protect you from losses
that you cant afford to cover yourself. If you buy insurance for small
losses, you pay insurance company overheadsales, administrative, and claims
handling coststo deal with losses you could take care of out of your own
pocket. On average, only 60 cents of every dollar policyholders spend on
homeowners insurance is returned in claims payments. The rest goes to company
overheada waste of money from your standpoint. You need to ask yourself
how big a loss you can incur without an unacceptable level of disruption
to your life and then set your insurance deductible levels accordingly.
You can get substantial discounts for installing devices to protect your
home from burglary and fire. Deadbolt locks, in-home-sounding fire and
burglar alarms, fire extinguishers, or a combination of these devices will
generally save you one to three percent. Bigger discountstypically an
additional five to 10 percentare available for homes that have alarms
that report to a central-station monitoring service. For more information
on home-security systems, including ratings of alarm installers, see our
article Securing Your Home. The biggest discounts usually go to homes
with full sprinkler systems.
Another type of discount is for dual policyholders. If you purchase auto
and homeowners insurance from the same company, some companies will give
you a discount off your homeowners premium, others will cut your auto premium,
and some will cut both. Click here to go to see our ratings of auto insurance companies for price and quality.
Most insurers use credit scores to help determine premiums. If you have
a low credit score, have ever declared bankruptcy, or have been through
foreclosure, some insurance companies may offer you only a higher priced
policy intended for high-risk policyholders. The logic is that if you handle
your finances carefully, you are more likely to be careful with the investment
in your home. Many consumer groups and others oppose the use of credit
scores in this way, arguing that the scores are not a direct measure of
insurance risk and that using the scores in insurance pricing hurts low-income
consumers, whose scores tend to be lower on average.
Legislatures in several states have passed laws that would prevent insurers
from using credit scores and credit history to set homeowners insurance
rates. Lawmakers in Washington State have considered such proposals, but
at the time of this writing, no such law had been passed here.
Since smoking increases the risk of fire, some insurers charge higher premiums
for households that include one or more smokers.
Once youve armed yourself with knowledge of the various coverage options
and pricing factors, youll want to shop around for a company that will
sell you a policy at a low rate.
To help you get started, As you can see from our cost comparison tables,
show annual premiums for eight sample properties for the 18 companies writing
most of the homeowners insurance in the Puget Sound area. The property
insured and the coverage each quote includes are described below the tables.
To collect the price information, our researchers first tried to shop for
rates using companies online rate quoting systems, if available. Companies
that had such capabilities were Ameriprise, Amica Mutual, Farmers, Homesite,
Liberty Mutual, State Farm, and USAA. For companies that did not offer
online rate quotes, our researchers called company representatives and
asked them to provide the information. AAA/Auto Club, Chubb, Country, Grange,
The Hartford, MetLife, and Nationwide complied with our request and provided
the information; Allstate, Enumclaw, PEMCO, and Travelers did not. For
the companies that did not have online rate quoting systems and did not
provide the information as requested, our researchers, without disclosing
their affiliation with CHECKBOOK, shopped for rates by calling the companies
After collecting the premium cost information, we asked each of the insurance
companies that did not directly provide us with their rates to verify the
information we had collected via the Web or by shopping agents. Only PEMCO
and State Farm responded to our request; the other companies did not.
We wish more companies either had online rate quoting systems in place
or agreed to provide us with their ratesor at least to look over the rates
we collected from their agents. We have found in the past that premium
quotes given by agents are often inaccuratesometimes by hundreds of dollars.
Equally disturbing, we have found that the inaccurate prices quoted by
agents were more often than not higher than the companies correct rates;
over-pricing wastes your money while padding the agents commissions.
Companies that had relatively low rates for all or almost all of our profiles
were AAA/Auto Club, The Hartford, MetLife, Nationwide, and PEMCO.
Fortunately, you dont have to wait until the end of your policy term to
shop for a better rate and/or coverage. Although you might have to pay
a small administrative fee to cancel with your current insurer, this fee
is usually quite small compared to the possible savings you might get with
a lower cost carrier.
While the premiums on the tables are for properties with specific characteristics
and values, we believe the rates are a good indication of which companies
will be low-priced for properties of higher or lower values.
Similarly, the tables remains useful even if the coverage you desire is
different from the sample profiles. For example, if you want higher limits
for personal property or liability coverage than included in the samples
on the tables, you will have to pay higher premiums than shown, but most
companies add about the same percentage to your premium when increasing
When looking at how the companies rank, keep in mind that all the rates
were collected assuming the policies would be new business for the insurers.
If youve been with your current insurer for several years and havent
had a claim, you may be getting a steep discount; you wont know whether
starting over with a new company will make sense until youve done some
will help you identify situations where the quotes on our cost comparison tables might be least useful. This figure shows roughly how much you
might save or how much more you might pay if your home or the coverage
you desire differs from the home and coverage for which we got quotes.
Each of the bars on This figure shows a rough range of possible savings
or extra costs; different companies will come in at different points in
that range. If the range is small, the relative rankings on the cost comparison tables wont change much for you if you get a particular type
of discount or surcharge. But if the range is large and youll be getting
the potential discount or surcharge, youll want to put less reliance than
you otherwise would on the rankings of companies for the sample profiles
One case needs special attention: the dual-policyholder discount. Many
insurance companies offer lower rates if you insure both your home and
your car with them. Some knock off five percent, 10 percent, or even more
from either the homeowners rate or the auto rate; some knock off a percentage
From a consumers point of view, this dual-policy pricing is an undesirable
practice because it makes shopping more difficultto find out the exact
savings you might realize by switching companies, you have to shop for
both types of coverage at once. But the discounts arent usually so large
that they have a major effect on the relative rankings of companies.
Click here to go to see our ratings of auto insurance companies for price and quality.
When shopping for insurance, you may want to consider service as well as
Since most insurance companies sell policies only through insurance agents,
your first step toward getting good service is to find an insurance agent
you can trust. Youll want a responsive, knowledgeable agent who can provide
sound advice and accurate price quotes. Unfortunately, when contacting
area agents to obtain insurance premium quotes, we found, just as we have
when we have done such shopping in the past, that many agents werent up
to the challenge of calculating accurate prices, and some offered alarmingly
bad information and advice. The following were the most common problems
Agents rarely agreed on the amount of coverage that was needed to insure
our sample homes. In some cases, the amount of dwelling coverage we were
advised to purchase on a sample home varied by more than $100,000 from
agent to agent for the same company. Often the agents were advising us
to take on much more coverageat more cost to usthan was needed.
For the same home and coverage, we repeatedly encountered insurance agents
who quoted completely different premiums than other agents for a policy
written by the same insurance company. In some cases, agents quoted prices
that were more than double the correct premium.
Some agents didnt bother asking our shoppers enough questions about our
sample home and homeowner to enable them to quote accurate prices. For
example, a few agents never bothered to ask whether the home was of frame
or masonry construction, and many agents never bothered to ask about features
of the home that would have affected premiums, such as the presence of
burglar alarms and other protective devices.
Some agents didnt properly include discounts for which our shoppers would
be eligible, based on information the shopper provided.
Many agents tried to sell us unwanted options and add-ons, such as sewer
backup coverage and coverage for identity fraud. Often, these options were
simply tacked on to the agents price quotes without any discussion or
any mention of the fact that these coverages werent required and would
increase the premiums.
When we questioned the addition of unwanted options, some agents tried
to justify their selling practices by falsely telling us that the extra
coverages were required by the insurance company or mandated by state law.
Many agents tried to sell us more insurance than requested by quoting prices
based on optional, higher coverage limits. When we asked them to re-quote
prices using the originally requested, lower coverage amounts, some agents
falsely told us that they would be unable to do so since such limits were
the minimum coverages offered by the company. For example, a common practice
was to include $500,000 in liability coverage; when we contacted these
agents and asked them to adjust their quotes to include our specified $300,000
for liability coverage, some told our shoppers that it would be impossible
to do so because all of the companys HO-3 policies come with $500,000
in liability coverageeven for companies that have standard minimum limits
of $100,000 for liability coverage.
Encountering purveyors of bad advice is not a new phenomenon for us when
collecting information from local service companies. But our experiences
in dealing with insurance agents are particularly disturbing because the
up-selling and downright dishonesty we encountered were so commonplace,
and because the problem has persisted over the many years we have done
To make sure youre being given accurate information and prices, our advice
is to shop several agents. When obtaining quotes for premiums, push hard
to get reliable information. A good first step is to decide for yourself
the exact types of coverage and amounts you want to buy, then make sure
that any agent you deal with bases your premiums on those specifications.
Look over price quotes and policies you receive very carefully. If an agent
includes coverage that you did not request or that you believe is unnecessary,
ask him or her to explain why it was included. If the answer is unsatisfying,
take your business elsewhere.
Since agents frequently fail to mention the most attractive available policy
terms and sometimes quote inaccurate rates for the policies that are offered,
always ask whether there are other policies and terms that will result
in better rates.
Probably the most important element of the service quality offered by an
insurance company is its claims-handling practices. Are claims paid promptly
and are the payment amounts fair?
One way to spot serious problems is to look at records of complaints filed
with the Washington State Office of the Insurance Commissioner. On This table, we have reported counts
of homeowners insurance complaints for 2007, 2008, and 2009 (the most recent
years for which data were available) for the insurance groups that wrote
the most policies in Washington during that time period. For each company,
the table also reports complaint rates, which are intended to take into
account the fact that some companies do much more business than others
and therefore are more exposed to incurring complaints. The complaint rates
are calculated as the companies numbers of complaints per $10 million
in direct homeowners premiums written.
Comparing the complaint rate information with the pricing information,
you will see that in all parts of the Puget Sound area homeowners have
companies available to them that have relatively low premiums and also
relatively low complaint rates. For example, PEMCOs premium for the sample
frame house in Seattle was $672, compared to the Farmers rate of $1,640;
yet PEMCOs Washington State complaint rate was lower than Farmers. In
short, you can save money and also get good service.
Feedback from Policyholders and Contractors
Another way to measure the quality of service from homeowners insurance
companies is to look at results of surveys of customers who have made claims.
We have collected some feedback from surveying CHECKBOOK subscribers.
This table shows the percentage of respondents who said they would
recommend each of 15 companies. Consumer Reports has published ratings
of homeowners insurance companies based on a survey of its subscribers
and, in general, the companies that scored high on our surveyUSAA, Amica
Mutual, Chubb, and State Farmgot relatively high ratings on the Consumer Reports survey while those that got relatively low ratings on our surveyTravelers,
Farmers, and Allstategot relatively low scores on the Consumer Reports
Another way to get insight on company service is to collect feedback from
contractors who work with homeowners making repairs for which the homeowners
are making claims. After all, contractors who do such repair work get a
chance to hear enough claims-handling nightmare stories from customers
to form fairly informed opinions. We surveyed roofers and asked them to
rate insurance companies with which they had experience poor, fair,
good, very good, or excellent for treating their customers fairly
when paying claims. Some roofers told us they were unable to provide judgments,
since they didnt do much repair work and therefore had little or no experience
working with customers who needed work done under insurance claims. But
many roofers did have opinions based on their experiences. This table shows the percentage of roofers who rated various companies at least
very good. Not surprisingly, there is some correlation between companies
scores with roofers and their scores with surveyed homeowners.
Another concern in choosing a company is the risk of having your coverage
arbitrarily terminatedperhaps because youve made a few claims. Unfortunately,
we have no data to compare companies on their termination practices.
Although there do appear to be service differences among companies, it
seems you can safely focus your shopping on price differences. Even the
companies with the highest complaint rates, for example, were the subjects
of complaints in a year from only a small percentage of their policyholders.
So you are unlikely to have a complaint; and even if you do have one, it
may relate only to relatively small personal property claims or to only
a portion of a major claim.
Another consideration in shopping is to be sure the company you choose
is financially sound. You will not want to sign on with a company that
may soon have to cut many policyholders or raise prices sharply to stay
alive. Nor do you want to be insured by a company that may go out of business
soon, forcing you to begin your shopping again.
On the other hand, there is no reason for great anxiety about an insurers
stability. If a company goes bankrupt, policyholders may have to wait to
recover money owed them, but generally dont stand to lose much, since
a special insolvency guaranty fund exists in every state with the duty
to assess all insurers doing business in the state on a pro-rata basis
to pay off all outstanding claims of an insolvent company and reimburse
each policyholders paid-in premium.
You can check a companys financial soundness by obtaining its report with
the A.M. Best Company or by checking its listing in
Best Insurance Reports, available in large libraries.
How to Report a Claim
Your insurance agent is the first link between you and your company. If
your agent is unavailable or if your insurance company does not have representatives
on the scene available to help you, call the company directly and ask for
the claims department. The companys phone number should be listed in your
It is important that you fully understand your rights and responsibilities.
If your insurance policy has been lost or destroyed in the disaster or
if you are confused about the policy benefits or exclusions, your agent
or company will be able to tell you exactly what coverage you have purchased
and give you a copy of the policy provisions.
Make Sure Your Insurer Promptly Responds to Your Claim
After you report your loss, the insurance company will assign a company
representative to check the damage to your property and determine how much
will be paid for your loss. If it is necessary to vacate your home, be
sure to report the address and phone number where you can be reached.
Washington State has regulations that govern claims handling practices.
Insurance companies are required to acknowledge the receipt of your claim
within 15 working days. They are also required to provide you with the
appropriate forms to file a claim. If your company has not responded to
you within the required period of time or if you have experienced any other
unreasonable delays in the handling of your claim, contact the
Office of the Insurance Commissioner(see contact information
below) for assistance.
Information You Will Need to Provide
Your homeowners policy requires you to complete a claim report that lists
all items destroyed, damaged, or missing. If you dont have or cant locate
a complete household inventory, try to picture the contents of every room
in your home and then list and describe all the items that were damaged
or destroyed. As accurately as possible, try to remember when or where
you bought each item, how much you paid for it, and how much it will cost
to replace it. It is also helpful to include the brand name and model number
if you know them.
Make Temporary Repairs to Prevent Further Damage
To protect your property from further damage, you should make all necessary
temporary repairs, such as boarding up windows and patching holes in walls
or roofs, as soon as possible, even if you have not yet seen the company
representative. You can also move your personal property to a protected
area and begin cleaning and drying items damaged by water. However, you
should not dispose of any items that you believe may be a complete loss
until the company representative has examined them.
Take photographs to show the way things look before you begin cleaning
and repairing and be sure to keep receipts for all of your clean-up expenses.
Most homeowners policies cover reasonable costs of emergency clean-up and
temporary repairs. You should ask your company representative whether the
company will compensate you for work you do yourself. Be sure to keep all
When Dealing with Contractors, Try to Withhold as Much Payment as Possible
Until Work Is Completed
If the repair work is extensive, the contractor may ask for periodic partial
payments as the work progresses, but no reputable contractor should request
full payment in advance. The contract should specify that payments will
be made as the work is completed. If you have a mortgage on your home,
the lending institution may also have specific requirements as to how the
insurance funds are disbursed.
What to Do If the Cost of Repairs Is Higher than What the Insurer Will
If there is a discrepancy between what your insurance company offers you
and the actual cost of repairs, or if the contractor finds hidden damage
after the insurance company has set a cost figure, you should first contact
the company representative and try to resolve the difference. If you are
still unable to resolve your differences, contact the states
Office of the Insurance Commissioner
Where to Live During Repairs
Standard homeowners policies include coverage for costs you incur that
are in excess of your normal living expenses. For example, if you normally
spend $3,000 per month for mortgage/rent, utilities, food, and transportation,
and these living expenses increase to $4,000 per month because of the disaster,
the insurance company will reimburse you $1,000. Be sure to save all receipts.
You should also ask your company representative if there are any restrictions
on where and how long you can stay and how much you are allowed for hotel
rooms. If you stay with a relative or friend, the company may reimburse
your host for lodging only if you can show proof of actual payment. Extra
expenses, such as higher utility bills incurred by the host, would definitely
What to Do If Youve Had a Flood
Standard homeowners policies do not cover flood damage. But, if you have
a flood insurance policy, your company or the National Flood Insurance
Program will assign an adjustor to handle your claim.
If your home is not covered for flood damage, you should check with the
federal agencies at the local disaster center to see if you are eligible
for federal assistance, including grants or low-interest loans.
What to Do If Youve Had Damage from an Earthquake
If you purchased an earthquake coverage endorsement, your company will
assign a representative to evaluate your damage. If you do not have earthquake
coverage, you should check with the federal agencies at the local disaster
center to see if you are eligible for financial assistance.
If You Have a Problem with Your Insurer
Contact your agent or company if you believe your insurance company has
improperly canceled or non-renewed your policy or has refused to pay all
or part of a valid claim; you have a right to question and complain. Sometimes
a mistake has been made and it will be corrected if an inquiry is made.
A complaint by letter or e-mail is best. Keep copies of your correspondence.
If you decide to complain by telephone, keep a written record of the date
and time of your call, the name of the person to whom you talked, and what
was said during the call.
If you do not receive a prompt, courteous, and satisfactory response from
your company, you may need to get help to resolve your problem. State insurance
departments have a lot of leverage with companies and resolve many complaints
in favor of consumers. Contact information for the states Office of the
Insurance Commissioner is listed below.
Office of the Insurance Commissioner
P.O. Box 40256
Your homeowners policy will not cover damage to your home and belongings
in the event of an earthquake. In order to be insured for earthquake losses,
youll have to buy an earthquake coverage endorsement separately, and for
some homes in the Puget Sound area, this coverage can be extremely expensive.
In most Puget Sound area communities, an endorsement for $350,000 of earthquake
coverage might be expected to cost, depending on the company and your location,
between $1,100 and $1,500 per year for a frame house and between $2,500
and $5,000 per year for a masonry house.
Despite these high premiums, most earthquake insurance policies require
you to pay a hefty deductible before coverage takes over. Most companies
earthquake policies come with a 10- to 25-percent deductible (15 percent
is most common) for each category of coverage: if you buy $350,000 of coverage
with a 15-percent deductible, youll have to pay for the first $52,500
of damage out of your own pocket.
Despite the high premiums and deductibles offered by insurers, many Puget
Sound area homeowners will have trouble finding a company that will write
an earthquake insurance policy for them. We found that only about one-half
of the areas largest insurers would write an earthquake policy for a masonry
home, and most insurers wont write an earthquake policy for either a masonry
or a frame home unless the house is bolted to its foundationa practice
that was not required by local building codes until the early 1960s.
If your house qualifies for earthquake insurance, and youre thinking of
purchasing it, consider the cost of both the basic homeowners policy and
the earthquake endorsement when choosing a company. Companies that offer
the best rates for earthquake coverage dont necessarily offer the lowest
cost, basic homeowners policies. Because the earthquake endorsement can
be very expensiveparticularly if you own a masonry homeyou might want
to focus first on finding insurers that offer low-cost earthquake coverage;
then as a second shopping step compare their premiums for basic, non-earthquake
Earthquake coverage for condominium owners and renters is considerably
less expensive than coverage for homeowners because insuring the buildings
structure is the responsibility of the condominium association or the landlord.
If you are a renter or a condominium owner, you can purchase insurance
similar to homeowners coverage. The renters policy, referred to as form
HO-4, and the condominium owners policy, referred to as form HO-6,
provide coverage for personal property, for additional living expenses,
for personal liability (typically up to $100,000 or $300,000), and for
medical payments to others (typically up to $1,000 or $2,000).
As with homeowners insurance policies, rates for renters and condo owners
vary significantly from company to company, so youll want to shop around.
Renter and condo policies usually cover personal property for its actual
cash value. You can purchase an endorsement for replacement cost coverage.
As with homeowners insurance, special limits of liability apply to certain
categories of items. If you are unsure whether your valuables are covered,
ask your agent for clarification. If they are not, you may choose to increase
the special limits or you can purchase an individual floater for each item.
The coverage for additional living expenses (expenses that result from
loss of use of your dwelling) usually is for an amount up to 30 percent
of the coverage of your personal property under a renters policy and for
an amount up to 40 percent of the coverage of your personal property under
a condominium owners policy.
Renters and condominium owners policies are not intended to cover damage
to your buildings basic structure. The landlord or condominium association
should have insurance to cover such losses. But condominium owners policies
do provide some coverage for structural damage. The extent of this coverage
varies significantly, and how much structural coverage you will need depends
on how much coverage is provided by the condominium associations own policy.
Some condominium associations have policies that include built-in fixtures
like sinks, bathtubs, and electrical wiring. Others have policies that
stop coverage at the unfinished walls, leaving you responsible for any
fixtures or improvements inside. You should purchase a condominium owners
policy that takes over where the condominium association policys coverage
ends. (It is also possible under some renters policies to purchase coverage
for improvements you have made to an apartment.)
If you negligently cause damage to your building, the landlords or condominium
associations insurance company may sue you to recover its expenses. The
liability coverage in your policy should protect you in such an event.
Most condominium policies provide loss assessment coverage, for up to $1,000.
This coverage protects you if your building association assesses you an
amount to make up for a loss it has incurred. For example, the association
might make an assessment, if there is damage to the building, to cover
the deductible in the associations policy or for the difference between
an actual cash value settlement and the cost to replace a loss.
Consider purchasing your condominium owners policy from the insurance company
that sold your associations policy. If they offer you a competitive rate,
insuring with them will probably reduce the time it takes to settle claims
where the loss is partly the associations and partly your own.