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Buying Homeowners Insurance—The Full Story (From CHECKBOOK, Spring/Summer 2011)

 
Go to Ratings of Bay Area Area Homeowners Insurance
Homeowners Insurance

Introduction 

There are good reasons periodically to take a hard look at your homeowners insurance coverage— 

  • 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 rise—and 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 period—or 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. You’ll 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, you’d like to be able to get advice from honest, competent insurance agents and help from company websites. That’s not easy. We found the companies’ websites weren’t always able to provide accurate rate quotes. And many insurers don’t 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 advice—the kind of “help” that would lead to wasted money, inappropriate coverage, or both. 

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, we’ll try to help you get the coverage you need for a good price. We’ll describe the most common types of homeowners insurance policies, what each type of policy will and won’t cover, how to determine how much insurance to buy, and the various options you have for buying additional protection. 

Even if your coverage is right, it’s wise to shop around every few years to get the best rate. Looking at 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 Bay Area should help get you started in your search. 

An important point to keep in mind is that there’s no reason to wait until your current policy’s 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. 

We’ll 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 won’t renew your policy because you’ve made claims. 

What’s Covered 

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 company. 

Policy Types 

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 risks—including 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 perils—generally the same list of perils covered by the HO-2 policy, described below—and 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 you’re thinking about buying an HO-5 policy, make sure that you can’t 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 won’t cover damage from accidental losses—for 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 don’t 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 don’t 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 of pipes. 

Insurance companies also offer coverage for renters and condominium owners. Renter coverage doesn’t include full coverage for the dwelling itself, since insuring it is the responsibility of the landlord. Instead, renter coverage insures the tenant’s 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 improvements—such as carpeting, cabinets, or interior walls—that they have made to the premises. Click here for more information on insurance for renters and condominium owners

Standard Coverage Amounts 

All of the homeowners insurance policy forms provide compensation for damage to, or destruction of— 

  • Your dwelling (your home’s 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 types—extra coverage for detached structures or extra personal property coverage, for instance—for 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. 

Optional Coverage for Other Risks 

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 $20 to $40 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 for houses in qualifying “flood plain” areas and only in communities that have chosen to participate in the National Flood Insurance Program. Almost all eligible communities in the Bay Area participate, but San Francisco does not. To get maps showing flood plain areas, you can visit www.floodsmart.gov or call 800-358-9616. 

Deciding How Much Coverage to Buy 

When you buy homeowners insurance, you will probably be forced to purchase a certain amount of insurance (which may actually be more coverage than you need). 

One reason for this is that insurers bundle into their standard policy forms minimum insurance amounts for various coverages—for 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 won’t 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 of coverage. 

Dwelling Coverage 

It is important that you obtain an accurate estimate of your home’s 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 home’s market value includes the value of the land the home sits on and the cost of your home’s foundation—two expensive components of your home’s market value that don’t 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 Bay Area, the replacement cost of a home is usually far less than the home’s 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 replace—top-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 house—from $180,000 to over $500,000, for one sample home. 

This imprecision is troubling for two reasons: if you over-insure your house, you will pay premiums on coverage you don’t 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 $200,000—even 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 19 percent. 

There are steps you can take to ensure your home isn’t underinsured— 

  • Purchase a policy with a guaranteed replacement cost provision. This provision places in the insurance company’s 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 house’s appraised replacement cost, and you will be required to accept annual premium increases, as determined by the company, to account for increases in construction costs. 

    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 expensive homes. 

  • 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, you’ll 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 won’t 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 you’ve 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 home’s replacement cost and adjust your dwelling coverage accordingly. Since we found that insurers often didn’t 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 costs—for 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, it’s 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, won’t 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 cost—indeed, even if you get guaranteed replacement cost coverage—there 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 area’s building codes—for 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 company’s 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 dwelling’s 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, you’ll get the full $40,000 (less the deductible). If the home is completely destroyed, on the other hand, you’ll 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 dwelling’s replacement cost) times (the amount of your loss minus your policy’s 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 house’s replacement cost, keep in mind that most mortgage lenders require you to maintain dwelling coverage for your home’s full replacement cost. 

Personal Property Coverage 

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 won’t be able to purchase personal property coverage below the 50-percent level of coverage. 

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 value—replacement 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 won’t be able to buy anything comparable for $200, you’ll probably be disappointed with the insurance company’s 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, that’s what you’ll get (less your deductible) to replace it. (If you don’t 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 policy—although 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, and stamps. 
  • $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 company’s limit on that category (which includes watches and rings) is $1,000. 

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 can’t be adequately covered by increasing your policy’s “special limits,” you’ll 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 policy’s “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, you’ll 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. 

Additional Coverage for Other Losses 

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 policy’s “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 won’t 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). 

Coverage for Injuries to Others 

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 won’t 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 $15 to $35 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, you’ll 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 guest’s 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. 

Identity Theft Coverage 

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 losses. 

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 wages—claims are usually limited to $2,000—the reality is that most consumers aren’t able to take unpaid leave from work to clear up their credit record, and therefore won’t 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 doesn’t 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 charges—the most common form of identity theft injury—under the federal Fair Credit Billing Act, which stipulates that you aren’t responsible for fraudulent charges of more than $50 per card. 

How Premiums Are Set 

The cost of your insurance policy depends not only on the coverage you select, but also on a number of other factors. 

Cost Factors You Can’t Control 

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 control. 

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 our cost comparison tables, we found that prices varied considerably 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 home’s 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 there’s not much variation in construction costs within different parts of the Bay Area. 

Building Materials 

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 as masonry. 

“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 about 10 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 home’s 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, you’ll likely be limited in your choice of insurers, since many insurers won’t write policies in these neighborhoods. Some insurers—such as, Chubb and Fireman’s Fund—specialize in insuring old or historic homes. 

Features of Your Home 

Insurers will likely charge you a higher premium if your home has features that include— 

  • 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 won’t 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.) 

Your Age 

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 10 percent. 

Cost Factors You Can Control 

Although there’s much you can’t 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 purchase—whether to get replacement cost coverage on personal property or to raise coverage beyond the standard limits, for instance. We’ve discussed these options above. But you also have control over several other factors that determine how your insurance premium is set. 

You’ll need to ask insurance agents you’re 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 don’t ask. 

Claims History 

Making too many claims can drastically increase your premiums, so you’ll 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, you’ll 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, you’ll be considered a high-risk customer and will have to pay high premiums. As a worst-case scenario, if you can’t find an insurer to cover you, you’ll be forced to get coverage with California’s FAIR plan, which can be expected to charge premiums that are higher than even the most expensive private insurers. 

Even if your claims history doesn’t 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. 

Your Deductible 

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 company’s 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. This figure shows the typical savings. Moving from a $500 deductible to a $1,000 deductible will lower your insurance premium by an average of about 15 percent. A deductible of $2,000 will save you on average about 25 percent compared to a $500 deductible. 

By taking a high deductible, you’ll 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 can’t afford to cover yourself. If you buy insurance for small losses, you pay insurance company overhead—sales, administrative, and claims handling costs—to 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 overhead—a 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. 

Protective Devices 

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 discounts—typically an additional five to 10 percent—are 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. 

Dual-Policy Discounts 

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

Smoking 

Since smoking increases the risk of fire, some insurers charge higher premiums for households that include one or more smokers. 

Finding the Lowest Cost Insurer 

Once you’ve armed yourself with knowledge of the various coverage options and pricing factors, you’ll want to shop around for a company that will sell you a policy at a low rate. 

To help you get started, our cost comparison tables show annual premiums for a sample policy for 16 Bay Area locations for almost all of the companies writing homeowners insurance in the Bay Area. The coverage and description of the home is listed below the tables. 

The premiums on the tables are those released by the California Department of Insurance in its excellent “2010 Homeowners Premium Survey” report. The premiums are those that were in effect on May 1, 2010. You can access the state’s survey, which has sample premiums for several more coverage amounts and locations than we list, by visiting www.insurance.ca.gov

Companies that consistently had the lowest premiums in the Bay Area were Civil Service Employees, Mercury, Pacific Property & Casualty, and Travelers, but other companies had low rates for specific homeowners. 

Fortunately, you don’t 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 remain 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 these coverages. 

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 you’ve been with your current insurer for several years and haven’t had a claim, you may be getting a steep discount; you won’t know whether starting over with a new company will make sense until you’ve done some comparison shopping. 

This figure 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 won’t change much for you if you get a particular type of discount or surcharge. But if the range is large and you’ll be getting the potential discount or surcharge, you’ll want to put less reliance than you otherwise would on the rankings of companies for the sample profiles we used. 

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 both. 

From a consumer’s point of view, this dual-policy pricing is an undesirable practice because it makes shopping more difficult—to 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 aren’t 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

Getting Good Service 

When shopping for insurance, you may want to consider service as well as price. 

Finding a Good Agent 

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. You’ll 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 weren’t up to the challenge of calculating accurate prices, and some offered alarmingly bad information and advice. The following were the most common problems we encountered— 

  • 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 coverage—at more cost to us—than 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 didn’t 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 didn’t 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 weren’t 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 company’s HO-3 policies come with $500,000 in liability coverage—even 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 similar shopping. 

To make sure you’re 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. 

Finding a Company that Provides Good Claims-Handling Services 

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? 

Complaint Records 

One way to spot serious problems is to look at records of complaints filed with the California Department of Insurance. On this table, we have reported counts of justified 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 California 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 do and therefore are more exposed to incurring complaints. The complaint rates are calculated as the companies’ numbers of complaints per $100,000 in “exposures,” with this volume of exposures intended to reflect the number of homeowners policies written in California. 

Comparing the complaint rate information with the pricing information, you will see that, in all parts of the Bay Area, homeowners have companies available to them that have relatively low premiums and also relatively low complaint rates. For example, Mercury consistently has low premiums for all the sample profiles we used in our cost comparisons, and also has one of the lowest complaint rates. 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 12 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 survey—USAA, Amica Mutual, Chubb, and State Farm—got relatively high ratings on the Consumer Reports survey while those that got relatively low ratings on our survey—Travelers, Farmers, and Allstate—got relatively low scores on the Consumer Reports survey. 

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 didn’t 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. 

Other Considerations 

Another concern in choosing a company is the risk of having your coverage arbitrarily terminated—perhaps because you’ve 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. 

Making Sure the Company Is Financially Stable 

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 insurer’s stability. If a company goes bankrupt, policyholders may have to wait to recover money owed them, but generally don’t 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 policyholder’s paid-in premium. 

You can check a company’s 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. 

What You Should Do After Damage to Your Home 

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 company’s phone number should be listed in your policy. 

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. 

California has regulations that govern claims handling practices. Insurance companies are required to acknowledge the receipt of your claim within 10 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 Department of Insurance (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 don’t have or can’t 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 receipts. 

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 Pay 

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 Department of Insurance

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 be considered. 

What to Do If You’ve 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 You’ve 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 Department of Insurance is listed below. 

California Department of Insurance
Consumer Services Division
300 S. Spring Street, South Tower
Los Angeles, CA 90013
800-927-4357
www.insurance.ca.gov 


Earthquake Coverage 

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, you’ll have to buy an earthquake coverage endorsement separately, and in the Bay Area, this coverage can be extremely expensive. 

California law requires insurance companies to offer earthquake coverage whenever a consumer purchases a homeowners policy. As a result of the Northridge earthquake in 1994, insurance companies in the state became liable for about $8.4 billion in claims. Rather than expose themselves to risks of such liability in the event of future earthquake disasters, a number of companies stopped, or curtailed, their offerings of homeowners insurance in the state. 

This exodus created problems for consumers. Some were forced to turn to non-admitted carriers—insurers not licensed in California, and therefore not regulated—for earthquake coverage. Most of the insurers that continued to write homeowners and earthquake policies raised their rates sharply. In response, the legislature created the California Earthquake Authority (CEA), a privately financed, publicly managed agency that provides earthquake insurance sold through the agents of participating insurance companies. To meet their obligation to offer earthquake insurance, companies may either sell CEA coverage or offer their own coverage. Some companies have continued to offer their own coverage, but many companies have turned to the CEA. 

The coverage available through the CEA has severe limits. Homeowners face a deductible of 15 percent (for example, $60,000 on the loss of a $400,000 home); can collect only $5,000 for personal property losses; and can collect only $1,500 for increased living expenses while a damaged home is being repaired. Renters can buy coverage on personal property up to $5,000, with a deductible of $750, and $1,500 for loss of use. Condominium owners can get personal property coverage similar to that for renters, can insure real property up to $25,000, and can get $1,500 in coverage for living expenses. 

Some of the companies that have continued to offer their own coverage, rather than relying on the CEA, offer much better coverage—similar to what they offer for fire and other hazards—but most insurers also apply deductibles of 15 percent. 

Our cost comparison tables for earthquake coverage gives you information to compare costs of earthquake coverage for frame homes. (The California Department of Insurance no longer includes sample premiums for masonry homes in its premium comparison study.) The comparison tables show the annual premiums for the full level of coverage that is included on the homeowners insurance premium comparison tables for other hazards (except for the earthquake coverage’s higher deductible) for companies that offer their own earthquake policies. The earthquake coverage comparison tables also show annual premiums for CEA coverage for the same home, but remember that in many cases the CEA coverage is less than what the other companies offer because of limits on payout for personal property and living expense claims. 

If you own a masonry home, earthquake coverage costs will be much higher—as much as three times higher than for a frame home. In our experience, CEA coverage costs less than policies purchased through most insurers for masonry homes, but for frame homes, the other companies often beat CEA premiums—while offering better coverage. 

Because earthquake coverage is so expensive, you will want to consider its cost carefully when choosing a homeowners insurance company. The company with the best rates on a basic homeowners policy may not be best when you add in the amount you will have to pay for earthquake coverage. 


Insurance for Renters and Condominium Owners 

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 you’ll 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 building’s 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 association’s 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 policy’s 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 landlord’s or condominium association’s 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 association’s 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 association’s 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 association’s and partly your own. 



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