What Every Homeowner Needs to Know About Insurance and Liability
Homeowner's insurance includes coverage that protects you from property loss, and from claims for damage, personal injury or liability. Mortgage lenders usually require homeowner's insurance. You can avoid having to make a claim on your insurance by reducing your liability, or risk of having to file claims. Comparing insurance plans can help you make a decision about what kind of coverage is right for you.
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Property Coverage
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Your homeowner's insurance policy includes either "all risk" property coverage, which insures any risk unless specifically named otherwise, or "all peril" coverage, which only covers the risks named in the policy. These risks often include fire, water damage and theft -- but frequently exclude flooding. Only "replacement cost" policies pay the cost of replacing your lost property, while "cash value" only covers the value of your property when it was lost. This means that if your ten-year-old sofa only had a value of $50 at the time it was lost in a fire, and the cost of a replacement sofa is $600, you'll have to pony up the $550 difference that the cash value policy doesn't cover. Property coverage can include "loss of use" coverage to pay for living expenses, if you can't live in your home after a loss.
Liability Coverage
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Your policy's liability coverage protects you against claims for damage, personal injury or negligence. For example, this can include the cost of repairs to your downstairs neighbors' apartment caused by your overflowing washing machine, or the cost of legal fees if the neighbor decides to sue you instead. It can specifically exclude injuries to domestic workers, if state law requires them to be covered under workers' compensation insurance.
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Premiums and Deductibles
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Premiums refer to the annual or monthly payments for insurance coverage. The deductible is the amount of a loss that you must pay before the insurance policy covers the rest. Having a higher deductible can reduce your annual premiums, although you should make sure to have savings on hand to pay the deductible, in the event of a loss.
Estimating Your Property Insurance Coverage
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Estimating the value of your property insurance coverage is straightforward: take photographs or videos of your home, and use these to make a list of all of the property that could be insured. Include each item's replacement value, as well as its make, model, price paid and purchase date, on the list. If you ever need to file a claim, you must prove that you owned the property you're claiming. Therefore, it's important to keep the photographs, the list and a copy of your homeowner's insurance policy in a place that will be safe, should something happen to your home.
Reducing Your Risk and Avoiding Claims
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Insurers track claims through one of two databases, known as the Claim Loss Underwriting Exchange, (CLUE), and Automated Property Loss Underwriting System, (A-PLUS), in much the same way your credit history is compiled. File too many claims, and not only do your premiums increase, but insurers or prospective homebuyers may conclude that there's a problem with your property -- leading them to deny you a policy, or lose interest in buying your home. Claims that can lead to high premium increases, like dog bites, water damage and slip-and-falls, can be prevented with simple steps like fences and regular property maintenance. Also, make sure that any contractors working on your home have this coverage for their employees, too, as you can be liable for their injuries if their employer doesn't carry enough coverage.
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