Homeowners Insurance Overview
Homeowners insurance protects your financial interests if your home is damaged or destroyed by a covered peril. A peril is something that causes or may cause injury, loss, or destruction, such as a fire, tornado, or hurricane.
Although we have tried to give you a brief overview of the coverage found in your homeowners policy, insurance policies vary between insurers so you should always take the time to review the coverage included in your own policy to make sure you have the coverage you need. It’s too late to obtain additional coverage after a loss has occurred.
There are many different types of homeowners insurance policies available. Normally, the type of policy coincides with the type of structure to be insured and how the structure is occupied. The type of policy also correlates to the coverage available as well.
Owner-Occupied: The main difference between policies which cover an owner-occupied, single family home is the perils covered. Basic or Broad Form policies (HO-1, HO-2) cover the structure for specified perils shown in the policy. Special form policies (HO-3) cover the structure for all perils except those specifically excluded in the policy.
Condo unit owners need a Condominium Unit-Owners Form (HO-6) which provides some coverage for the structure but primarily covers the personal property and liability of the insured. Condo unit owners policies normally cover named perils listed in the policy. However, a special endorsement can be purchased to broaden the policy to cover all perils except what is excluded in the contract.
The condo unit owners policy also provides Loss Assessment Coverage. It pays for your share of expenses for a covered loss to common property shared by all unit owners, up to the coverage limit. Policies must include at least $2,000 of loss assessment coverage with a deductible no greater than $250.
Renters: If you rent or lease your home, you need a renters policy (HO-4) to cover your personal property and liability.
Modified Coverage Form: Currently, in Florida, there are many insurers offering a Modified Coverage Form, (HO-8). The (HO-8) offers less coverage than the (HO-2). However, due to the company’s underwriting criteria, this may be the only coverage form offered by the insurer.
Dwelling Form: There are other property policies available for risks that may not qualify for a Homeowners policy. They are called Dwelling Forms. A Dwelling Form may be used instead of a Homeowner’s Form in the case of an older home, a home that is rented to others, or for other underwriting reasons.
Mobile Home: Many insurers have discontinued the sale of mobile home policies that duplicate Homeowners’ policies. Some insurers issue a dwelling form (discussed below) to cover a mobile home.
Homeowners insurance typically covers the dwelling including attached structures, certain unattached structures and your personal property. Additional Living Expense (ALE) and coverage for Liability is also normally included. All coverage is subject to the limits specified in the policy.
ALE provides indemnity for “additional” expenses of an insured that must live elsewhere due to a covered loss to the insured residence. ALE pays only reasonable ”excess” expenses until the property is habitable.
There are special limits on certain items such as jewelry, guns, furs, money, cameras, art or antiques, etc. You should review this list found in your policy and speak to your agent about additional coverage if needed.
Flood damage is not covered by your Homeowner’s insurance policy. If you need flood coverage you must purchase a flood insurance policy.
Replacement Cost vs Actual Cash Value
There is a very clear distinction between these terms. Actual cash value (ACV) refers to a policy that covers items for their value at the time they are lost or stolen. This means depreciation will be deducted from the current value. Replacement cost refers to the cost to replace the item, regardless of how old or outdated it may be.
Most replacement cost policies require you to carry limits to meet a certain percentage of the replacement value (normally 80%) at all times. If you fail to carry the correct amount of insurance coverage, you may be responsible for a percentage of a partial loss.
Both types of contracts are available in Florida. You should refer to your own contract to determine how your loss may be settled.
Inflation Guard
Many insurance companies include a provision known as inflation guard in homeowners insurance policies so values increase on a yearly basis. However, this does not guarantee the values increase sufficiently to keep up with the cost of construction. This provision helps prevent problems of homes being underinsured. It is still the responsibility of the insured to evaluate their coverage each year to determine if the amount on the policy is sufficient. If an insured has concerns about the amount of coverage, they should speak with their agent about completing a new replacement cost estimate for their home.
There are many types of property inspections. The most common are listed below. If the insurer requests a 4-point or specialized inspection and it is not provided, it can refuse to provide certain coverage or may refuse to insure the property at all.
Underwriting Inspection (Insurer Pays Cost): An insurer may require a visual inspection prior to writing a policy. This inspection is done to verify information given on the application about the home and property. The insurer may verify the construction of the home and whether there are potential hazards on the property such as unacceptable animals, pools, trampolines, unrepaired steps, steps without handrails, etc. The insurer may use the inspection to determine the presence of certain types of wiring or electrical panel boxes they believe increases the risk of a fire.
The inspection may also verify the maintenance of the home such as whether the property has any unrepaired damage. The insurer considers whether the home is properly maintained, such as, overgrown grass and weeds, trees with dead limbs near the home, non-operating vehicles on the property, etc. The insurer decides what risks to assume or avoid. If the insurer finds any of the risks listed above (this is not an all inclusive list), they may refuse coverage.
Insurers hire their own inspectors or inspection firms to inspect the condition of a property prior to the original issuance or renewal of a policy. This is part of the underwriting process. These inspectors are hired and paid by the insurance company so they decide who to use and what qualifications they must meet. Florida law does not address who an insurance company can hire for their underwriting process. The Department of Financial Services would not have authority to intercede on an inspector’s behalf if they were denied employment/contracts with an insurer.
4-Point Inspection: If you are insuring an older home, the insurer may require an inspection of the following items: The roof (to determine its life expectancy), the plumbing, electrical wiring, or heating and air. The insured/applicant pays for this inspection.
Specialized Inspection: Sometimes, an insurer may request an inspection of only one item, such as the roof. The determination of the life expectancy of a roof is one of the most common inspections requested today. Another common inspection requested in certain areas is sinkholes. The insured/applicant pays for this inspection.
Mitigation Inspection: Policyholders may elect to have an inspection to determine what wind mitigation credits they are entitled to receive on their homeowner’s windstorm premium. These inspectors complete the OIR-B1-1802 inspection form for the insured to submit to their insurance company. Insurers have the right to reinspect your home to verify your entitlement to these credits. The consumer normally pays for this type of inspection. However, if the insurer elects to reinspect a property, the insurer pays for the inspection.
Property Insurance Premium Base Rates are developed using several factors
The location of the property: The city, county, zip code can be used to establish the territory.
The amount of coverage on the dwelling.
The fire protection class: The rating of the fire department in that territory. The ratings range from 1-10 established by the Insurance Services Office. A rating of Class 1 represents exemplary fire protection, and Class 10 indicates that the area’s fire-suppression program does not meet minimum criteria.
Mitigation Credits given for certain items that help reduce hurricane/windstorm losses.
The construction of the dwelling such as wood frame, concrete block, brick, etc. Companies charge different premiums based on the fire resistance of the construction material.
Some insurance companies charge a higher premium according to the age of the home.
Some insurance companies charge a higher premium if you didn’t consistently maintain prior homeowners coverage.
After the base rate is determined, other rating factors are applied to determine individual surcharges and credits. Also, assessments currently due are added to the base rate to determine the final rate.
In most instances, an insurer must charge the rates filed with the Office of Insurance Regulation. However, with written consent of the insured signed prior to the policy inception date, the insurance company may use a rate in excess of the otherwise applicable filed rate on any specific risk. This is also referred to as A Rating or Excess Rates. An insurance company may not use a consent to rate form for more than 5 percent of its personal lines policies written or renewed in each calendar.
Underwriting guidelines vary between insurers. However, below are a few of the most common things an insurer reviews when determining whether to insure a new property or how much to charge. They also use this same underwriting to determine whether or not to offer a renewal policy.
The insurer may consider the age of the home, roof, plumbing, electrical wiring or the heat and air. They consider the condition and location of the home and who occupies it. They may refuse to insure an individual that owns certain animals. Most insurers believe the presence of certain animals on the premises increases liability risk. The credit and loss history of the applicant is also considered. If the insurer does make an underwriting decision based on adverse information contained on a credit report, they must furnish the insured with a copy of the report or provide the name, address, and telephone number of the reporting agency.
If an insurer refuses to insure an applicant or if it decides to non-renew or cancel an existing homeowners policy, it must provide advance notice to the insured and provide the specific reason for their decision. This is discussed further in the nonrenewal – cancellation information.
Prepare a Home Inventory Checklist! A home inventory – along with photos and proof of ownership – will make it easier to file an accurate, detailed insurance claim in case your home is damaged or destroyed. When you have a loss, it is your responsibility to know what property you have, when it was purchased, how much you paid for it, and how much it will cost to replace it. You should also keep receipts for large purchases, or keep your credit card statements. You may be asked to prove that you ever owned the item in question. It is always a good idea to take pictures or videos of your property as well.
Homeowners’ Insurance Toolkit! This toolkit provides more detailed information regarding homeowners insurance. It includes a sample policy and a home inventory that you may use.
Better Building Codes Mean Lower Rates! The Building Code Effectiveness Grading Schedule (BCEGS) assesses the building codes in effect in a particular community and how the community enforces its building codes, with special emphasis on mitigation of losses from natural hazards.
Make sure your home is insured properly! If you have a replacement cost policy and fail to maintain the proper amount of insurance, you may be penalized when filing a claim. Although most homeowner policies include an inflation guard endorsement to automatically increase your coverage annually, you should check with your insurance agent once a year to make sure you have adequate coverage.
Read your policy carefully! Insurance policies differ between insurance companies so you must review your own contract. Insurance policies do not cover everything, read the exclusions. Also, there are limitations on certain types of personal property, such as but not limited to antiques, firearms, jewelry, furs and electronics, including computers and their equipment. In most instances, additional coverage may be purchased. Talk to your agent about additional coverage.
Keep a copy of your important documents in another location! In the event your home is totally destroyed, you would have copies of all your important documents including receipts you may need to settle a claim with your insurance company.