Homeowner’s Insurance

Note

Information in this presentation is derived from Insurance for Dummies by Jack Hungelmann.

I highly recommend this book.

Odds of a house burning down: 1 in 1,200Source: www.ricedelman.com

But there is more to home insurance than fire insurance

Six Parts of a Homeowner’s Insurance

Coverage A: Damage to residenceB: Damage to detached structuresC: Damage, theft of personal property at home or

anywhereD: Living costs (e.g., hotel, meals)E: Non-vehicle personal liability for

injuries/property damage at home and anywhere

F: Medical payments to guests injured on your property

Coverage A: Insuring Your Home

• Bottom Line: Insure for 100 percent of the replacement cost of the property– Long story short, if you do not at least insure for

80%, you may not be fully insured in the event of partial damage (e.g., kitchen fire).

• Keep in mind, if you pay, say $300,000 for a house, that cost includes the land.

• If your house is appreciating each year, you may need to increase the insurance

Example

• Purchase home for $300,000 ($250,000 house, $50,000 land) X years ago

• Original Insurance, Coverage A: $250,000

• If the replacement cost on the house is now $500,000, you would not be 100% insured

Coverage B: Insuring Detached Structures (e.g., garages

Bottom lineMost policies extend 10% of Coverage A

Coverage C: Personal Property

Typically, coverage = 50-75% of coverage A

Two ways policies value property1. Actual cash value (used)2. Replacement cost (new)

Replacement cost is typically only 10 percent more so it should be a reasonable purchase

Coverage D: Loss of Use

Typically, coverage = 50-75% of coverage A

Two ways policies value property1. Actual cash value (used)2. Replacement cost (new)

Replacement cost is typically only 10 percent more so it should be a reasonable purchase

Coverage E: Personal Liability

Very Important Coverage!

Covers liability for injuries and property damage, lawsuits, defending lawsuits, covering most

non-vehicle personal liability worldwide

Examples of Claims Coverage E Covers

• You hit the catcher with a baseball bat playing baseball

• You spill a drink on the neighbor’s living room carpet ruining the carpet

Personal Liability, Coverage E

General Rule: Set the personal liability on homeowner’s at the same level you set liability on other policies (e.g., auto)

Rationale: nobody knows where a law suit or injury may come from, so buying the same dollar coverage makes sense.

Coverage F: Guests’ Medical Bills

For guests who get hurt at your home.

Importance: Minimal because most people will have health insurance. If the individual sues, your personal liability insurance will protect you.

Homeowner’s Insurance typically does not cover

• Earthquakes, tremors, landslides, sinking or shifting

• Water that enters the house at or below ground level (e.g., sewer backup, flood)

• War