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QUESTION: Did you know shopping homeowners insurance premiums on a regular basis could save you money by:

  • 1. Policy cost differences.
  • 2. Increasing deductibles.
  • 3. Taking advantage of special discounts (e.g., smoke detectors, security systems, non-smokers).
  • 4. Asking about surcharges (e.g., some insurers surcharge for a wood burning stove).

You can use this newsletter information as a tool to obtain quotes from among the numerous licensed insurance companies.

How high your deductible should be depends on what you can afford to pay out of your own pocket in the event of a loss.


· HO-3: The most common homeowners policy. This policy provides "all-risk" coverage on losses involving your dwelling, and adjacent structures such as detached garages, and "broad form" personal property for owner-occupants.

· HO-4: Designed for tenants, this policy provides broad form coverage on the contents of rental property on essentially the same basis as the Homeowners policy. "Broad form" coverage covers only causes of loss that are named in the policy. This contrasts to "all risk" coverage, which covers all perils that are not specifically excluded in the policy. Please see the coverage comparison, which shows the coverage’s afforded by each of the various policy forms. You may wish to compare the information that follows with the coverage’s in your own policy.

Insurance to Value (Does not pertain to Tenants (HO-4).

If you have not reviewed your homeowner’s policy recently, do it now. The rising cost of replacing your home and new contents may have left you without sufficient coverage.

Your biggest risk is that your house may not be kept insured for its full replacement value. Replacement value means the amount it would take to replace or rebuild your house, or the damages part, with materials of like kind and quality without deducting anything for depreciation. Land, driveways, and the foundation below the floor of the basement or below the ground floor of houses without basements, are not included in the definition of replacement value. If you are not fully insured, and you incur a partial loss, the amount of your recovery may be reduced. To avoid this problem, maintain your dwelling coverage to at least 80 percent of the replacement value, and any partial loss will be covered in full, up to the limit of your policy.

For example, if the replacement value of your house is $100,000 and it was insured for a t least $80,000, the policy would completely pay for a $20,000 kitchen fire. However, if you carried less than $80,000 insurance, only a portion of the loss would be covered. Confusion often results with the three different values placed on a dwelling:

Replacement value, defined above.

Market value, which is the price a house, may bring on the market if sold.

Taxable value, which is the value set on the property by the tax assessor, and is usually lower than the market value.

Many companies offer an endorsement, often called "Inflation Guard", but other names are used, which automatically increases the value of a home on an annual basis to coincide with inflation. If you have this type of endorsement on your policy, the worry about maintaining 80 percent of replacement value is not a problem. Contact your agent to check your home value and coverage.

Contents Coverage (Coverage "C")

The amount of coverage on contents typically amounts to 50 or 60 percent of the coverage on the dwelling. A tenant polices base coverage on the stated limits on the contents, not the dwelling. Most personal property of any type owned or used by you is covered anywhere in the world. Personal property usually located at any residence of the insured other than the residence premises is subject to a maximum of 10 percent of the limits of contents coverage, or $1,000, whichever is greater.

 A total loss on contents is not settled the same way a total loss on the dwelling would be covered. For example, if a $100,000 insured dwelling, with $50,000 contents coverage were completely destroyed, the insurer would be obligated to pay $100,00 for the dwelling, but only up to $50,000 on the contents. It is your responsibility to prove that the destroyed contents had actual cash value totaling $50,000. Actual cash value is defined as being "replacement value less “depreciation”. Fore example, the amount you would receive for a destroyed television would be the “depreciated value” of the television, which is its original cost less some percentage based on its age and expected lifetime. For an additional premium, your agent can assist you in obtaining a replacement value contents endorsement. It is best to take an inventory of the contents of your home.

It is difficult, if not impossible, to remember all the items you have in your home, especially after the trauma of a total loss. Many insured’s take photos, or video recordings of each room, and keep these and records of purchases in a safe place outside the home. A safe deposit box or the agent's office is considered a typical safe place. An inventory will also give you a better indication of your property and its value and will help you determine if you are underinsured. Many agents have free inventory checklists designed for this task.

Liability (Coverage "E") and Medical (Coverage "F")

All policies contain both liability and medical coverage’s. Liability limits are typically offered at $100,000, and cover you and family members for accidents for which you may be responsible, which occur both at and away from the home. Medical payments of $1,000 are typically part of the package as well. The coverage’s can be increased for an additional premium.

Other Structures (Coverage "B" the dwelling is Coverage "A")

Covered separately are structures on the residence premises that are: (1) separated from the dwelling by a clear space, or (2) connected to the dwelling by a fence, wall, wire, or other form of connection, but not otherwise attached. Examples of other structures include detached garages or tool sheds, fences, swimming pools and their equipment and underground sprinkler systems. This coverage amount is usually equal to 10 percent of the contents coverage, with higher limits optional. Insurers will agree to insure these other structures for higher limits for an additional premium.

Loss of Use Coverage "D"

Under the "loss of use coverage’s" three forms of protection are provided to you:

1. Additional Living Expense. If your dwelling is damaged by an insured peril and becomes unlivable, you will be reimbursed for either the additional living expenses actually incurred or the fair rental value. Either amount is paid only for the period necessary to repair or replace your damaged residence or for you to move to a different permanent residence.

2. Fair Rental Value of Rented-Out Premises. Insurers reimburse damaged dwelling renters the fair rental value, under this coverage.

3. Prohibited Use. If civil authority bars access to the dwelling, both the coverage’s are applicable. The action taken by the civil authorities must be the result of damage to neighboring premises caused by a peril covered by the policy.

Mobile homes

Many insurers write package policies similar to homeowner’s policies on mobile homes. The coverage may vary; so contact your agent if you have need for this type of policy.

Business Use

If you have a business on your premises, you may not have coverage in some situations because your policy may exclude most business type activity. Most insurers will cover business activities for an additional premium.

Flood Insurance

Homeowners insurance does not cover floods. This coverage, if needed, can be written through a federal program, participated in by many insurers. Contact your agent for details. Although the normal homeowners forms do not cover for damage done by water backing up through sewers and drains, some insurers include this coverage, and others offer the coverage as an option. Ask your agent about this coverage is you think you may have a need.

The following is a work sheet for your use.


Address of Primary Dwelling _________________________________________________________________

Address of Secondary Dwelling _______________________________________________________________

Type of Policy ___________________________________(i.e. HO-1, Basic HO-2, Broad HO-3, All Risk HO-4, Tenants HO-6)

Coverage’s: Amount of Coverage

Primary Dwelling ____________

Personal Property Coverage for Tenants and Condos____________

Secondary Dwelling ____________

Personal Liability ______________

Medical Payments _____________

Any Boats? Length ____________ Horsepower ____________

Recreational Vehicles? _________

Is Replacement Coverage on Personal Property desired? _________

Do you need coverage for guns, jewelry, furs, etc.? ______________

Do you have a wood-burning stove? _____________

Ask the agent about the following discounts:

Non-smoker _____ Security systems _____ Senior Citizen discounts _____

Smoke detectors_____ new, or rehabilitated home discount _____

Is a discount given if you have an Auto Policy with the company? _____

Other discounts? _____

Premium Comparisons

Company________________________________ Agent ___________________

Contact Lowell Overton:
Visit Also:

REO Socal.com

Previous Overton Factor Articles

Information provided by this website is general and is not a substitute for professional advice. Please consult your investment advisor and/or attorney before entering into any transaction.

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