HOMEOWNERS INSURANCE 101

PROPERTY AND LIABILITY INSURANCE

Property and Liability (casualty) Insurance is insurance on homes, cars, and businesses. Property insurance protects a person or business with an interest in physical property against its loss or loss of its income-producing abilities. Liability insurance mainly protects a person or business against legal liability for losses caused by injury to other people or damage to the property of others.

Homeowners and Dwelling Property insurance is part of Property/Liability insurance. Homeowners insurance, like auto insurance, is actually a package of coverages. It not only protects the house; it also covers the loss of personal possessions and belongings anywhere in the world. It also covers legal liability in case someone should sue the insured for an accident that occurs on his/her property. The main problem with any type of Dwelling policy is that none of them provide liability coverage or any theft coverage, as homeowners insurance does.

PROPERTY INSURANCE: This coverage provides protection against fire and related perils to property on land as well as marine exposures to ships and cargo. Property insurance covers damage, destruction, or theft of property. Property includes items such as residential and commercial structures and/or contents, vehicles, watercraft, etc.

The "property" insurance market includes the following sub-categories:

1) FIRE INSURANCE: This insurance covers insured property at a specific locations.

2) MARINE INSURANCE: This coverage protects against perils connected with transportation and property in transit..

3) CASUALTY INSURANCE:Casualty insurance is also called liability insurance.

STANDARD FIRE POLICY & DWELLING POLICY

1. STANDARD FIRE POLICY: The only insurance policy to have its wording standardized by law. As policy forms have evolved and been updated, the SFP has become obsolete. However, it still holds a place of historical significance as the forerunner to many of the policy forms still used today. SFP has four sections: 1) Declaration: Description and location of property, insured amount, name of insured; 2) Insuring agreements : Premium amount, obligations of the insured, actions the insured must take in the event of loss and resultant claim; 3) Conditions: Describes what suspend or restricts the coverage, such as an increase in the hazard with the knowledge of the insured; 4) Exclusions: Perils not covered under the policy, such as enemy attack, including action taken by military force in resisting actual or impending enemy attach.

SPF - COVERED PERILS: The SFP covered direct loss from the peril of fire, lightning and removal from premises, which is also known as removal. Because the SFP was a named peril contract, it did not cover any other perils than those stated in the insuring agreement.

Fire: The peril of fire is defined as combustion sufficient to produce a spark, flame, or glow. Mere smoke, scorching, or charring is insufficient to establish the existence of a fire. The courts has distinguished between "friendly" and "hostile" fire. Friendly Fire: A friendly fire is one intentionally started and burns within the confines for which it was intended, such as a fire in a fireplace. A friendly fire is an event not covered by insurance, Hostile Fire: A fire becomes hostile when it was not started intentionally, or has escaped from the confines for which it was intended. A hostile fire is the only type of fire covered by insurance.

Lightning: The peril of lightning is defined as the natural discharge of electricity from the atmosphere and does not include artificially generated electricity such as from an electrical power surge. Lightning was one of the first perils added to fire insurance policies.

Removal: This provides insurance to property while it is removed from the residence premises to protect it from a covered peril. Property loss to undamaged property, while removed form the original specific premises to prevent further damage is insured for up to 30 days while removed.

SPF SETTLEMENT OPTIONS: As stated in the SFP contract, the insurer will not pay more than the least of the these four limits: 1) The amount of the policy; 2) The actual cash value; 3) The interest of the insured; or 4) The amount necessary to repair or restore the property (partial loss).

Insured's Obligations: 1) Provide immediate notice of the loss; 2) Protect property from further damage; 3) Separate damaged from undamaged property; 4) Inventory the loss; 5) Provide proof of loss within 60 days.

SPF ENDORSEMENTS:

EXTENDED COVERAGE ENDORSEMENTS: adds the following seven perils to the SFP: 1) Windstorm; 2) Hail; 3) Aircraft; 4) Riot & Civil Commotion; 5) Vehicle; 6) Explosion 7) Smoke. The extended coverage perils can be easily remembered by using the acronym WHARVES.

VANDALISM & MALICIOUS MISCHIEF ENDORSEMENT: In the SPF, the vandalism and malicious mischief endorsement covers willful and malicious damage to covered property with a 30-day limit, in the event the property is vacant or unoccupied within a 30-day time limit. Vacant means that the building has no contents and no one currently inhabits the premises. Unoccupied means the building has some contents, but no one currently inhabits the premises.

2. DWELLING POLICIES

Dwelling Policy Eligible Property: The following are acceptable types of residential structures and buildings that a dwelling policy can insure. 1) Personal residence (except farm dwellings) no more than four family units and/or five roomers or boarders. 2) Mobile homes on permanent foundations; 3) Private out buildings used in connection with the above; 4) Household and personal property in the above risks; 5) Vacant buildings. When Homeowners insurance is not available because of certain situations, the issuer may wish to issue a Dwelling form policy. These situations include: 1) The dwelling is a rental and not owner occupied; 2) The dwelling has more than two units; 3) The dwelling is a seasonal dwelling; 4) The insurer does not want to offer a Homeowners policy because of the age, value, or condition of the dwelling; 5) The insured does not want liability or theft coverage.

Dwelling Policy Forms and Perils Covered: The three basic forms: 1) Basic Form (DP-1) Fire, Lightning, and internal Explosion; Broad Form (DP-2) Fire, Lightning, Extended Coverage (E/C perils), Vandalism and malicious Mischief and seven other perils; Special Form (DP-3) All risks, except exclusions.

The Dwelling policy standard deductible is $250.

Dwelling policy Property and Loss Covered: The following coverages are listed in the Dwelling policy Declarations section:

Coverage A - Dwelling: Limit insurers the dwelling and attached structures, including a garage, attached patio cover, etc. described in the policy's Declaration section.

Coverage B - Other Structures (Appurtenant structures): Limit insurers buildings on the same property as the residence but not attached to the residence, such as, a detached garage, fencing, gazebo, or a detached workshop.

Coverage C - Personal Property: Limit insures contents and personal possessions kept at the primary residence. The standard limit of coverage is 50% of Coverage A. Coverage C also insures personal property while it is anywhere in the world. This worldwide coverage for personal property covers personal property in a vehicle, or in the insured's possession when traveling, for example. The standard limit for Worldwide coverage in a Dwelling policy is 10% of the personal property limit.

Coverage D - Fair Rental Value: If the insured's covered property damage renders a part of the residence premises rented to others or held for rental by the insured uninhabitable, the policy will cover the loss of fair rental value minus expenses that are not required while the premises is uninhabitable.

Coverage E - Additional Living Expense: In the event of a covered loss renders the insured's home uninhabitable, the policy will cover additional living expenses related to maintaining the insured's normal standard of living at an alternative residence, until the original property is repaired or rebuild, or the coverage limit is reached, whichever occurs first.

Dwelling Policy Recovery and Valuation: Each of the three dwelling policies states the valuation method used in the policy. The valuation method for each policy include: 1) Basic Form/DP -1: ACV on Buildings; ACV on Personal Property; 2) Broad Form/DP-2: Replacement coverage on the dwelling and other structures (as long as 80% insurance to value); ACV on Personal Property; 3) Special Form/DP-3; Replacement coverage on the dwelling and other structures (as long as 80% insurance to value); ACV on Personal Property.

Dwelling Policy Extensions/Other Coverages: The following is a list of the Extensions/Other Coverages found in the Dwelling policy:

Debris Removal: This covers the expense of removing debris due to a covered property loss.

Removal: This provides insurance to property while it is removed from the residence premises to protect it from a covered peril.

Improvements, Alteration and additions: If the insured is a tenant and makes any improvements at their expense, to their rented residence, the policy covers property damage due to a covered peril.

Fire Department Services: In the event the fire department is called to protect the insured;s property from a converged peril the policy will pay up to $500 per occurrence if there is a charge.

Reasonable Repairs: This coverage will pay the cost for the insured to make needed repairs to protect the insured property from further damage after a covered peril has occurred.

Additional Living Expenses: In the event a covered loss renders the insured's home uninhabitable, the policy will cover additional living expenses related to maintaining the insured's normal standard of living.

Lawn, Trees, Shrubs and Plants: This coverage pays for lawn trees, shrubs, and plants outside the residence for specific perils only. Coverage is limited to 5% of Coverage A, or no more than $500 for any one tree, shrub, or plant.

Glass Breakage: Damaged door or window glass will be replaced with safety glazing material as required by building code specifications.

Replacement Cost: This coverage is for DP-2, and DP-34, and stress that as long as the coinsurance requirement is met, the dwelling is insured for replacement cst instead of ACV.

Collapse: It is for DP-3, but not a DP-1 policy. Collapse of the dwelling is covered only by the following specific perils: 1) any broad form peril; 2) Hidden decay; 3) Hidden insect or vermin damage; 4) Weight of contents, animals, or people; 5) Weight of rain collected on a roof; 6) Defective construction materials or workmanship if collapse occurs during construction or renovation.

Dwelling Policy Endorsements

Broad Theft and Limited Theft Endorsement : Theft coverage is not included in the Dwelling policy unless endorsed. For owner occupied properties, the Broad heft endorsement is used. For non-owner occupied properties, the Limited Theft endorsement is used.

Liability Endorsement: The dwelling policy liability coverage can be issued as an endorsement on a dwelling policy or as a separate policy. These coverages are comparable to the Liability section of the Homeowners policy. The liability endorsement includes personal liability, medical payments to others, claims expenses, first aid to others and property damage of others coverages:

Coverage L: Personal Liability: a) Standard limit: $1,000/Occurrence; b) Claimant must prove insured was negligent for this coverage to apply. Covers risks for the insured and the family members living with them.

Coverage M: Medical Payments to Others: a) Standard limit: $1,000 per person; b) No proof of negligence required. Covers necessary medical expenses incurred within three years of occurrence for anyone sustaining a covered injury while on the insured location with the insured's permission, or elsewhere if the bodily injury is caused by activities of the insured, or by an animal in the care of the insured.

Claims Expense: Includes the insurer's cost in defending the insured in a lawsuit, including court costs and post-judgment interest. Claims expense will also compensate the insured up to $50 per day for loss of earnings if they are asked to assist in the investigation of their defense.

First Aid to Others : Covers the cost of rendering first aid necessary when the expense results from bodily injury covered by the policy.

Property Damage to Others (Voluntary Property Damage): Property Damage of Others caused by an insured is covered up to $500 per occurrence as a standard limit. This coverage does not require the claimant to prove the insured is negligent.

HOMEOWNES POLICY

HOMWOWNER POLCY FORMS: There are several types of Homeowners policies with varying levels of coverage. Each of the following policies provides the same liability coverage, often referred to ass Section II. However, the differences among the policies exist i the property coverage (Section I). The Homeowners policies include the following list:

HO 1 - Basic Form: This form is not sold in California.

HO 2 - Broad Form: Under the HO-2 policy, the dwelling and personal property are covered by the "Broad form" perils.

HO 3 - Special/All Risk/Open Peril Form: The HO-3 policy that is also know as the Special Form, All Risk or Open Peril Form, covers the dwelling for all risks except those excluded. The personal property coverage is on a Broad Form basis, just like the HO-2 personal property coverage.

PERSONS INSURED: The followed are considered insureds under Section 1 of the homeowners policy: