Welcome to HAD Financial & Insurance Services, Inc.

Home Owner Insurance
Frequently Asked Questions

1. What is homeowners insurance and who should buy this type of coverage?
2. How much should I insure my home for?
3. What is the difference between "actual cash value" and "replacement cost"?
4. What are the policy limits (i.e., coverage limits) in the standard homeowners policy?
5. Where and when is my personal property covered?
6. Do I need earthquake coverage? How can I get it?
7. Is my jewelry, fine art, guns, computer or silverware covered?
8. Am I covered if a sewer or drain back up and flood my house?
9. I own a condominium and was told I need loss assessment coverage, what is that?
10. What factors should I consider when purchasing homeowners insurance?
11. What is the difference between a "special form" policy and a "named perils"
policy?
12. What can I do to lower the cost of my homeowners insurance?
13. If I have an accident which I think is covered under my homeowners policy, what
should I do?
14. What is Mortgage Extra Expense.
15. What is Building Ordinance Coverage?
16. I am renting a home do I need extra liability insurance?
17. I am running a business out of my home am I covered?
18. Do I need Flood Insurance?
19. My home will be vacant am I covered?
20. My dog bit someone am I covered?
21. Who pays for my legal defense costs if I am sued?

What is homeowners insurance and who should buy this type of coverage?

Homeowners insurance is one of the most popular forms of personal lines insurance on the market today. The typical homeowners policy has two main sections:

Section I covers the property of the insured

Section II provides personal liability coverage to the insured.

Almost anyone who owns or leases property has a need for this type of insurance. And many times, homeowners insurance is required by the lender as part of the requirements in obtaining a mortgage.

How much should I insure my home for?

This is sometimes a very difficult question to answer. The first thing to remember is that you are only insuring the physical structures. You are not insuring the land. If you are a first time homeowner and purchase a home for $500,000, you do not necessarily need to buy $500,000 of coverage for the home. Determining the cost to rebuild your home and appurtenant structures is something that should be discussed with an agent who specializes in homeowners insurance. Professional Insurance utilizes two software packages to determine the replacement cost of your home. There are several factors that will determine the homes cost to rebuild.

Location, what city is the home located in.
Square Footage.
Roof type.
Design of home, custom vs. tract home.
Foundations, the shape and soil conditions.
Number of floors.
Number of rooms.
Number of Chimneys.
Number of bathrooms.
How many cars the garage will hold. etc.

The reason this is so important is due to the fact that homeowners policies can contain co-insurance clauses or can have maximum limitations on how much coverage the home has. Although most policies contain a replacement cost endorsement, that endorsement may require the home to be insured for a 100% of the replacement cost. And the replacement cost endorsement may cap the amount paid in the event of a covered claim to 125% of the replacement cost stated in Coverage A of the policy declaration page.

When the Oakland Hills Fire hit, the claims settling process was a nightmare for most insurance companies. Almost all of the homes were under insured. Custom homes that cost $450,000 to rebuild were only insured for $225,000. They were underinsured because the homeowner had not notified their agents of upgrades done to the home. However the largest problem came from agents who insured homes for less than replacement cost value. By lowering the replacement cost value the agents were selling lower premiums. The agents were also advising their clients not to worry since they had "replacement cost" coverage. PIA does not condone this practice and it is not something we allow.

So make sure you have all the information about your home ready when it comes time to determine your homes cost to rebuild.

What is the difference between "actual cash value" and "replacement cost"?

Covered losses under a homeowners policy can be paid on either an actual cash value basis or on a replacement cost basis.

When "actual cash value" is used the policy owner is entitled to the depreciated value of the damaged property.
Under the "replacement cost" coverage, the policy owner is reimbursed an amount necessary to replace the article with one of similar type and quality at current prices.

What are the policy limits (i.e., coverage limits) in the standard homeowners policy?

[Note: this answer is based on the Insurance Services Office's HO-3 policy.]

Coverages A and B provide protection to the dwelling and other structures on the premises up to the policy limits.

The policy limit for Coverage A is set by the policy owner at the time the insurance is purchased. This is the amount the insurance company will pay to have your home or dwelling rebuilt in the event of a covered cause of loss.

The policy limit for Coverage B is usually equal to 10% of the policy limit on Coverage A.

Coverage C covers losses to the insured's personal property. The policy limit on Coverage C is equal to 50% of the policy limit on Coverage A.

Coverage D covers the additional expenses that the policy owner may incur when the residence cannot be used because of an insured loss. The policy limit for Coverage D is equal to 20% of the policy limit on Coverage A. This covers extra costs to rent a hotel room, set up utilities etc.

The coverage limit on Coverage E - Personal Liability - is determined by the policy owner at the time the policy is issued. Liability options are usually $100,000, $300,000, $500,000 and $1,000,000. It is best to discuss with an agent how much liability insurance to buy.

The coverage limit on Coverage F - Medical Payments to Others - is usually set at $1000 per injured person.

Where and when is my personal property covered?

Coverage C applies to all your personal property (except property that is specifically excluded) anywhere in the world. For example, suppose that while traveling, you purchased a dresser and you want to ship it home. Your homeowners policy would provide coverage for the named perils while the dresser is in transit - even though the dresser has never been in your home before. Coverage for property off premises is typically limited to 10% of Coverage C.

Do I need earthquake coverage? How can I get it?

Direct damages due to earthquakes are not covered under the standard homeowners insurance policy. However, unless you live in an area that is prone to earthquakes, you probably do not need this coverage. If you do live in a part of California with high earthquake activity you may want to consider adding an earthquake endorsement to your homeowners insurance policy. This endorsement will cover damages due to earthquakes, landslides, volcanic eruptions and other earth movements. Earthquake Insurance is subject to a deductible.

Is my jewelry, fine art, guns, computer or silverware covered?

Most policies provide limited coverage for these items. To provide the best coverage for these items they should be "Scheduled" on your homeowners policy. There is an additional charge for scheduling these items. When you do schedule an item the deductible is typically eliminated. To schedule an item a current appraisal or sale invoice is required.

For example, if you notice one day that the diamond on your ring is chipped or lost, the loss will be fully covered without deductible. Coverage is limited to the value stated on the policy.

Am I covered if a sewer or drain back up and flood my house?

Sewer & Drain backup are usually excluded from your policy. Most policies will add coverage for an additional premium.

I own a condominium and was told I need loss assessment coverage, what is that?

In the event of a claim to common areas in your condominium or homeowners association, the association may assess each unit owner with a portion of the monetary damages or deductible. Loss assessment pays for the damages if the damage is caused be a covered cause of loss. An example would be if a tree fell on some fencing damaging the fence. Your association's insurance policy has a $25,000 deductible. The cost to repair the fence is $15,000, below the Association's policy deductible. The association is comprised of 5 units. Each unit owner would be assessed $3,000 to cover the repairs.

What factors should I consider when purchasing homeowners insurance?

There are a number of factors you should consider when purchasing any product or service, and insurance is no different. Here is a checklist of things you should consider when you purchase homeowners insurance.

First and foremost, purchase the amount and type of insurance that you need. Remember that if your policy limit is less than 80% of the replacement cost of your home, any loss payment from your insurance company will be subject to a coinsurance penalty. Also, determine the amount of personal property insurance and personal liability coverage that you need.
Second, determine which, if any, additional endorsements you want to add to your policy. For example, do you want the personal property replacement cost endorsement or the earthquake endorsement?
Finally, once you have decided on the coverage you want in your homeowners insurance policy consult with an agent to find the company that offers you the best coverage at the best price. Also check to see if one company can insure your car and home and offer you discounts on both.

What is the difference between a "special form" policy and a "named perils" policy?

A named perils policy covers losses that are caused by only those perils listed in the policy. The perils typically covered include fire, windstorm, hail, and other direct physical losses. A special form policy covers losses that are caused by any peril except those specifically excluded in the policy. It is important to note that a special form policy provides broader protection than do named perils policies. Both policies also exclude earthquake and flood insurance.

What can I do to lower the cost of my homeowners insurance?

There are a number of things you can do to lower the cost of your homeowners insurance. The best thing to do is to shop around. It is not surprising to find quotes on homeowners insurance that vary by hundreds of dollars for the same coverage on the same home. When you shop, be careful to make sure each insurer is offering the same coverage. Many insurers use the ISO policy forms, but this is not always the case.

Another way to lower the cost of your homeowners insurance is to look for any discounts that you may qualify for.

Many insurers will offer a discount when you place both your automobile and homeowners insurance with the them.
Insurers offer discounts if there are deadbolt exterior locks on all your doors, or if your home has a security system.
Newer Home discounts. Some insurers offer discounts on homes that were recently built.
Renewal Discounts. Some insurers will lower your premium if you renew with them.
Another easy way to lower the cost of your homeowners insurance is to raise your deductible. Increasing your deductible from $250 to $500 will lower your premium, sometimes by as much as five or ten percent. However, be careful to make sure that you have the financial resources necessary to handle the larger deductible.

If I have an accident which I think is covered under my homeowners policy, what should I do?

Insurance contracts are conditional contracts, which means that policy owners have certain duties that they must perform if a covered loss occurs. Failure to complete these actions can, and sometimes does, result in non-payment by the insurance company for losses that otherwise would have been covered.

Required duties include:

(1) notifying the insurance company or the agent that a loss has occurred -- this should be done as soon as you discover the loss;
(2) protecting the property from further damage and/or to making any repairs necessary to prevent further damage;
(3) preparing a detailed list of the personal items damaged which contains a description of the items, their actual cash value, or their replacement cost if you have added the replacement cost endorsement to your policy;
(4) being prepared to show the company and/or the insurance agent the damaged items;
(5) completing a statement for the insurance company that details the events that led to loss -- for example, the time the damage occurred, the cause of the losses, etc.

What is Mortgage Extra Expense.

CNA offers this unusual coverage. If a new mortgage is required for your rebuilt or replaced home, but mortgage rates have increased since you obtained your pre loss loan, CNA provides up to $7,000 to lessen the impact of the higher lending rate.

What is Building Ordinance Coverage?

Building Ordinance is very important coverage for older buildings. In the event of a claim the insurance company may deny paying for increased costs or demolition expense incurred due to local building ordinances that may call for the destruction of an entire home or dwelling. If you own an older home find out from your agent if you can get this coverage added to your policy.

I am renting a home do I need extra liability insurance?

You need to make sure you have Personal Injury coverage to protect you from wrongful eviction of a tenant. This can sometimes be extended from your homeowners or be included on the property policy for your rented dwelling.

I am running a business out of my home am I covered?

Most homeowners and dwelling policies exclude any business activities conducted from the home including day care. They may also exclude any business property. HAD Financial & Insurance Services, Inc. does have carriers that will insure certain types of businesses on the homeowners policy. In addition our Business Insurance Department has companies to insure in home businesses. Contact your Customer Service Representative to see if your in home business can be added to your homeowners policy.

Do I need Flood Insurance?

My home will be vacant am I covered?
Standard homeowners and dwelling policies contain vacancy clauses that limit, reduce, or cancel coverage if a dwelling is left vacant for more than a specified number of days. Check with your Customer Service Representative to see if you are covered or not.

My dog bit someone am I covered?

Most policies cover dog bites. However with the increasing number of claims occurring from dog bites several companies are excluding dog bite coverage or offering lower limits of liability for dog related claims. Check with your Customer Service Representative.

Who pays for my legal defense costs if I am sued?

In the unfortunate event that you are sued, your homeowners policy will not only cover the cost of your legal defense, but your insurance company will also provide the legal counsel.

H-A-D Financial & Insurance Services, Inc. | 5950 Canoga Avenue, Suite 540 | Woodland Hills, CA 91367 | 818-340-1888