Introducing: Eastern Insurance Guest Bloggers!
Each month, one of our team members will be blogging about important insurance topics to help provide our customers with a deeper understanding of the products we offer. This month, Beth Rigol is breaking down some of the basic principles of a standard Homeowners policy.
Your home is one of the biggest purchases you’ll make in your life, which is why you will want to protect it, and the property inside, with the proper homeowner’s insurance. You’ll want to purchase an insurance policy that provides enough coverage to rebuild your home in the event it is destroyed by fire or another covered peril and to replace your belongings inside your home. You will be required to present proof of insurance prior to, or at, the closing for your new home if you obtained a mortgage to purchase it. You’ll want to consider shopping for homeowner’s coverage as soon as the terms of your sale have been agreed upon.
Pro Tip: Let an insurance agency like Eastern Insurance do the shopping for you! We have access to a number of reputable insurance companies and can provide you with multiple quotes.
A standard homeowner’s insurance policy insures the dwelling itself, the property inside it, and offers liability coverage for the homeowner. This makes it a package policy, which means that it covers both damage to your property, as well as some “liability” (or legal responsibility) for injuries or property damage you or your household members, cause to others.
There are many terms in a home insurance policy that may be unfamiliar to you, here is a glossary of several along with their definitions:
The Homeowner’s Glossary
Additional Living Expenses: In the event of a claim that leaves your home uninhabitable, this coverage will help to pay for you to live safely in similar conditions.
Captive Insurance Agency: A local representative of an insurance company. They will be able to provide you with consultative services along with a quote from one company.
Contents Coverage: This portion of your policy provides coverage for the things you own that are not part of the house you are buying – everything from your furniture to your clothing. It is also known as “Personal Property.”
Pro Tip: High-value items, such as an engagement rings or investment artwork may need appraisals to be covered, or even their own policy/endorsement for the broadest coverage available.
Deductible: In the event you need to file a claim, this is the portion of the damages you will be responsible for paying. For example: If you have ice dams on your home that cause $13,500 of damages, and you have a $1,000 deductible, you (or your mortgage company/bank/lender) will receive a check for $12,500 to make repairs to your home.
Pro Tip: The higher your deductible, the lower your premium, and vice versa. You should only set your deductible at a cost that you would be able to comfortably cover.
Direct Insurance Provider: These are the insurance companies you hear on the radio and see on TV. They provide you with the ability to purchase home or auto insurance through their website or by phone.
Dwelling: In short, your home and the structures attached to it, such as an attached garage or attached deck.
Endorsement: Provides additional coverage beyond your basic homeowner’s policy, usually with an added cost.
HO-5: This is the type of coverage you will most likely be purchasing as a homeowner. It provides broader coverage for you than other homeowner’s insurance forms.
Independent Insurance Agency: A local representative of many insurance companies, for example, Eastern Insurance. An Independent Insurance Agent will work with you to discuss and review your insurance needs, and be able to assemble the best price and coverage deals based on those needs from multiple, reputable insurance companies.
Liability Coverage: Your homeowner's policy will provide you with some coverage in the event you are held responsible for accidentally causing physical harm to another person or property damage to somebody else’s property, as long as you weren’t doing anything illegal or intentional.
Named Insured: Usually, that’s you. The person responsible for the insurance policy, who is living in the home and taking care of it. This cannot be a trust or someone who does not occupy the home on most policy forms.
Other Structures: Other structures on your property that are not attached to the home, but you would want to protect, such as a shed or detached garage.
Owner: This is the person who is named on the most recently recorded deed to the property; could be an individual/couple, a trust, or children with parents who have retained a life estate in the language of the deed.
Peril: The things that could damage your home, and that your insurance provides coverage for, such as fire/lightning, windstorm/hail, explosion, vandalism, and smoke.
Pro Tip: Floods and Earthquakes are always excluded perils, and require their own policy (Flood) or endorsement (Earthquake) to provide you with insurance protection.
Premium: The cost of your insurance, most frequently discussed in terms of one-year terms.
Replacement Cost vs. Actual Cash Value (ACV): Replacement Cost coverage will provide you with the coverage to replace what you lost, minus your deductible. Actual Cash Value coverage will provide you with the coverage to replace what you lost, minus your deductible and depreciation. In short – replacement cost generally provides you with more coverage.
Disasters Coverage: Damage caused by most disasters is covered in a standard homeowner’s policy, but floods and earthquakes are excluded. For flood coverage, you will need to purchase a separate Flood Insurance policy, but earthquake coverage can be added with an endorsement to your homeowner’s insurance policy.
Umbrella Liability Coverage: Consider getting umbrella coverage, especially if you have a pool or other high-risk items. Umbrella insurance provides protection that’s over and above the limits of liability on all your personal exposures, such as your home, rental property, car, watercraft, or recreational vehicle.
Vacant Property: If your home is left vacant due to a move or new construction for 30 days or more, important coverages begin to be excluded from your policy. After 60 days of vacancy, those coverages plus fire become excluded. This leaves you financially responsible for damages to your property. If you plan on leaving your home for an extended period of time, contact your insurance agent.
Other Terms to Know
Electronic Funds Transfer (EFT): If you are responsible for paying your home insurance (instead of your mortgage lender), this is a popular way to pay. Filling out a simple form will automatically deduct payments from your bank account, often on the date of your choosing, giving you one less bill to pay.
Pro Tip: No matter how you make your insurance payments, make sure you pay them on time. Your payment history can influence your future premium rates!
Homestead Act: You will have the option to file the Homestead Act at the Registry of Deeds when you are buying your new home. This is not insurance – but will offer some amount of protection for your home in the event you are ever held liable in a lawsuit. You will still be held responsible for damages, but you may be able to keep your home.
Pro Tip: Liability Insurance may help pay damages in the event of a lawsuit, for which your new homeowner’s insurance will likely provide coverage up to the policy limit as well as defense costs. If you are interested in further protecting your assets, consider an umbrella policy.
Life Estate: If you are caring for aging or elderly parents still living at home, you may want to talk to your financial planner and/or attorney about a Life Estate to the deed of their home. This provides parents with the ability to remain in their home, as the named insured on their home insurance policy, with an ownership interest, even though the deed of the house has been formally signed over to the children.
Pro Tip: A life estate interest automatically ceases upon the death of the life estate holder. The children do not need to file a new deed, making life just a little bit easier during a difficult time.
Trust: Establishing a trust might be recommended by your financial planner and/or attorney in certain situations. Trusts are not people. The trustees of the trust have the insurable interest as occupants or non-occupants of the home in question. It is important to let your insurance agent know if a Trust now owns your home per the deed to your property.
At Eastern Insurance, we provide the protection you need to have peace of mind every day in your home. We represent more than 20 insurance companies that provide comprehensive coverage at competitive prices. To learn more, get in touch with one of our personal lines agents by either requesting a quote online, by calling (800) 333-7234 (Option 2), or by emailing us at firstname.lastname@example.org.