Homeowner’s insurance can protect you from losses due to fire, smoke, water, wind, hail, rain, theft, vandalism, or even pestilence. Well, maybe not pestilence, but it does cover a great many things beyond mere physical damage to your home; it may, for example, provide insurance coverage if the mailman slips and falls at your door.
Life used to be so simple. Homeowner’s insurance was a “no brainer.” When you bought your home, the bank from which you obtained your mortgage loan required homeowner’s insurance, so after a short conversation with an insurance agent, you were all set. But no more. Some insurance companies have actually stopped selling insurance in some parts of the country, particularly where they have experienced significant mold-related claims. Those companies still selling insurance often raise their premiums.
One disturbing trend involves insurance companies setting premiums or even rejecting applications entirely on the basis of an applicant’s credit report. The insurance companies argue that people with bad credit statistically file more claims. Critics of this method of setting rates and denying policy applications have numerous concerns, including a charge that this procedure is a thinly disguised statistical justification for racial bias. Moreover, the formula used by the companies to come up with the insurance credit score is a secret not even provided to the state insurance commissioners for evaluation as to its legitimacy.
It is also important to note that credit scores, as derived from credit reports of the three major credit-reporting agencies, are often inaccurate, which lead to people to be either denied insurance or forced to pay larger premiums through no fault of their own. Hawaii and Maryland ban the use of insurance credit scores for all underwriting purposes; California bans the use of such scores in regard to automobile insurance, while permitting them to be used in regard to homeowner’s insurance policies. Many other states are investigating this practice. Although statistics do not lie, they may fib a bit. An Australian study indicates that Geminis had the worst driving records of any astrological sign, whereas Capricorns were the best drivers.1
According to an old saying, barking dogs don’t bite. Unfortunately, the old saying gives no guidance as to a particular barking dog’s propensities once it has stopped barking, at which point, the dog just might find it necessary to nibble on someone’s leg. According to the Insurance Information Institute, the cost of home-insurance claims for dog bites is more than $300 million annually.2 Some insurers refuse to insure certain breeds; the usual suspects are Pit Bulls, Rottweilers, Wolf Hybrids, Huskies, Dalmatians, and Great Danes. Other companies do not specifically discriminate by breed.
Generally, policyholders are required to answer questions about their pets on the insurance application. Be honest and forthright in responding to these questions, because an insurance company could deny you coverage in the event of a dog bite if the application contained erroneous information. Most often, the insurance company asks whether a dog is vicious, whether it has ever bitten anyone, or whether it has been trained specifically for attack. Merely because your dog has bitten someone in the past, you will not automatically be disqualified from receiving coverage if you take precautions to prevent a recurrence. The insurance company also looks at the seriousness of a previous attack and whether the attack was provoked or unprovoked.
If you have a dog, consult your insurance agent about the company’s rules regarding dogs, and be ready to shop around for a policy with which both you and man’s best friend will be comfortable.
Valuable Personal Property
If you have jewelry, antiques, or any other valuable personal property in your home, it is important to get a rider to your policy that will specifically cover those items. Without that rider, most homeowner’s insurance policies will limit your coverage to around $1,000 for these items. Even then, there is usually a deductible amount before you receive anything.
Make a written inventory of your personal possessions and videotape them in the home. In addition, keep the receipts for any expensive items, because in the event of a theft or damage, you need to prove the value of your property. You may also want to consider getting an appraisal for very expensive items, such as jewelry or antiques that may be worth more than you originally paid for them (this includes collections that typically appreciate in value, such as stamps, books, or even Hummel figurines). The appraisal helps you in the event of a claim.
As always, the devil is in the details, lurking in the fine print of your policy. Some homeowner’s insurance policies do not cover a “mysterious disappearance,” which sounds somewhat eerie, but actually means that if your diamond ring fell into the toilet, you could be down the drain. Make sure that your coverage is not a mystery to you.
Most homeowner’s insurance policies provide liability protection of around $500,000 in the event someone is hurt on your property. However, for a small additional fee of about $200 a year, you can get an extra million dollars of protection through the purchase of umbrella insurance, the ultimate protection in the event of a really rainy day.
Umbrella insurance supplements your homeowner’s and automobile insurance coverage and kicks in after the full amounts of those insurance policies have been utilized. Umbrella insurance covers you for claims that relate to your personal and business activities. Generally, the insurance company with which you have your automobile insurance or your homeowner’s policy will provide you with umbrella coverage after you acquire the maximum in coverage on your regular homeowner’s insurance and automobile insurance. Umbrella insurance is perhaps the ultimate protection from lawsuits at a reasonable price.
When you apply for homeowner’s insurance, the company looks at the claims history of the home you are buying. A large number of claims in recent years could result in the application being turned down or your premiums being raised. Insurance companies look for patterns suggesting the possibility of future claims. It is prudent to get a copy of the Comprehensive Loss Underwriting Exchange (CLUE—pretty clever, eh?) report of the property before you apply for insurance. A CLUE property report covers the history of the last seven years of claims regarding the home.