Kennebunk Savings Bank: Insurance

For most people, their home is their single most valuable possession and largest investment. Homeowners insurance protects your investment as well as you, your family and your household possessions.

If you were to suddenly lose your home due to fire or a tornado, or have the contents damaged or stolen, you probably could not afford to replace everything all at once. If somebody sued you for an injury or damage caused by you or your property, the cost of defending against that lawsuit could be very expensive regardless of the outcome. All of these situations are covered by the homeowner's package policy. And while it may be unpleasant to think about fire, theft, and other uncertainties of life, let's face it, that's reality. Yet another reason you need to carry homeowners insurance is that mortgage lenders require it. No mortgage company will lend the large amounts of money needed to finance homes at today's prices without requiring an insurance policy to protect that investment.

You do. It's your home and your insurance policy. As a means of protecting its investment, the mortgage company collects a set amount from you each month, puts it in escrow, and then pays your insurance and taxes when they fall due. However, the policy is still yours and you may select the insurance you feel offers the best coverage at the best rates. In fact, if you allow the mortgage company to choose, you might well end up paying more for your homeowners insurance.

Remember that policies vary but homeowner's insurance usually covers damage to both structures and personal property caused by:

• Fire or lightning
• Windstorm or hail
• Explosions
• Riot or civil commotion
• Aircraft
• Vehicles
• Smoke
• Theft or vandalism (sometimes called malicious mischief)
• Falling objects
• Weight of ice, snow or sleet
• Freezing of a plumbing, heating, air conditioning or other such household system

In fact, your coverage is most likely even more comprehensive than the above list. Many homeowner's policies cover damage by "just about everything," unless the coverage is specifically excluded. In these cases, it is even more important to understand what is not covered.

Most catastrophes are covered; for example, wind damage from hurricanes and tornadoes come under the windstorm peril listed in the previous question and so are included. Flood and earthquake damage, however, are not covered by a standard policy.

Be careful not to be lulled into a false sense of geographic security. Flood and earthquake activity is more widespread than many people realize. For example, almost 90 percent of the U.S. population lives in seismically active areas. Since 1900, earthquakes have caused damage in all 50 states. And if your home is located in a flood-prone area, you are 26 times more likely to suffer a flood loss than a loss from fire.

You may want to check with your agent about special catastrophic policies for normally excluded conditions like floods and earthquakes. Of course, the cost of such extra coverage may reflect the high risk involved. If you live along a shoreline, for example, expect to pay a higher premium for flood coverage than someone living on a mountaintop would pay.

There may be other exclusions spelled out in your policy such as neglect, intentional loss, "earth movement," general power failure and even damage caused by war. If you neglect to take care of your property (e.g., a leaky roof), you may not be covered. Obviously, if you intend to lose an object or damage your property, there is no coverage.

One other exclusion that can be costly is the Ordinance or Law exclusion. Building codes established by governmental bodies that drive up the cost of rebuilding or repairing after a loss occurs may not be covered by your insurance policy. Thus, if you discover when replacing damaged property that current law demands higher grade or more expensive materials than the original ones being replaced, the new materials may not be covered for the full price.

For example, if the current building code in your area requires a higher grade of electrical wiring and after a fire you are replacing all the wiring in your home, your policy may cover only the cost of replacing the older wiring. The difference in cost between the old wiring and the new wiring required by ordinance or law is your responsibility.

Even if you live in a fairly new home, laws and building codes are constantly being updated. Coverage to include ordinance or law requirements can be added to your homeowners policy with an endorsement—an addition that could save you money in the long run.

Yes, they are both your property so they are both covered. The value of the real property—your home, garage, shed and other structures—is generally based on the value of the main structure, the house itself. Thus, if the house were insured for $75,000, the shed, detached garage and other auxiliary structures would be covered for 10 percent or $7,500 worth of damages. Additional property protection features may include living expenses should your home not be habitable for a period of time.

Your personal property is also covered by a homeowner's insurance policy. Personal property includes the contents of your home and personal belongings used, owned, worn, or carried by you or members of your household—basically, everything and the kitchen sink! This coverage is also based on the house coverage, and there are limits on the losses that can be claimed. Higher limits can be purchased for both real and personal property.

State laws may dictate how losses are to be figured, which means the same insurance company may use one method in one state and a different method in another. The common methods are:

Actual Cash Value—The replacement cost of the item minus depreciation. For example, a new television set may cost $500. If your 7-year-old TV set gets damaged in a fire, it might have depreciated 50 percent. Therefore, you would be paid $250 for that set.

Replacement Coverage—The cost of replacing an item without deducting for depreciation. So today's cost for a TV set with features similar to the 7-year-old one damaged by fire would determine the amount of compensation. If it still costs $500 today, that would be the replacement coverage.

Replacement value should not be confused with market value. The market value is what your house, for example, would actually sell for and is generally more than the replacement cost. This is because replacement value does not include the land, which almost always does not need to be replaced.

Check your policy. If you prefer replacement coverage and do not already have it, this coverage can be added to your policy. Typically, the difference in premiums is 10 to 15 percent to upgrade from actual cash value coverage to replacement coverage. However, it is well worth it to protect your investment in your possessions. Your agent can advise you of the costs involved.

No. Your property and the structure (the basement) are covered by your policy as is your personal liability. However, the tenants' possessions and liability are not covered by your policy. Therefore, they may wish to purchase their own renters insurance. Whether you are a lessor or a renter, you should check with your agent to make sure you have the right coverage.

As a member of the family, she is probably covered under your homeowner's policy. So too is your child away at college covered for personal liability or theft or damage to his or her property even in the dormitory or college apartment. However, you should check with your agent to be sure of the extent of coverage.

Yes, but within certain limits. Both are covered as personal property used for business purposes. However, like all personal property, there are monetary limits on reimbursement. Whether your home business is your primary occupation or a hobby that nets you a few hundred dollars a year, it is still a business and you should treat it as such. If you've invested quite a bit in equipment (woodworking tools, for example) and sell the occasional decoy, you should consider whether the personal property limits are sufficient.

Also, keep in mind that the personal liability protection in your homeowner's policy does not extend to business liability. Check with your agent concerning your business insurance needs.

If most of us suddenly found ourselves without anything due to some calamity, we would be hard pressed to know all that we had lost. When was the last time you counted the number of shoes you own or CDs, not to mention furniture, dishes, drapes, or audio and video equipment? The list goes on and on. How much is it all worth and where would you start if you had to replace it?

Now is the time to make a list of major household items and possessions. Just remember that, where possible, it is wise to list the serial number, date and cost of purchase, and even include the receipt if you can.

Another easy way to inventory your home is to use a video camera or take pictures of your home and its contents. As you take the video, you can also talk about the items and their date and cost of purchase.

Whichever method you choose, have a copy made and ask a friend or family member to hold on to it. Or store your copy in a safe deposit box. That way if the worst happens and your home is destroyed, the inventory list will be safe at another location.

Because your premium is based partly on the level of risk the insurance company must take, there are things you can do to lower your premium. Installing deadbolt locks (to discourage theft), fire extinguishers, smoke alarms, and burglar and fire alarms that alert your local police and fire stations can often save you up to 15 percent on your premium. Check with your agent before purchasing any of these items to see if your insurance carrier has specific requirements to qualify for the discount.

Many insurers also offer discounts if you insure both your home and automobile with the same company. Another way to save may be to increase the deductible on your homeowner's policy. If your deductible is $100, it means that you agree to pay this amount first, and your insurance company will pay for damages that exceed this deductible. By increasing your deductible from $100 to $250, or even $500, this decreases the insurance company's risk, which may mean a savings in your premium.

Also, it pays to shop around for insurance coverage just like anything else. Of course, you may want to keep in mind that the extent of coverage also determines the premium cost so the cheapest policy is not necessarily the best. Your agent can help you evaluate the different policies and companies to find the one most suitable for you.

Contact your agent as soon as possible. If there is damage to your home or possessions make "emergency" repairs to protect yourself and your property from further damage, then call your agent. For example, if some of the windows in your home have been blown out by wind, you may board them up to prevent additional damage. In fact, your policy covers the cost of these emergency measures.

However, before setting about to make permanent repairs, call your agent. The insurance company has the right to inspect the property in its damaged condition. They may want to send a claims adjuster or instruct you to get an estimate from an independent contractor.

If you have property stolen, notify the police immediately and call your agent.

Liability covers bodily injury and property damage to others due to your negligence. The coverage applies to non-auto accidents that occur either at your residence or off the premises. Medical expense payments such as first aid can also be due to the injured party. Should you be sued or suspect that you may be, contact your agent immediately.

The same rule of thumb applies to renters as to homeowners. If catastrophe struck tomorrow, could you afford to replace everything you own? Or if you were sued, would you have enough money to pay legal fees and possibly settle the suit? If not, chances are you would benefit from the protection that renter's insurance brings.

No, the landlord's insurance covers damage to the building and the landlord's property, not your personal property or liability. Plus, you may be liable for damage to the building if it is your fault. If you go out and leave the stove on and an ensuing fire causes extensive damage to the entire building, you may be held liable to the landlord.

Renters insurance is surprisingly inexpensive. That's because you are not insuring a building. Like all property/casualty policies, the value of your property to be insured and other risk factors are weighed by the insurance company to determine your premium. Your agent can help you find the best combination of coverage and cost.

Condo owners insurance covers the same general areas outlined throughout this guide for homeowners in the important areas of personal property and liability. In addition, condo owners insurance provides coverage for some situations specific to condominium unit owners.

Usually, the condominium association buys insurance to cover the property (building and structures) and liability coverage for the general association. If you own a condominium unit, you may be responsible for covering from the "walls in" on your unit, that is, for your personal property and the interior of your unit (whatever area is excluded from the condo association's policy) as well as for your personal liability.

Sometimes, condo owners are assessed by their condo association for losses "outside the walls" that were not completely covered by the association's policy. For example, if the clubhouse is destroyed and the condo association did not have it insured, you could be assessed for a "share" amount needed to replace it. If you wish, check with your agent about adding such "loss assessment coverage" to your condo owner's policy.