The Insurance Family Blog

(Please also see Hobby or Business – Part One.)

Most individuals use their homeowner or residential insurance policy to handle their hobby activities as a collector or enthusiast. A homeowner (HO) policy usually includes a definition of “business” and some are so broad that nearly any activity qualifies as a business. In such instances, a hobbyist or enthusiast should consider whether separate business insurance is necessary.

If you own a home, you’ll want to think about the best way to insure it. One goal is to match your needs to the right company. Some companies like new, high-valued homes while some companies do well with older or historic preservation homes. Others are comfortable with country homes or old farm homes. It pays to shop around, both for the best coverage and for a company that likes your type of home.

No one knows the devastation a brush fire can cause more than a California homeowner.  With some of the most active brush fire districts in the world coupled with some especially dry summers, it makes sense that California homeowners would be especially keen on protecting their homes. Obvious signs are a warm summer afternoon with low humidity - a perfect atmosphere to cultivate a brush fire.

Natural disasters seem to be striking with regularity recently not only around the world, but also within the U.S., and even inside the state of California. This is prompting many homeowners to reexamine their homeowners’ insurance coverage, which we at Sutherland-Scherff fully recommend. For many Californians, the idea of earthquake insurance coverage will spring to mind. But just because this is an obvious coverage to consider, homeowners shouldn’t overlook other aspects that may not be addressed in their existing insurance coverage.

Identity theft remains one of the fastest growing crimes in the country today.  Identity thieves have developed a number of ways to obtain your information - from the simple theft of a wallet to elaborate internet-based scams.  Simply put, identity theft insurance pays for the costs associated with identity theft and the time consuming process of cleaning up the mess left behind when somebody steals your identity.  It does not reimburse you for the money that is stolen from you.  Some insurance companies offer this coverage as part of your homeowners insurance or it can be added to your policy by endorsement. 

Part of buying a new home is purchasing a homeowners insurance policy.  It is a requirement of your loan that you purchase homeowners insurance to cover the amount of the loan.   This protects the banks interests,  but you also want to protect your investment in the home, your personal property and your personal liability.  I hope to clarify homeowners insurance for you and help you with the process of obtaining homeowners quotes and buying a homeowners policy. 

6 Parts of a Homeowners Policy

1.  Dwelling -  Your dwelling should be insured for the amount it would cost to rebuild it in the event of a total loss.  This is called the replacement cost and it is very different from the market value or purchase price.  The market value takes into consideration things like good schools, a good view, swimming pool, on the beach and large lot.  

2.  Other Structures - This would include any structure that is not attached to the dwelling.  It would include things like a detached garage, guest house or shed.  In California a homeowners policy automatically includes this coverage at 10% of your dwelling  limit.  Coverage can be increased if necessary.

3.  Personal Property - This includes coverage for all of your personal belongings - anything that you would take with you if you move out - clothing, dishes, furniture, computers.  Depending on your insurance company, this limit is typically 50-75% of the dwelling limit.  Some items have special limitations.  Be sure to ask your agent for further information.

4.  Loss of Use or Additional Living Expense - This is a very important coverage that is normally not given much thought.  If your home is damaged by fire you will probably have to move out while it is being rebuilt.  This means renting a home or apartment and possibly renting furniture until yours is replaced.  At the same time you will still be making your monthly mortgage payment.  Loss of Use will pay for any additional living expense you may have as a result of the damage to your home.  It would pay to rent another home and furniture.  The limit varies by company.  Some include a limit of 20% of the dwelling amount.  Some insure it for the "actual loss sustained" with no limit except the length of time they will pay it, usually 12-24 months. 

5.  Personal Liability - This coverage is provided if a claim is made or a lawsuit is brought against you because you allegedly caused injury to someone or damaged someone's property. We had a client that was having work done at his home and there was a small trench in his front yard.  A delivery man twisted his ankle when he tried to get over the trench.  The homeowners insurance policy paid for the man's injuries.  Another example would be if you own a dog and the dog bites someone.  Although some agencies will offer a limit of $100,000 this coverage is typically written for a minimum limit of $300,000 - $1,000,000.  The difference in premium between $100,000 and $300,000 is about $20 per year so it is definitely worth increasing. 

6.  Medical Payments to Others - This coverage will pay for the medical expenses of someone other than the homeowner.  It is different than Personal Liability because the homeowner does not have to be legally liable.  The example I often use with my clients is a medical payments claim my brother incurred.  His wife and her friend decided to roller skate in their driveway.  The neighbor fell and injured her wrist.  This was not my brothers fault nor his wifes, but they wanted to take care of their neighbor so they turned in a claim.  It can be written with a limit of $500 up to $25,000 depending on the company.

Now it is time to purchase your homeowners policy.  When you contact an insurance agent for a homeowners insurance quote he/she will ask many questions about you and your home.  To help you with this process, download our free Guide to Obtaining a Homeowners Insurance Quote.  It will help you prepare by giving you a list of information the agent will need in order to provide you with a quote.  It also provides you with information you should discuss with your agent to be sure he/she insures you properly.  

When most people purchase a homeowners policy the main conversation with their agent is around their dwelling limit.  How much should I insure my home for?  There typically is not much discussion about your personal property because it is included on your policy for a percentage of your dwelling limit - usually 50-75%.  For example, if you insure your home for $300,000, your personal property limit will be $150,000 to $225,000.  But what does this include or not include?  If you do not know the answer to that you may be very disappointed if you have a claim.

Sometimes even good dogs bite. And when they do, you can be held liable.  All dog owners need to understand their potential liability should their animal bite, maul or, heaven forbid, kill someone.  A single bite could cost you tens of thousands of dollars - a lawsuit hundreds of thousands - and your insurance coverage might not apply.  Consider these claims:

Two out of every three homes nationwide are underinsured according to a survey by Marshall & Swift/Boeckh (MSB).  MSB specializes in estimating construction costs, and its annual reviews of 3 million insurance policies consistently show homeowners don't have enough coverage.  United Policyholders, a nonprofit consumer education organization, call it the underinsurance crisis. In a survey they found that 75% of California homeowners affected by the 2007 wildfires in San Bernardino and Riverside counties were underinsured by an average of $240,000.

It seems that you can't turn on the news without hearing about someone's home or business being flooded.  Sometimes it is along a river where water has risen over its banks due to heavy rains but very often it is in communities that are not near rivers or other bodies of water.  In Laguna Beach, CA the recent rains caused flash flooding and more than $10 million in damage to businesses, homes, and city property due to flooding.