InsuranceLecturer — Homeowners policies are designed to cover a limited amount of specific risks. Depending on the type of property you own, the location where you live, and the amount of your net worth, you may have a need to purchase supplemental policy endorsements with special coverage.
Homeowner Policy Liability Insurance and Supplemental Liability Coverage
Most homeowner policies contain $100,000 to $300,000 of liability coverage under Section E of the policy. This amount of coverage is reasonable if it is more than the amount of the homeowner’s total assets or net worth. Of course, the homeowner should purchase a supplemental liability policy or additional Liability endorsement if the liability insurance provided for by the policy inadequately covers the homeowner’s net worth.
To estimate net worth the homeowner should start with his or her salary as a base. Next they should add in their spouse’s salary. Then they should add in the value of home equity (market value minus mortgage balance). They should then calculate and add in the current value of stock, bond and other investments.
Then they should add in the value of any additional real and personal property assets (land, art, jewelry, etc.). Finally, add the value of business owned.
Once all the assets are totaled the homeowner should subtract any other debts (credit card balances, student loans, etc.). The amount remaining is net worth and the amount of total liability insurance needed.
Why should a homeowner purchase flood insurance? Common sense dictates the purchase of flood insurance if the insured property is located on a lake or the ocean.
While the home owner may not think his or her home is located near any water, if your mortgage lender determines the home is in a special flood hazard area, the borrower/homeowner will be required to purchase flood insurance.
Standard homeowner’s policies do not cover damage caused by flood water. However, the National Flood Insurance Program (NFIP) does offer flood coverage to homeowners in flood plain and coastal areas throughout the country. NFIP flood insurance is priced on a national basis and is available from local insurance agents.
Simply put, if the home is located near a fault line, the homeowner should purchase earthquake insurance. Standard homeowner’s policies do not cover direct damage caused by earthquakes. Have a geologist look at your home and determine if you are at risk.
If you are still concerned about earthquakes, a separate policy earthquake policy can be purchased to cover earthquake related losses. An earthquake endorsement or separate earthquake policy will cover damages resulting from earthquakes, landslides, volcanic eruptions and other earth movements.
Extra coverage (Endorsements)
As mentioned before, the homeowner may need additional coverage beyond what the policy provides for certain items. For an extra premium, additional coverage called an endorsement may be available to expand or increase the coverage on these items.
The most common endorsements are added to cover jewelry, camera equipment, coin and/or stamp collections, fine arts, electronics, and satellite TV antennas.
Additional Living Expenses
All policies cover “loss of use” under Coverage D of the policy. Recently, particularly in California, residents have been forced to flee their homes because of wildfires. Many Atlantic and Gulf coast residents are annually forced to evacuate their homes due to impending danger caused by hurricanes.
Insurance policy coverage will pay for the homeowner to stay in a hotel. It will also cover associated costs such as meals and transportation. Generally, the homeowner can expect to receive up to 30 percent of his or her overall policy to cover these unexpected “loss of use” expenses.
However, a serious problem occurs when the home is destroyed and the homeowner’s loss of use expenses exceed the amount covered by the Section D loss of use policy provision.
An Additional Living Expenses endorsement can offer the homeowner the additional protection needed for such a catastrophe. This additional coverage is activated when the homeowner is forced to evacuate his or her home temporarily.
It provides coverage for homelessness due to damage from fire, lightning, windstorm or hail, explosion, a sudden release of smoke, impact by aircraft or vehicle, vandalism, glass breakage, or damage from a falling objects, theft, and riot.
The provision also pays in the event the police deny the homeowner access to his home because of damage to a neighbor’s home, or in the event of mass evacuation.
Additional living expenses including moving costs, temporary rental home or hotel room costs, restaurant meal costs, parking at night costs, even laundry mat costs.
In general, the Additional Living Expenses endorsement pays for costs that are above and beyond what are normally paid under Section D, Loss of use provisions contained in the standard homeowner’s policy.
Umbrella Liability Insurance
Personal umbrella liability insurance is available from your homeowner’s insurance agent for an additional premium. If you want more liability coverage than a homeowner’s policy provides, you may want to buy a separate umbrella policy.
As a rule, in today’s suit happy society, if a homeowner’s net worth exceeds $300,000 or the liability policy limits are inadequate to cover his or her financial assets, the homeowner should seriously consider purchasing an umbrella liability policy.
An umbrella policy stands second to both auto and homeowner insurance policy coverage. It pays when those policy limits have been exhausted and is meant to protect your net worth. An umbrella policy augments the level of liability coverage stated in the underlying homeowner’s or auto insurance policy.
Umbrella policies cover the homeowner for almost every action including libel, slander, or character defamation suits. Because policies vary, the homeowner should consult his or her agent or company for a complete explanation of their umbrella policy coverage.