Homeowners insurance provides homeowners with coverage for the loss of the home and personal belongings, as well as liability protection. It also protects the mortgage lender’s investment. Lenders require proof that homeowners insurance has been secured before the closing. Today, we will discuss coverage for the loss of the home or casualty coverage.
Casualty coverage insures the structure of your house. This policy will pay to repair or rebuild your home if it is damaged or destroyed by a peril. A peril is anything that causes a loss. Coverage of different types of perils can be divided into three categories: basic form coverage, broad form coverage, and open peril form coverage.
Basic form coverage insures against:
- Fire and Lightning
- Windstorm and Hail
- Explosion
- Riot and Civil Commotion
- Vehicles
- Aircraft
- Smoke
- Vandalism and Malicious Mischief
- Theft
- Volcanic Eruption
Broad form coverage includes:
- Falling Objects
- Weight of Ice, Snow or Sleet
- Explosion of Steam or Hot Water System
- Freezing of Plumbing
- Heating and Air Conditioning Systems
- Domestic Appliances
- Collapse of Buildings
- Accidental Discharge or Overflow of Water or Steam
- Damage from Artificially Generated Electrical Currents
Open peril coverage provides coverage on all other perils not specifically excluded in the contract. It is the most popular type of coverage.
Casualty insurance usually contains eight exclusions to the contract. If building codes have changed and the insured property no longer meets the code, the insurer will not cover increased costs of meeting the current building codes without an added endorsement to the policy. Damage caused by an earthquake is not covered. Homeowners living in high-risk areas for earthquakes can consider purchasing earthquake insurance. Water damage is not covered. This includes floods, backed up sewers or drains, and water seeping into the home below ground level. Flood insurance is available in areas that have adopted flood plain management regulations under the National Flood Insurance Program. Damage caused by power failures, war, nuclear reactions or contamination and radiation are not covered. Lastly, losses caused intentionally or through neglect are also excluded from coverage.
There are three ways that casualty insurance can be paid out: replacement cost, guaranteed replacement cost, and actual cash value. Replacement cost simply pays the policyholder the cost of repairing or replacing the damaged house. It is limited to maximum dollar amount. Guaranteed replacement cost covers the full cost of replacing the property even if it exceeds the policy limit. Some policies do not have a dollar limit. Others have a limit of 15% or 20% in excess over the insured amount. Homeowners are required to insure the property 100%. Actual cash value pays the policyholder an amount equal to the replacement value minus depreciation. When purchasing a homeowners insurance policy, you will need to decide how you want the policy to pay in the event your home is damaged or destroyed.
Henssler Financial recommends that you take the time to look over your homeowners insurance policy and understand exactly how your home is insured. Purchasing a home is often very stressful, so when preparing for closing, taking the time to secure the right homeowners insurance policy is not a high priority for most homebuyers. If it was not a high priority for you, then we suggest you take the time now to review and if necessary revise your current homeowners insurance policy. For more information, contact Henssler Financial at 770-429-9166 or experts@henssler.com.
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