HOMEOWNERS INSURANCE

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The homeowners policy is a multi-line policy because it provides Property and Liability insurance in a single policy. By obtaining both Property and Liability coverage in one policy, the insured is more likely to avoid gaps in coverage and the overlapping of coverages that often happen when several mono-line policies are purchased instead of a package policy. It also is advantageous to the insurance company because it means fewer contracts and records, simplified billing systems and a reduction of duplicate services. These savings mean the price will be less than the cost of separate policies offering equivalent coverage.

Not every person or every house is eligible for coverage under a Homeowners policy. The rules are stricter than those that apply to the Dwelling policy:

* The named insured must be the owner-occupant of the dwelling or condominium or a renter who maintains a residential occupancy

* The home cannot contain more than two families (in some states, four) or more than two additional roomers or boarders per family

* Unless the insured is a renter, he or she cannot purchase coverage for personal property only

* The dwelling must be used exclusively as a residence, except for certain incidental occupancies such as offices, professional or private schools or studios

* Farms may not be covered under a Homeowners policy; mobile homes are eligible if the Mobile Home endorsement is attached

* Dwellings under construction and secondary or seasonal residences are eligible

* Homes that are being purchased on an installment contract or are occupied under a life estate arrangement are eligible

Insureds under the Homeowners policy include the named insured and residents of the same household, provided they are relatives or are under 21 and in the care of the insured or a resident relative.

The Homeowners policy is divided into two sections: Section I provides Property insurance and Section II provides Liability and Medical Payments insurance.

Just as there are several Dwelling forms to provide increasing levels of coverage, there are different Homeowners forms to vary the extent of coverage: HO-2, HO-3, HO-4, HO-6, and HO-8. Each of these forms provides identical Liability coverage. It is the Property coverage that varies with the Homeowners form selected.

The HO-2 (HO 00 02), the Broad form, provides broad coverage for the dwelling and personal property. The covered perils are similar to those provided by the DP-1 with the Extended Coverage perils and V&MM coverage. Breakage of glass and theft are also covered. In addition, it broadens certain perils and adds other perils.

The HO-3 (HO 00 03), the Special form, provides open peril coverage for loss to the dwelling and other structures. It provides broad coverage for personal property, which is identical to the HO-2’s coverage of personal property.

The HO-4 (HO 00 04), the Tenants form, insures tenants - people who do not own the building where they reside. It provide broad coverage for personal property only that is similar to the HO-2’s and HO-3’s broad coverage of personal property, and no coverage for the dwelling.

The HO-6 (HO 00 06), the Condominium form, provides broad coverage on the personal property of condominium owners, similar to that provided under the HO-2, HO-3 and HO-4. It provides very limited dwelling coverage.

The HO-08 (H0 00 08), the Modified Coverage form, is designed for older homes with replacement values that may far exceed their market values. It provides basic coverage on the dwelling and personal property that is similar to the DP-1 with the Extended Coverage perils and V&MM coverage, but also includes certain restrictions on valuation of losses. In many areas, the HO-8 is no longer available.

If you own property, you need coverage. Homeowners insurance was created to provide protection for your most basic and treasured assets - your home and personal belongings. A lack of knowledge about the conditions of the policy you select substantially reduces the value of your insurance protection. In other words, the value of your policy increases in proportion to your ability to use it effectively. In order to utilize the policy most effectively, you must develop a complete and thorough understanding of the nature of your homeowners policy and of insurance in general.

To derive the full benefit from your homeowners insurance, you must become familiar with the coverage provided by the policy. The more you know about coverage, the less likely you will be to overlook potentially covered losses or to file claims for losses that are not covered, which may adversely affect your claim record. For example, an acquaintance of mine who lives in Arizona lost hundreds of dollars worth of frozen food during a power outage. After learning, to his dismay, that the loss was not covered under his homeowners policy, he bought a generator to prevent a repeat of the incident.

If you own your home, your house and any structures attached to it are covered - up to the dollar limit you specify when you buy the policy. Other structures on your property are covered for 10 percent of the amount of coverage on the house. That applies to any building not attached to the house, be it a detached garage, a shed or a play house for the children. And a structure is still considered detached even if it’s “connected” to the house by something like a fence.

If you have other residential properties, such as a second home or a cottage at the shore, you’ll have to insure them separately, even though your homeowners policy does provide limited coverage on their contents.

Since the insurance on your home is not designed to cover business activities, you can jeopardize your coverage by conducting any sort of commercial venture there. Your homeowners policy contemplates that you’re going to use your dwelling “primarily as a private residence,” although you’d probably get by with minding the neighbors’ children now and then for a fee or with using your den to write a book in your spare time.

More elaborate business operations may require special coverage, and you can get that by adding an inexpensive endorsement to your homeowners policy. The endorsement is intended for professional people, such as doctors or lawyers, who have their offices in their homes, or for anyone who operates a private school or a studio at home. For example, there was the case of the Virginia resident who operated a recording studio in his home, where he had about $100,000 of equipment for business purposes. He should have taken out a commercial policy.

Any business use of your home - even to give dancing or music lessons - could affect not only the insurance on your dwelling, but the coverage of your personal belongings and your liability to others.

Please note that the precise coverage afforded is subject to the terms, conditions, and exclusions of the policy as issued. This explanation is intended only as a guideline. This information is not intended to be considered investment, tax or legal advice. It is provided, for your education only. This is not an insurance contract. All terms and coverages are defined solely by your policy.

For more details, please call a PaulBalep representative toll-free 1-800-964-8614 to receive a free, no-obligation quote. Like so many satisfied clients, we think you’ll be happy you did. And to set up a meeting to discuss additional insurance and financial goals: Visit us online at www.paulbalep.com, or e-mail us at info@paulbalep.com.

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