Category Archives: Property
The term ‘insurance’ is a written guarantee, which safeguards an insured individual and his/her assets in troubled times. For this guarantee, the individual needs to pay a substantial amount to the relevant insurance company, periodically, which is called a ‘premium’. This same money (and more) is used to help the insured individual in times of trouble.
Thus, when we talk about health insurance, it means that when we fall ill/undergo a surgery, the arising expenses will be borne by the insurance company. When we talk about car insurance, the cost to repair the car in case of damage will be borne by the company, and so on. All this certainly involves a lot of paperwork and legal jargon. In this article, we will learn about the importance of fire insurance coverage, its types, limitations, etc.
The Theory Explained
-Fire insurance is a type of insurance in which an individual pays some amount of money to the insurance company periodically, and in exchange, the company helps him/her out if and when that individual suffers loss or damage of property due to a fire.
-It should not be confused with property insurance, as it covers repair, reconstruction, even replacement costs much beyond what is covered in the latter.
-There is a maximum limit up to which the costs may be covered, this depends on the conditions written in the contract and the amount of loss that has occurred.
Coverage Conditions and Limitations
As mentioned earlier, this policy helps recover whatever is lost in case of a fire accident. However, in most cases, the contract will have a specified amount that is agreed to, mutually, at the time of signing the contract. This amount is what the affected person can claim at the time of loss. And it may not be equal to the loss that occurs. Also, there are exceptions to what a fire insurance can cover. Losses incurred due to a fire that is caused by natural causes―lightning strikes, or earthquakes―are not covered by fire insurance. According to the insurance companies, a ‘fire’ means the production of light and heat by combustion or burning. Thus, the loss that occurs should be the result of accidental ignition. The loss also includes the damage caused by efforts to extinguish the fire.
Therefore, a claim for loss by fire must satisfy the following conditions:
-The reason for the loss or damage should be an actual fire, i.e., it should not be caused by just high temperature or so.
-It should be accidental, not intentional. If it is deliberately caused, the insurer is not responsible.
-The damage must relate to the subject matter of policy.
-The goods damaged must be on the premises where the incident occurs.
Types of Losses
Losses covered by the policy include:
-Wages paid to fire-extinguishing staff.
-Furniture/other items that are destroyed in the process of saving them.
-Items damaged due to water that is used to extinguish the fire.
Losses that are not covered by the policy include:
-Damage caused by spontaneous combustion (if a bomb explodes due to its own defect).
-Damage caused due to wars, riots, earthquakes, rebellions, mutiny, enemy hostilities, etc.
-Damage caused due to burning of property by public authorization.
-Damage due to a theft occurring before or after the incident.
Types of Policies
Actual Value Policy
It pays you the full value for your current house minus any depreciation. There are certain limits regarding the maximum payout available in the event of a fire. This is decided by the insured individual and the insurer at the time of signing the contract.
Replacement Value Policy
It covers the cost of replacing the existing home. However, this can get a little complicated, because if the value of the property has depreciated since its purchase, the payout also decreases. However, if the value has gone up, the payout increases.
It covers the damages to property that belongs to the same person, but which may be located at different places. This is done under a single sum and for a single premium. For instance, this policy might cover goods lying in two warehouses at two different locations.
It covers the damage up to a pre-decided, specific amount. The selected amount is less than the real value of the property. The actual value is not taken into consideration while determining the amount of indemnity. In such policies, the ‘average clause’ does not exist, which makes the insured individual liable to take some damage upon himself.
Some other types are valued policy, comprehensive policy, etc., which more or less contain the same clauses and conditions of the above mentioned policies.
Importance – Why is it Needed?
The importance of this policy can be ascertained after listing down its benefits, as follows:
-It covers the damages occurred to the building.
-It covers for damaged home decor (if any), like carpets, clothes, wardrobes, plywood furniture, etc.
-It pays for the expenses incurred due to damaged electronic items, like television, cooler, computers, etc.
-In case of a business, i.e., if an office building or factory is destroyed, it covers the price of the shares broken.
-It covers the medical expenses for the employees if they get injured.
-In case of loss of life, it provides the loss of life advantages to the employee’s family.
-It pays for repair and replacement of the machines and other electrical/electronic items, and assets that are destroyed due to the incident.
A fire accident can incur heavy property and financial loss. Having a fire insurance coverage saves you from financial disaster and bring you back from the cold. Of course if the incident is natural or intentional, the policy may or may not cover the damage; however, at a turbulent time when you’ve probably lost your house, money, assets, this policy will help you. You can already fathom this by reading the advantages mentioned above. That is why a fire insurance is so very important. It is a safety net that will protect you when you are threatened by a fire accident.
A fire accident may or may not occur, but do not risk the chance. You have worked all your life for your house and other belongings, do not ignore the importance of this policy, for it will safeguard you in trouble.
Basic Homeowners Insurance
The most basic policy insures the property against damage due to 11 factors or perils of nature. Some of these factors are: fire, lightning, smoke, vandalism, theft, ice, snow, windstorm hail, riot, and volcano eruption. The popularity of this policy, better known as HO-1, has diminished over the years, since the policy does not protect against loss or damage to property on account of plumbing issues as a result of freezing. Loss on account of heating system malfunction is, again, not covered by this policy. HO-2 is also a basic policy, but with a wider scope of coverage. HO-2 protects the property from damage on account of 17 factors, and hence, it is a marginal improvement over HO-1.
Popular Homeowners Insurance
It’s evident that both HO-1 and HO-2 provide only minimal coverage. For people who live in areas that are not prone to floods or earthquakes, HO-3 is a good policy, since it provides peace of mind to the homeowner on many fronts. For instance, this policy provides protection to the homeowner who may get sued by people who meet with an accident on his/her turf. Damage to the residence and personal property are also covered by this policy. As far as damage to the home is concerned, the insurance company agrees to pay the price that is equal to the cost of replacing the property (replacement cost). In case of personal property, the homeowner is entitled to receive the actual cash value of the property. For people living in flood prone areas, flood insurance should be purchased in addition to HO-3.
Actual Cash Value = Cost of Replacing the Property – Depreciation of the Property
Most Comprehensive Policy
The HO-5 policy or Comprehensive Form Policy, is equivalent to purchasing an HO-3 policy with a ‘Special Personal Property’ endorsement. This would help protect unscheduled personal property from all possible risks, except those that are specifically excluded. It’s no wonder that the cost of this policy is 15% more than the cost of the most popular coverage provided by HO-3.
Insurance Policy for Older Homes: In case of older homes, the cost of replacing the property is usually more than the market value of the property. This is on account of depreciation. Hence, for older homes, insurance will not cover more than the actual cash value of the property. This is where the HO-8 policy, which is a modified version of the HO-1, assumes importance.
Since homeowners insurance is indispensable, the owner should shop around for the best homeowners insurance quotes after settling on the appropriate insurance policy. Tenants can also ensure that their personal property is protected by opting for HO-4, better known as Contents Broad Form or Tenants Policy.
Zoning Policies and Regulations
The first thing you need to do is receive permission from the local government authorities to commence with the construction. In a majority of regions, you are required to abide by your city or town zoning policies and ordinances, and also obtain a construction license before building an extension to your home. The expenses for such licenses may differ from state to state. However, you need to be ready for spending around 2 – 5% of the entire cost of the renovation on this license.
You are required to carry out soil testing which would evaluate the stability of the soil on which you intend to build the addition. If you reside in a coastal area which has a substantial amount of loose soil or clay in the soil, such tests can help find if you would need pilings to hold the structure firm. Most of the contractors provide such services as this is a decisive step in the renovation.
Choosing a Contractor
You need to be very careful when choosing the appropriate contractor for the work. Get referrals from your friends, family, and colleagues for a good contractor, or look out for builders who provide special services in the type of architecture you desire. When choosing a suitable contractor, ensure that he is licensed, bonded, and covered with insurance. This not only ensures that you employ one of the best contractors around, but also protects you in the situation of a mishap. Finally, choose a contractor who will suit your needs, and most importantly your budget.
Considerations for Unexpected Errors
Plan your budget according to some costs that may not be anticipated. Probably, after deciding on a firm budget, you might think of adding more to the existing plan. You also need to consider the expenses which may incur due to some unfortunate occurrences such as damages to the house’s power supply. Irrespective of the possibilities, you need to include a margin for errors in both the estimated budget and also the approximate completion date for the project.
Home Insurance Updates
In a majority of cases, making an preferment increases the value of the house. It is crucial that your home insurance policy covers the changes and modifications that you are anticipating. To avoid any issues later, it is recommended that you consult with your insurance agent before you start with the construction.
While planning your house renovation, make sure you consider these important points for a hassle-free execution of the plan.
A homeowner has the responsibility of protecting his home from unforeseen events that can cause irreparable damage to his property. Homeowners insurance policies, also known as ‘HO Policies’, protect the home against damage, and provide insurance against loss of personal belongings.
Choosing the Appropriate Policy
HO-1: This is the most basic policy that covers damage due to the following factors: fire, lightning, smoke, vandalism, theft, ice, snow, windstorm hail, riot, and volcano eruption. Since this policy provides very basic coverage, its popularity has faded over the years.
HO-2: In addition to insuring against the above mentioned events, this policy protects against loss due to the following: freezing of plumbing, flooding due to plumbing overflow and heating system malfunction. Generally, mortgage lenders insist on a homeowners insurance. This is because the house functions as their collateral. While HO-1 covers damage due to 11 factors, HO-2 protects against 17 factors that may result in loss of property and belongings.
HO-3: This policy provides protection against the perils of nature. The premium may be higher in case of homes located in areas prone to hurricanes and windstorms. The policy also covers up to $2,000 worth of jewelry against loss due to theft. It covers the cost of rebuilding the house in case it gets destroyed. Just like the HO-2 policy, HO-3 covers the cost of damage to the house on account of flooding due to plumbing overflow and heating system malfunction. Liability suits that may be filed against the homeowner by people who may get injured on the property are also covered by this policy. However, it provides no protection against floods and earthquakes, for which, a homeowner is expected to buy additional insurance.
HO-4 and HO-6: These policies do not cover any damage to the building. They only provide protection against loss of personal property. Hence, it is ideal for condominium owners and tenants.
HO-5: This is the most comprehensive policy. The cost of the policy is 15% more than the cost of HO-3. In addition to including the coverage provided by HO-3, this policy insures against loss of building and property due to a number of factors. Buying a package that provides protection against a number of factors gives peace of mind to the owner. Also, it is cheaper to buy a single policy that protects against a number of factors, rather than buying individual coverage.
Shopping for the Best Quote
A homeowner should shop around for the best quote after deciding on the appropriate policy. He/she may get a good quote by installing motion sensors and surveillance cameras. In general, arming the house will help get a good deal on the policy. The insurance company should have strong fundamentals and should not be involved in any insurance fraud. The homeowner should also be aware of any consumer complaints against the company.
The amount of HO policy coverage for personal belongings is generally half of the amount of coverage provided for the home. Although a HO policy remains in effect, a landlords insurance policy is a must for houses that have been rented out or leased. This is because, ‘HO policies’ are only designed to provide adequate coverage for owner-occupied houses.