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Homeowners Insurance Policy

Introduction

The numbers of risks that private homes face is immense hence making it appropriate for many with private homes to insure their property. The type of insurance that covers private homes is normally referred to as a homeowner’s insurance or property insurance (Gron, 1994). Home insurance is very popular in the real estate industry and it covers both property and liabilities. Those people with private homes are assured of compensation incase of any losses in the territory of the policy (Jaffee, 1997). Many insurance companies have been experiencing an increase in the number of people seeking home insurance due to the unpredictable nature of the contemporary world. This paper will discuss the contractual components of a home insurance policy together with its general contents and coverage.

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The Home Insurance Policy

The home insurance policy is a detailed contract that clearly stipulates all the things that qualify for compensation and those that do not qualify. It is very important to understand the underlying contract sections before purchasing a home insurance policy. A home owner’s insurance policy is categorized in two parts namely the home Insurance Property Protection and the Home Insurance Liability protection (Jaffee, 1997). The property protection part is divided in into four divisions that include dwelling, other structures, personal property and loss of use. The policy buyer can purchase either a policy that covers the structure alone or the contents in the structure. The insurance company will only compensate according to the type of policy bought. Under the property protection policy, the four parts have got specific components (Cummins, 1979). The dwelling section covers the building and all the built-in appliances and systems. The other structures section is basically for all detached structures. Detached structures comprise of things like fences, garages, storage shades and driveways. These components will not be compensated if they are normally used for business and are not included in the property policy bought (Cummins, 1979).

The other section under the property protection policy is the personal property section that covers all the personal contents of a home including all the items owned by all the people who reside in the house. This section has its limits and can not cover items like motor vehicles used outside the home. Other items that have limited coverage include business property, money and firearms (Gron, 1994). Endorsements can be added to the property protection policy by the insured if they wish to receive extra coverage for their property. The fourth and final section under the property protection policy is the loss of use category. This applies when the homeowner is denied entry to their houses because of a government order or repairs being made to the house.

Endorsements for additional coverage are only guaranteed if the insured pays an additional cost. Some of the additional coverage includes things like theft, removal of properly and any other damage to the building caused by a peril that is covered under the home insurance policy (Failey, 1979). The home owner insurance policy provides for replacement and rebuilding of the policy holder’s home provided all the requirements are met. In instances where replacement costs run over, an extended limit ranging between 20-25 % is normally added. For adequate replacement to be sustained; an inflation guard ensures that the home owner insurance cover is increased in line with the latest inflation rates (Failey, 1979).

The scheduled personal property section provides coverage for items like jewellery and electronics in the home. These items exceed the normal limits in the home insurance policy making it appear broad. Money and securities also call for additional coverage incase the limits are increased (Jaffee, 1997). The property protection policy provides coverage for a secondary residence under the additional coverage arrangement. The other categories under the additional coverage provision in the property protection policy include the theft coverage protection, depositor’s forgery coverage and the credit card forgery. Additional coverage also considers cases that can lack sufficient evidence or proof (Jaffee, 1997).

The home owner’s insurance policy also contains liability coverage apart from the property protection section. The liability coverage includes the Home Insurance Personal Liability and the Home insurance Medical payments. The personal liability policy covers for property related claims and lawsuits against the insurer. This insurance cover excludes motor-vehicles and accidents that are related to business. The positive thing with this section is that it includes one’s family members as long as they live with the insured home (Gron, 1994). The medical expenses for those people injured on a person’s property are normally compensated under the Medical Payments section. This section provides cover without considering the issue of fault. All the insurance policies have got exemptions and the homeowner’s insurance policy in no exemption. This policy does not cover damage due to natural calamities like floods and earthquakes. Injuries to animals and losses resulting from war also fall in the category of cases that are not normally compensated. Perils to be covered under the homeowner’s insurance policy vary and the policy holder should check and verify all the available perils for a personal policy (Cummins, 1979).

Liabilities and All- risks Cover

There is always a feeling of guilt and worry when an individual is responsible for damaging property that belongs to another person or having injured other people. Incase the person responsible has a homeowners policy; there is always no course for worry because all the damage and injury caused is compensated by the insurance company (Regan, 1999). Property damage and body injury claims have to be verified for legality before any compensation is given. The homeowner policy protects a person by paying all the damages caused by the insured and at the same time caters for the legal costs of he insured incase they are defending them against a claim. The liability insurance policy does not cater for family members injured on the property.

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The all-risks cover protects all items that are valuable whether at home or away. The premiums for this type of cover are normally very expensive but it is justifiable if the items being covered are very valuable. In the all-risk cover, the items in question are listed and their value determined.There is a provision of overall valuing of items like electronic equipment and clothing but there is a maximum limit for this. The insurance company normally does an independent appraisal for those items that are above the required limit (Regan, 1999). The insured can not make a claim for all-risk cover from more than one insurance company. When one claims for compensation from more than one insurance company, there are certain consequences associated with that. One of those consequences is a possible increase in the amount of premium to be paid to the insurance company. The all-risk cover has some restriction regarding the context in which the insured items got lost (Failey, 1979).

Claims and Deductibles

A deductable is the amount of money paid out by a person before the insurance company provides any cover. Before the policy holder starts enjoying any benefits, they have to pay out the deductible first. High deductibles mean that the policy holder will pay lower premiums to the insurance company. A deductible is mostly applied when the property damaged or lost belongs to the policy owner. The value of the total loss is calculated and the insurance company only pays for the damage above the deductible value (Regan, 1999). Deductibles are proven to save policy holders a lot of money especially if the deductible is higher. The cost of having a homeowner’s insurance has been rising and many policy holders are opting for higher deductibles.

Customers who seek for small claims face the risk of being penalized by the insurance company. Deductibles are not constant and can differ according to different causes of a damage or loss. The amount is set depending on the type of peril ranging from theft, fire and natural perils. Deductibles can not be applied on third party liabilities because the third parties are responsible for recovering any losses on behalf of the policy holder. Travel and health policies also have deductibles which vary depending on whether it covers an individual or the entire family (Regan, 1999). For medical insurance policies, the deductible do not cover the normal visits to the hospital or health facility. Some insurance companies set the minimum and maximum amounts of deductibles an individual can pay in order to regulate the coverage system. The deductible reimbursement programs helps policy holders to pay their deductible incase of any claim.

Mortgage Protection Insurance

There is no doubt that the biggest debt in many families is the mortgage. Job security is not a guarantee nowadays and many families face the risk of losing their homes incase of a layoff or general loss of income. The mortgage insurance policy ensures that this does not happen and protects the home owner by the life add-on policy. The life add-on policy is the most cost effective method of getting a mortgage relief (Jaffee, 1997). The insurance company pays the mortgage on behalf of the policy holder after it has been completely certified that the policy holder is unable to continue paying for their mortgage. It is recommended for homeowners to seek to include a job-loss ruder in their policy which allows them to continue staying in their homes as they continue looking for another job. The lender requires a private mortgage in the event the down payment for the house is less than 20% of the total value of the house. This policy is needed until 80% of the total amount has been paid by the policy holder (Jaffee, 1997).

The cost of mortgage protection is normally governed by quite a number of factors. Policy holders with less secure jobs pay higher premiums compared to people with secure jobs. The level of job security is a very important factor when deciding the cost the customer should pay for their mortgage protection. The cost of mortgage protection also depends on the value of the home. Many insurance providers prefer less expensive mortgages to expensive ones. Mortgage protection costs are more affordable for owners with less expensive houses. Incase of a recession, the mortgage protection costs will automatically shoot up because of the possibility of many job losses and the imminent economic meltdown (Gron, 1994).

Home Shopping

The task of looking for a house is normally very tedious and difficult. This is caused by the many factors a good home has to meet. Buying a house is a big financial decision and care should be taken so the home buyer gets value for their money. The first consideration is to purchase a house that one can easily move out. This is a precautionary measure because some houses are difficult to resell after they have been bought. Changing life fortunes can make an individual want to sell their houses and if the house is not marketable, then there is a possibility of incurring a lot of losses by selling the house at a lower price (Regan, 1999). One should look for a marketable house so that it becomes easy for them to sell incase they decide to move out.

The other factor to consider when purchasing a house is size. Depending on the size of the family members, a home should be spacious enough to provide enough space for all the family members. A good house should have a minimum of three bedrooms and two bathrooms and some extra space incase expansion is needed. The structure of the house is very important when shopping for a house. A house with a lot of structural issues will cost the owner a lot of money in trying to fix those problems. A house with structural issues is dangerous to stay in because its chances of collapsing are always high. Large cracks and a caving in the wall is a proven recipe for disaster. It is advisable to avoid such houses for your safety and the safety of your finances Regan, 1999). The house should allow room for easy improvement of both internal and external aesthetics. Buying a house in urban areas is more advantageous because commuting becomes easy and cheaper. The other advantage is that houses in urban areas have good structures because their construction is normally under thorough scrutiny. The other benefit is that it is easy to sell a house in an urban centre because of the high demand.

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The home should have a good curb appeal that reflects one’s preferred lifestyle. Access to social amenities is a vital factor when shopping for a home. The home should have water, reliable electricity supply and should be near to the available means of transport. Good schools and health facilities in the neighborhood are very important when looking for a house (Failey, 1979). The security of the area should be confirmed because there is no need of buying a good house in an insecure area. Crime statistics can be obtained from the local police station to verify if the area is secure enough. A person shopping for a house should also consider the amount of property taxes. Some houses have high costs of property taxes and therefore individuals should consider buying homes with affordable taxes.

There are several amenities that a home buyer should pay attention to before purchasing a house. One should check the kitchen appliances, materials used for finishing, the ceiling, outdoor facilities and the major systems of the house. All these amenities should be assessed by the buyer for them to be in a better position to know what areas need improvement. The availability of playgrounds for children and outdoor facilities are also very appealing factors. The neighborhood should be well laid out with stores and shopping centers near to the home (Regan, 1999). A good home should also have spacious driveways and parking. All these factors should be considered when shopping for a quality home.

Home Insurance Cover

The homeowners insurance has got a lot of components that ensure all the items in a home are effectively covered. After buying that dream house, it is very necessary for the homeowner to give their valuable property some much needed protection because the world is very uncertain and anything can happen anytime. The home insurance is a perfect solution for this. The homeowners insurance covers a variety of items from the structure, the systems, items in the house and other detachable attachments to the house (Gron, 1994). The policy holder decides what they want covered depending on the cost of premium they are willing to pay for. A person can decide to buy a policy covering the building alone or together with all the contents in the buildings. The items for all the family members residing in the house are normally covered by this property policy. The insured pays an extra cost for both the building and contents.

There is also the liability policy that compensates the victims injured on the policy holder’s property. The liability premium ensures that the all the damage or injury caused by a fault on the side of the policy holder are adequately compensated. The insurance company only compensates victims after certifying that the policy holder was completely at fault. Incase, the policy holder refuses to accept the responsibility of having caused the damage or injury, the insurance company covers for the legal fees in their legal defense. The liability section covers compensation for those victims who are not members of the family (Cummins, 1979).

The homeowner’s insurance policy also provides a special item for special coverage. The policy holder can enjoy extra coverage under the endorsement section. Under the endorsement section, the policy holder’s items that are in other premises outside the home are compensated incase of damage or loss. The endorsement section applies to those policy holders who pay extra costs for their premiums (Regan, 1999). The homeowners insurance policy also provides mortgage protection incase the policy holder lose their source of income and are unable to continue paying for their mortgage.

In conclusion, the homeowner’s insurance policy is necessary for all those people who own homes. The property protection and liability sections ensure that the policy holder is adequately compensated incase of damage or a loss occurs. Deductibles ensure that the policy holder pays less insurance costs by helping them to save a lot of money. The unpredictable nature of job security has led to introduction of the mortgage protection policy that continues to pay the mortgage on behalf of the insured incase they lose their sources of income. It is very important for those shopping for homes to consider all the fundamental factors before purchasing a home.

References

Cummins, J.D. (1979). A note on the relative efficiency of property –liability insurance distribution systems. The Bell Journal of Economics, 10, (2), 709-19.

Failey, W.B. (1979). Investment income and profit margins in property –liability insurance: Theory and empirical results. The Bell Journal of Economics, 10, (1), 192-210.

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Gron, A. (1994). Capacity constrains and cycles in property-causality insurance markets. The RAND Journal of Economics, 25, (1), 110-27.

Jaffee, D.M. (1997). Catastrophe insurance, capital markets and uninsurable risks. The Journal of Risk and Insurance, 64, (2), 205-30.

Regan, L. (1999). Organizational form in the property-liability insurance industry. The Journal of Risk and Insurance, 66, (2), 253-73.

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