No matter what kind of structure you call home, it probably accounts for the largest single expense in your family's budget and should be protected by insurance.
The type and amount of coverage, however, can pose a perplexing problem, especially during an inflationary period when home values seem to climb from week to week.
It is important to remember that under a homeowner's policy, in order to receive full payment for any partial loss or damage, you must insure your dwelling for at least 80 percent of its replacement value. Many homes are underinsured because owners fail to realize that their insurance protection has not kept pace with rising costs.
You can obtain an endorsement that periodically increases the amount of coverage under the homeowner's insurance as protection against inflation. This provides an automatic increase in the amount of protection afforded by the policy.
About one-third of all losses for damage to homes and contents are for less than $100. These losses frequently are as costly to process as large losses. In order to keep the cost as low as possible for insurance that pays for the larger losses, insurance companies include a deductible clause. This means the policy holder is responsible for all forms of homeowner policies. Larger deductions are available at premium savings of as much as 20 percent.
Basic coverage, known as Homeowner 1, covers loss due to fire or lightning, property removed from premises endangered by fire or other perils, windstorm or hail, explosion, riots, aircraft, vehicles, smoke, vandalism and malicious mischief, theft, and breakage of glass constituting a part of the building.
Broad-form coverage, Homeowner 2, covers all of the above plus falling objects, weight of ice, snow, sleet, collaspe of buildings or any part thereof, sudden and accidental tearing asunder, cracking, burning, or bulging of a steam or water heating system or appliances for heating water, accidental discharge, leaking or overflow of water or steam from within a plumbing, heating or air conditioning systems and domestic appliances, and accidental injury from electrical shock.
Comprehensive coverage, Homeowner 5, covers all the perils of the other two, plus everything except flood, earthquake, war, nuclear accident and others specified in your policy.
The most common type of coverage is a special form, Homeowner 3, which provides the same coverage for the dwelling and private structure as Homeowner 5, while also covering their personal property for the same perils included in the broad form, Homeowner 2.
Rates for the various categories vary from company to company in different areas of the United States.
The following rate examples are based on fire protection classifications for St. Paul, Minneapolis and most suburbs as compiled by the Insurance Service Office, an industry advisory agency:
Replacement cost insurance for a home valued at $25,000 would be $136 for Homeowner 1; $152 for Homeowner 2; $160 for Homeowner 3 and $200 for Homeowner 5.
For a $50,000 home, comparable coverage would cost $237, $266, $280 and $350. For a $75,000 home, $385, $432, $454 and $568.
There are also policies for renters, Homeowner 4, and condominium unit owners, Homeowner 6, Renters' insurance covers household and other belongings against all of the perils included in Homeowner 2.
A condominium association usually buys insurance covering the building and property. However, a special homeowners' policy is available for unit owners who wish to insure their belongings or to cover any additions or alterations to the unit that are not insured by the association.
When you purchase a homeowner policy, you buy financial protection for more than just your property. All forms include liability coverage that applies not only to you as policy holder but also to all family members who live with you. These include personal liability, medical payments to others and several supplementaryy coverages, including physical damage to the property of others.