Homeowners - W.E. Davis Insurance

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A homeowners insurance policy provides two primary areas of coverage: property coverage (including your home, contents and appurtenant structures) and Personal Liability.

Property:

The property portion of the policy includes the physical structure (home). It also includes appurtenant structures like a detached garage or other outbuildings as well as fences, tool sheds, decks, pools or other structures.

Contents include any items inside the home. Typically this encompasses furniture, appliances, clothing and any other items in the home of a personal nature. Your personal belongings are also covered while away from your home, but for less. Typically, the away from premises amount is 10% of your contents limit. Business property is limited. Typically business property in the home is limited to $2,500 and away from the home $250.

The “perils insured against” provides the type of losses covered by the policy. Most basic policies provide fire, lightning, windstorm, theft and vandalism coverages. These are called “named perils” because it is up to you to prove to the company that one of these specific occurrences caused the loss.

There is a broader coverage called “risks of loss.” In this type of policy the company states that all losses are covered unless there is an exclusion. This is much broader coverage since it is now up to the company to prove to you that there is an exclusion in the policy. If there is no exclusion, the loss is covered.

The most common forms of homeowner policies are forms HO3 and HO5. The HO3 provides “named peril” coverage on contents and “risks of loss” coverage on the physical structures. The broader HO5 provides “risks of loss” coverage on buildings and contents. You will pay a few extra dollars for HO5 coverage, but it is well worth it.

Homeowners coverage includes an “Additional Living Expense Allowance” or “Loss of Use” that covers the increase in living expenses made necessary when your house cannot be occupied due to damage caused by an insured peril. This covers, for example, motel or dining expenses incurred during the time your premises cannot be occupied (up to the limits stated in your policy).

Liability :

Personal liability is one of the most important homeowner coverages, and the least understood. Personal liability is “lawsuit” protection. If you or a family member is found negligent for some personal activity, the homeowner policy will respond. You do not have to be sued for the policy to pay. Most examples center on a guest tripping and getting injured while at your home. However, the liability protection is much broader. It also includes coverage for negligent acts occurring during hobbies or crafts like model plane flying, sporting activities like golf or baseball, as well as volunteer activities like helping out with scouting or homeless shelters.

If a lawsuit is filed, your insurance company covers the cost of your defense whether you are ultimately found liable or not. If you should be found liable, your insurer will pay damages assessed against you, up to the liability coverage limits shown in your policy. Defense costs will not affect your liability coverage limits. Lawsuits between people covered by the same policy are excluded.

The policy provides coverage for accidents caused by you, a family member or your pets. But be careful regarding coverage for pets. Many local municipalities require liability coverage for certain “vicious dogs.” Many homeowner policies exclude coverage for dog bites if yours falls into a category defined by your local government.

Included under the liability section of your homeowners policy is medical payments coverage with minimum limits of $1,000 per person. This provides coverage for accidental bodily injury to others when it occurs on your premises or elsewhere if caused by you, a family member or pets. It provides coverage whether or not you are legally liable.

Exclusions:

The homeowner’s policy excludes certain perils, such as earthquake, landslide, flood, surface water, waves, tidal water or tidal wave, sewer backup, seepage, war and nuclear radiation. Most of these perils are classified as “acts of God” and are not considered normal accidental losses. Coverage for certain exclusions like flood, earthquake and sewer backup can be added to the policy by endorsement.

The liability portion also contains exclusions. Any activity for which you earn money is not covered under the business exclusion. This would include activities like selling at flea markets, and selling network marketing programs like Amway, Mary Kay or Pampered Chef products. It also excludes daycare, so if you watch children in your home, be sure to call your agent for extra coverage.

Q&A: Home Rebuilding Costs and Insurance

How much coverage should I have on my home?

With the current economy continuing to force housing prices down, we are often asked why we can’t lower the insurance value of a home. Below are some answers to two of our more commonly asked questions. We hope it will provide you with some valid reasons why one should not follow the market when it comes to insuring your home.

What is my home worth? Market value versus reconstruction costs.

Many homeowners equate the “worth” of a home to its market value, especially if the home was a recent purchase. While market value is a valid calculation of a home’s worth for buying and selling, it has little to do with the cost of rebuilding. The insurance amount on your policy should be the amount needed to reconstruct the home at today’s costs.

Why is reconstruction cost more expensive than new construction?

Rebuilding a home includes many factors and expenses not considered in new construction. The items below all lead to higher costs for rebuilding vs. new construction.


Economies of scale

It costs more for a contractor to build one home at a time because materials are not purchased in bulk. A single household item that matches the one that's been destroyed will nearly always cost more than if it had been part of a larger purchase.

Top-down versus bottom-up

Repair work for a partially destroyed home is done from the top of the home down. This is more time consuming and labor-intensive.

Demolition and debris removal

This step is necessary before reconstruction can begin and adds to the total cost.

Use of labor

When a builder constructs many homes at once, they can efficiently schedule labor for carpenters, plumbers, electricians and other workers. For a single rebuild, labor is not as efficient and contributes to higher costs.

Access to worksite

Worksite access is easier for brand new construction. For reconstruction, obstacles such as neighboring homes, trees, lawns, fences and other landscaping prevent easy site access. This makes it difficult to transport materials and can drive up labor costs.

Building code changes

Changes to building codes may require costly updating, even for undamaged parts of a home. This could include updating wiring or other utilities and is costly, especially for older homes.

Natural disasters

After a natural disaster, the costs of building materials and labor rise because of increased demand. Over the past 20 years, there has been a significant increase in the frequency and severity of weather events, resulting in a high number of losses that require repairs.

Protecting undamaged parts of the home and contents

Keeping a partially destroyed home from further damage until permanent repairs can be made adds to the overall cost. This could involve covering a damaged roof or holes in walls.

Specialized labor is more costly

Reconstruction is often completed by contractors who specialize in rebuilding as opposed to new construction contractors. Their specialized labor tends to be more expensive.

Replicating old construction methods and materials

A standard homeowners policy provides for replacement with like kind and quality, which means replicating a home as it stands today. In older homes, interior walls are often made of plaster instead of drywall and exterior brick walls are made of solid brick instead of modern brick veneer. Homes constructed prior to 1940 were built with full dimensional lumber, which is larger and more costly than typical modern lumber. Because of features and materials such as these, older homes, especially those built prior to 1940, cost more to replace. In addition, the rising cost of commodities contributes to higher reconstruction costs. For example, petroleum based materials such as shingles have increased in cost dramatically.

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