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Florida: Homeowners Insurance

Overview

A homeowner’s insurance policy usually consists of two types of insurance: casualty and liability protection. Casualty insurance (see below) covers losses that you suffer yourself, either man-made or from natural causes, and includes loss or damage to your home and your personal possessions (unlike in many other countries, where buildings and personal possessions are usually insured separately). Liability insurance (see below) covers you against financial responsibility for injuries to third parties on your property or accidents directly attributed to something connected with your property.

If you’re buying your home with a mortgage, your lender will usually insist that it’s covered by a homeowner’s insurance policy. When the mortgage is paid off, it’s unnecessary to have homeowner’s insurance, although it’s advisable as many people have their homes damaged or destroyed each year in Florida by natural disasters such as fires, floods and hurricanes. Some 5 per cent of US owners don’t carry any homeowner’s insurance and it’s estimated by the Insurance Information Institute that eight out of ten homeowners have insufficient insurance for their homes and possessions. Note that the amount you should insure your home for isn’t the current market value, but its replacement value, i.e. the cost of rebuilding the property should it be totally destroyed.

The following types of homeowner’s insurance policies are offered in America, although some companies don’t use the standard ‘HO’ categories:

HO-1: Basic Policy. The basic homeowner’s policy insures your home and possessions against losses caused by the 11 ‘common perils’ (listed below under Casualty Insurance). The basic policy is inadequate for most homeowners.

HO-2: Broad Policy. The ‘broad’ homeowner’s policy insures your home and possessions against losses caused by the 11 ‘common perils’ and a further six perils (listed below under Casualty Insurance). An HO-2 policy is more popular than the basic HO-1 policy.

HO-3: All-risk or Special Policy. An all-risk or special policy protects your home against all the perils included in an HO-2 policy, plus any other perils not specifically excluded in the policy. Your possessions, however, have the same cover as the HO-2 policy. This is the most popular form of homeowner’s policy.

HO-4: Renter’s Policy. A renter’s policy provides the same protection as an HO-2 policy for the personal possessions and home improvements made by someone who’s renting a property. The building itself isn’t insured.

HO-5: Comprehensive Policy. A comprehensive policy covers everything, including your personal possessions, on an all-risk basis, with the exception of any exclusions listed in the policy. It’s the Cadillac of policies and the most expensive.

HO-6: Condominium & Co-op Policy. This policy is for owners of condos and co-op dwellings. It covers personal possessions and improvements, but excludes the dwelling itself (which is insured by the condominium or co-op association).

HO-8: Older Homes Policy. An older homes policy is similar to a basic

HO-1 policy and is specifically for older homes which would be prohibitively expensive to replace. It insures that an older home is returned to serviceable condition, but not necessarily to the same state as previously.

Casualty Insurance

Casualty insurance is usually offered as part of a homeowner’s insurance policy (see above) and includes insurance for your home and possessions. The other part of a homeowner’s insurance policy is liability insurance (see below). A basic homeowner’s policy (called HO-1) insures your home and possessions against losses caused by the 11 so-called ‘common perils’ or ‘hazards’ (hence ‘hazard insurance’) of fire or lightning; windstorm or hail; explosion; riot or civil commotion; aircraft; vehicles; smoke; vandalism or malicious mischief; theft; glass (which constitutes part of the building) breakage; and volcanic eruption.

Some homeowner’s policies include the following additional six perils (making 17 in total) covering falling objects; weight of ice, snow or sleet; sudden or accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air-conditioning or automatic fire protective sprinkler system, or an appliance for heating water; accidental discharge or overflow of water or steam from within a plumbing, heating or air-conditioning system, or automatic fire protective sprinkler system, or an appliance for heating water; freezing of plumbing, heating or air-conditioning systems, or automatic fire protective sprinkler system, or of a household appliance; and sudden and accidental damage from an ‘artificially generated electrical current’ created by appliances, devices, fixtures and wiring.

A homeowner’s policy including all of the above is usually referred to as an HO-2 (broad) or an HO-4 (renter’s) policy. An HO-3 (all-risk) or HO-5 (comprehensive) policy provides the most extensive protection and includes everything except flood, earthquake, war, nuclear accident and certain other risks specified in your policy. An HO-3 and most other homeowner’s policies also provide protection for loss of use, i.e. when your home becomes uninhabitable and you’re required to find alternative accommodation and incur additional living expenses. An HO-6 policy is for owners of a condominium or co-op dwelling and covers personal possessions and improvements. However, it excludes the dwelling itself which is insured by the condominium or co-op association. An HO-8 policy is for older homes and is similar to a basic HO-1 policy.

Extra Risks

You can insure against extra risks such as floods (see below), earthquakes and hurricanes, although in high risk areas cover is expensive, the cost usually depending on the exact location of a home. Rates are higher for wood-frame homes (because of the higher risk of fire) than masonry homes, e.g. a house built with concrete blocks. Homes located in areas susceptible to storms (e.g. hurricane) and wind damage are more expensive to insure and in rural areas you may need to pay increased fire insurance. It’s advisable to investigate the occurrence of natural disasters in an area where you’re planning to buy a home and the cost of homeowner’s insurance, which can be prohibitive.

Extent of Cover

All homeowner’s insurance policies include your personal possessions, such as furniture, clothing, electrical and electronic equipment, and household appliances. If you don’t own your home, you can take out a renter’s policy (HO-4), covering your personal possessions and, most importantly, damage caused by you to the property you’re renting. When insuring your possessions, don’t buy more insurance than you need, as unless you have valuable possessions the insurance may cost more than replacing them. You may be better off just insuring a few valuable items, rather than everything. Note that in America, possessions aren’t usually insured for their replacement value (new for old), but their ‘actual cash value’ (cost minus depreciation). You can, however, buy replacement-cost insurance, although policies often include limits and are more expensive.

To calculate the amount of insurance you require, make a complete inventory of your possessions containing a description, purchase price and date, and their location in your home. Some insurance companies use a formula based on the insurance cover on your home, although this is no more than a ‘guesstimate’. Keep the list and all receipts in a safe place (such as a safety deposit box). Add new purchases to your list and make adjustments to your insurance cover when necessary. There are maximum limits (listed in contracts) on cover for individual items in a standard homeowner’s policy.

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