Guide to Homeowners and Renters Insurance

In order to best protect your family, home and your possessions, it is wise to take the initiative to fully understand your homeowners insurance policy. While it is difficult to predict future loss, you can minimize the impact of loss on yourself and your family by spending the time necessary to familiarize yourself with your policy and how it specifically addresses your needs in the event of a loss.

When you purchase homeowner insurance, it is important to remember to shop insurance in the same way that you shop for any other consumer product. Take the lead in shopping for and understanding your insurance policy. Make sure to compare insurance premiums, insurance policy coverage and conditions, and complaint information. Also, research the coverage options that are available to you. Don't rely only on the word of someone else, including an insurance agent or broker, as to what is the "best coverage" for you. Find an agent or broker who is willing to spend time discussing your needs and how specific insurance coverage can best meet your needs. It is always wise to compare policies on your own to help determine the best product for you.

Always try to plan ahead when you need to purchase homewoner insurance. Allow the proper amount of time to make an informed decision. Never make important decisions on the spot without conducting research first. Remember, this is your home, not the insurance agent's or lender's. You should always take the lead in deciding what sort of homeowner insurance to buy and how much insurance you need.

Getting the Most for Your Homeowner Insurance

The premiums charged for homeowners insurance and renters insurance vary widely from company to company, so it pays to take the time and effort to shop around in order to get the best value for your insurance dollar.

The cost of homeowners and renters insurance depends on a number of factors such as location, local fire protection, age and construction of building, choice of deductibles, application of discounts and the scope and amount of insurance coverage you purchase. Under California law, each insurance company calculates its own rates, subject to California Department of Insurance (CDI) approval. Since each company's loss experience differs, the rates will differ as well.

It is wise when shopping to review and compare all quotations to determine if the coverage, deductibles, and limits are similar to each other. Make a list of what is important to you and be sure to discuss it with the agent. To help find competitive rates the CDI is please to offer online premium comparisons that cover over 90% of California's homeowners' and renters' insurance market. You can receive these comparisons here or by calling the CDI Hotline at 1-800-927-HELP (4657).

Shopping for Homeowner Insurance

Insurance companies compete for your business on the basis of price, quality and service and use various marketing methods such as telephone, mail, television advertising, Internet Web sites, agents or sales offices, to make you aware of their products. Many insurers use independent agents to sell their products. An independent agent may represent one or more licensed insurance companies, and when you deal with an independent agent, you are, in effect, dealing directly with the company. The agent is paid a commission by the insurer for the services he or she provides. Other insurance companies are direct writers that use only their own employees or sales representatives and Internet Web sites. You may deal with a direct writer by telephone, the Internet, mail, or a visit to their sales office.

Many insurance companies have their own methods of insurance premium installment or payment plans, so ask for the details regarding premium installments or payments available through the company you consider for coverage.

Dealing with a Homeowner Insurance Broker-Agent

An insurance broker is an independent go-between who searches the marketplace for an appropriate policy in the interest of clients and is not an insurance company employee. The broker represents you, the customer.

An insurance broker-agent acting in a broker capacity can charge you a broker fee for the services you receive. In order to charge a broker fee, a broker must meet the following requirements:

* The consumer agrees to the fee in advance, after full disclosure.
* The fee is not being charged in a FAIR Plan submission.
* The broker is not an appointed agent of the insurer with which coverage is or will be placed.
* The broker provides the consumer with a specific disclosure form.
* The consumer and broker sign a Broker Fee Agreement containing certain standard information.
* The broker has an in-force broker bond on file with the Department.

Your producer must provide you with a copy of the current Department of Insurance pamphlet "Residential Insurance" when placing residential insurance coverage.

Homeowner Insurance Discounts

Sometimes insurance companies offer discounts for burglar alarms and fire protection devices such as smoke detectors, alarms, and sprinklers. Ask about the discounts available on homeowner insurance through the companies you are considering.

What Is Covered By Homeowners Insurance?

The homeowners policy contains two sections. Section I provides property coverages (A, B, C and D) while Section II provides liability coverages (E and F). A brief description of the individual coverages follows:

* Coverage A - Dwelling
* Coverage B - Other Structures
* Coverage C - Personal Property
* Coverage D - Loss of Use
* Coverage E - Personal Liability
* Coverage F - Medical Payments to Others

Coverage A - Dwelling

Coverage A provides major property coverage that protects your house and attached structures if it is damaged by a covered peril.

Coverage B - Other Structures

This coverage provides protections to other structures on the residence premises that are not attached to the dwelling. Items covered include detached garages, tool sheds, etc. Coverage B is normally limited to 10% of the coverage A limit. However, you may purchase more coverage for an additional premium.

Coverage C - Personal Property

This coverage provides protection for the contents of your home and other personal belongings owned by you and other family members who live with you. Coverage C is normally 50% of coverage A or is subject to an established amount agreed upon by you and the insurance company.

Coverage is limited on certain types of property that are especially susceptible to loss, such as:

* Jewelry
* Furs
* Fine Arts
* Silverware
* Antiques
* Collectibles
* Firearms
* Money

Additional amounts of insurance may be purchased. You may want to consider scheduling these items separately. Ask your agent for specifics.

Coverage D - Loss of Use

This coverage will help with additional living expenses if your home is damaged by a peril insured against to the extent that you cannot live in your home. These expenses include, but are not limited to, housing, meals and warehouse storage. Coverage D is normally limited to 20 percent of Coverage A.

Coverage E - Personal Liability

This section of the homeowners policy will provide coverage in the event you or a resident of your household are legally responsible for injury to others. Coverage E normally providess a defense and will pay damages, as the insurance company deems appropriate. There are some exceptions. The liability coverage will not protect you in all situations, such as an intentional act. All of the exclusions and specific language can be found in your policy.

Coverage F - Medical Payments to Others

This coverage pays for reasonable medical expenses for persons accidentally injured on your property. For example, if a neighbor's child is injured while playing in your home, the medical payments portion of your homeowner's policy may pay for necessary medical expenses. medical payments coverage does not apply to your injuries or injuries of thos who reside in your household. It is not a substitute for health insurance. Business activities are also excluded. All of the exclusions and specific language can be found in your policy.

Perils Generally Covered by a Homeowners Policy if Damage is caused by:

* Fire or lighting
* Windstorm or hail
* Explosion
* Riot or civil commotion
* Aircraft
* Vehicles
* Smoke
* Vandalism & malicious mischief
* Theft
* Volcanic eruption
* Falling objects
* Weight of ice, snow, sleet
* Sudden & accidental water damage
* Breakage of glass

Perils Generally not covered by a Homeowners Policy if Damage is caused by:

* Flood
* Earthquake
* Earth movement
* Termites
* Insects, rats or mice
* Water damage cause by seepage or leaks
* Losses to house vacant for 60 days or more
* Mold
* Wear and tear or maintenance
* War
* Insurrection
* Tidal wave
* Neglect
* Nuclear hazard

Important: Read exclusions in your insurance contract.

Earthquake, flood, mold, earth movement, and "wear and tear" are some of the perils that are usually excluded. When an insurer writes your homeowners coverage, the insurer is legally obligated to offer you earthquake coverage for an additional premium. The earthquake coverage may be written directly by the homeowner's insurer, by a separate insurer, or through the California Earthquake Authority (CEA).

You may elect to buy specialized homeowners coverage that provides additional protection for your dwelling and contents beyond the standard coverage limitations in most homeowner's policies. Ask your insurance agent or broker about available endorsements to extend coverage. Endorsements to coverage such as building code upgrade can greatly add to your protection in a loss.

Renters Insurance

News reports of apartment fires often include tragic stories of renters who have lost everything because they weren't insured. Your landlord does not provide insurance for your personal property. Having all your personal possessions destroyed in a fire or other insurable event, without coverage, is a tragedy that does not have to happen.

To protect your belongings, you should consider purchasing renter's insurance, also known as "tenant's insurance." The renter's policy may be used to provide coverage for your personal contents located in the property that you occupy. Coverage is also provided for loss of use, personal liability protection and medical payments to others.

Coverage generally Provided under a Renter's Policy:

Coverage C - Personal Property

An amount, designated by the insured, subject to a minimum as determined by your insurance company

Coverage D - Loss of Use

20% of Coverage C

Coverage E - Personal Liability

Generally subject to a minimum of $100,000

Coverage F - Medical Payments to Others

Generally Subject to a minimum of $1,000

Condominium Insurance

Condominium insurance covers the unit-owner and is similar to renters insurance. Coverage includes interior damage to your unit, personal property and improvements. Loss of use is generally limited to 40 percent of the contents limit. The condominium association generally purchases insurance for the building structure and common areas, such as corridors. Loss Assessement Coverage can be an important policy provision for you. It covers you for certain assessments the condominium association makes. However, you should check if it covers you for earthquake losses and how much it will provide you in the event of an earthquake loss. You should also carefully analyze the type of insurance your association has and how it would affect you in the event of a loss. Most condominium association policies cover the common areas and walls.

What Limits should I set on My Homeowner Insurance Policy?

The "dwelling" limit should be the amount it would cost to replace your home. This may have nothing to do with the purchase price or the current market value of your home, as homeowners insurance does not generally cover the land value of your insured property. Your insurance policy is not governed by the real estate market, but by the cost of the materials and labor involved in rebuilding your home. Insurance companies have formulas that they use to evaluate the replacement cost of your home. Since the formulas developed are unique for each company, different insurers may suggest or require different limits of coverage for your dwelling limit.

The following information can assist you to determine if the limit set by your company accurately reflects the price it would cost to rebuild your home in the event of a total loss:

• Contact your agent or broker for assistance in evaluating your dwelling limit. In order to prevent a "he said, she said" situation from arising in the future, you need to document your discussions and inquiries in writing.
  
• Review your dwelling limit initially and upon renewal. Discuss any changes to your home in writing to your agent, broker, or insurer that may cause your dwelling limit to increase or decrease.
  
• Know the replacement cost of your home. Be familiar with the building materials that make up your home including the construction type and any special features.
  
• Stay informed as to the current building costs in your area. Contact local general contractors and ask what the current price per square foot is for a home similar to your own.
  
• Keep accurate records of updates, renovations, and improvements to your home. Save receipts and samples of materials used when possible and contact your insurance agent or broker to increase the dwelling limit when appropriate.
  
• Contact your agent, broker, or insurance company ito request a comprehensive inspection of your home if you believe your policy limits may be inadequate.

If you believe that your dwelling limit is undervalued or overvalued, and you have submitted documentation in writing to your agent, broker, or insurer to raise or lower the limits and your request is refused, then contact the CDI for assistance by using the information in the "Talk to Us" section below.

The "contents" limit is generally around 50% of the dwelling amount; however, this is a guideline only, as the most competent source on the replacement value of your personal possessions is you. Be sure to take into account all of your personal property when calculating the contents limits. Read and understand the limited coverage amounts for specific types of personal property such as:

* Jewelry
* Fine arts
* Silverware
* Antiques
* Collectibles
* Firearms
* Computer hardware and software
* Business personal property
* Money

The limited coverage amounts for specific types of personal property are not separate limits in addition to the contents limit. These limits are included in the overall contents limit and represent the maximum paid out for that specific type of personal property. Therefore, it is very important to add an endorsement (sometimes referred to as a "rider" or a "floater") to coverage which specifically schedules and takes into account the value of personal property that you may own above the special limits. Contact your agent or broker to discuss how to adequately cover any personal property that is valuable, falls above the limits, or is in any way out of the ordinary. Also, make sure to take into account commonplace household items when calculating your contents limit. Often, people concern themselves only with big ticket items purchased for use in their homes and neglect to account for all the many things you need to run your household and enjoy your home such as small appliances, kitchen utensils, linens, window coverings, and sundries. Remember, personal property also includes clothing, shoes, accessories, and personal items.

Two major problems suffered by homeowners on their Residential Property/Homeowners insurance policies in the Northern and Southern California fires were:

(a) Many of the dwellings were under-insured, i.e., insured for amounts inadequate for rebuilding. Insurers sometimes refer to this as inadequate insurance-to-value.

(b) The problem of increased cost of construction was evident in many situations. When rebuilding, homeowners have to comply with new building code requirements. In some instances the difference between the dwelling limit and the code upgrades was a significant amount. Also, the extreme heat of some fires (and some new building code requirements) necessitated building new foundations along with appropriate debris removal. This is a situation that can be easily overlooked when determining building limits.

An important part to owning any property is protecting the property to the best of your ability. Homeowners insurance is a vital component to the protection of your property. By knowing and understanding the coverage and limits of your policy, and by making sure that values are current, your greatly add to you and your family's peace of mind in any loss situation.

Will My Homeowner Insruance Policy Completely and Totally Replace My Home If It Is Destroyed?

This depends on whether your policy is a replacement cost value policy or an actual cash value policy. If your policy is an actual cash value policy, it will not.

Actual cash value recovery is determined as follows:

(1) In case of total loss to the structure, the policy limit or the fair market value of the structure, whichever is less, or (2) in case of a partial loss to the structure, the amount it would cost the insured to repair, rebuild, or replace less fair and reasonable deduction for physical depreciation, or the policy limit, whichever is less.

If you have a replacement cost policy, the chances that you will be able to completely rebuild your home are better;however, there are many types of replacement cost policies, so you need to be careful to purchase a replacement cost policy that best meets your needs. A policy cannot be sold as a "guaranteed replacement cost" policy unless it will pay to completely rebuild the home. Other types of replacement cost policies will pay your policy limits, plus a certain percentage above those limits. Some policies do not have building code upgrade (ordinance or law) coverage. Cities and counties periodically change their building codes. Unless your policy has this coverage, your insurance company may not pay for changes you may need to make to the structure of your home to bring it up to current building codes. As discussed earlier, your agent , broker, or insurer can assist you in establishing a limit that is adequate to rebuild your home. It is important to update that limit periodically to maintain a limit that reflects current construction costs. You may want to ask your agent, broker, or insurer if they automatically review or increase limits on a regular basis or if they offer an automatic inflation guard option that increases limits according to current inflation information.

Standard Broker Disclosure

* Do not sign any broker fee agreement unless all of its blank lines and spaces have been filled-in and you have read this entire document and the agreement carefully.
* Your insurance broker represents you, the consumer, and is entitled to charge a broker fee if he/she chooses. This fee is not set by law, and may be negotiable between you and the broker.
* It is illegal or improper for an insurance broker to charge you a fee for placing coverage solely with the California Automobile Assigned Risk Plan or the California FAIR Plan. Fees may be charged for placement of other coverages.
* Broker fees are often non-refundable even if you cancel your coverage. Refer to your broker fee agreement to see if your broker fee is non-refundable. However, you may be entitled to a full refund of a broker fee if your broker acted incompetently or dishonestly. Unresolved disputes over non-refunded broker fees can be forwarded to the Department of Insurance for review.
* Your are entitled to obtain and keep a completed copy of this disclosure and any broker fee agreement you sign.
* Your broker may receive commission from insurance company(ies) for placing your insurance. This commission may be paid to your broker by the insurance company(ies) in addition to any broker fee you pay.
* If you will be paying your premium in installments to a finance company, by law you must receive a copy of a premium finance disclosure and agreement. Be sure to obtain and read those documents before signing a premium finance agreement. Also, ask the broker if the insurer offers its own installment payment plan. Insurer installment plans are often cheaper than premium financing through a separate premium finance company.
* If your broker is placing automobile coverage, your broker must provide you with a copy of the current Department of Insurance pamphlet Automobile Insurance. Also, if your broker is placing residential coverage, your broker must provide you with a copy of the current Department of Insurance pamphlet Residential Insurance. By signing this disclosure you acknowledge receipt of the appropriate pamphlet(s).

Client initials: ___________

In short, there is no substitute for reading your policy and your renewal declarations carefully. Whenever you are unclear about your policy, you need to contact your agent, broker, or company for clarification in writing. Discovering after a loss that you did not have the right coverage is not a situation you want to experience.

For more detailed information on residential claims, please see the CDI's Residential Property Claims Guide. This brochure helps you navigate the claims process and discusses hot topics such as water damage, mold, and replacement cost.

Remember, if you only shop by comparing prices only and not by comparing coverage, you are doing yourself a disservice. Your home is one of the most important purchases you will make. Take the time to get the facts straight before you purchase homeowners insurance. It may be one of the best decisions you make for yourself and your family.

Problems in Obtaining Homeowner Insurance

If you are unable to find an homeowner insurance company that will sell you a homeowners or renters policy because you do not meet their eligibility requirements, or if you cannot find certain coverage, such as fire or flood insurance, you can turn to special insurance programs. They include:

Insurance Cancellations and Insurance nonrenewals

After a residential policy has been in effect for sixty days it can be cancelled for limited reasons which include; nonpayment of premium, fraud, material misrepresentation, or physical changes in the insured property that increase any hazard insured against.

The company must mail or deliver a notice of cancellation to you at your last known address based on the number of days stated on the policy. The reason for cancellation must be disclosed on the notice. The insurance company must mail or deliver a notice of cancellation at least 20 days prior to the effective date of cancellation, and 10 days for nonpayment of premium or for fraud. However, it is important to know that companies may sometimes provide more generous cancellation notification in their policies. If the policy provides for a cancellation notice period of longer than 20 days, the policy language will apply.

A written notice of nonrenewal must be forwarded to you at least 45 days before the expiration date. If the company fails to give you the proper notice as required by law, your existing policy, with no change in its terms and conditions, will remain in effect for 45 days from the date the notice is sent.

Homeowner Insurance Premiums

The insurer has sixty days from the policy's effective date in which to verify the rating and underwriting of a new policy. Within these sixty days, a company must notify you of any error and change in premiums. After sixty days, no notice of change of premium shall be effective.

If the premium revision results from an error made by the company or its agents, or from incomplete information provided by you, the insurance company is required to notify you of the error within sixty days and the higher premium shall be charged from the effective date of coverage. If you do not accept the increase in premium, you may ask the company to cancel the policy. The earned premium must be calculated on a pro rata basis on the original quotation.

If the premium revision results from an error made by the company or its agents and you are not notified of the error within sixty days, the policy shall remain in force as written at the original premium. After the sixty day period has expired, the insurance company may flat cancel the contract for misinformation and/or misstatement or other matters sufficiently serious to justify a flat cancellation.

Homeowner Insurance Premium Refunds

In general, whenever the policyholder initiates a cancellation, the premium is calculated on a short rate basis whereby the company retains part of the unearned premium to cover administrative expenses. However, some companies may calculate the premium on a pro rata basis. you will need to review your policy contract to find out the cancellation provisions of the company.

In addition, if you have acquired the services of a broker and signed an agreement, the broker may be entitled to retain the broker fee. You may be entitled to a full refund of the broker fee if the broker acted incompetently or dishonestly. Unresolved disputes over non-refunded broker fees can be forwared to the CDI for review.