Buying a home is one of the biggest investments you will ever make. You need to make sure that you protect this investment with the right kind of insurance. There are a few different types of property insurance depending on what your specific purchase is that dictate what type of insurance you need. For example, if you are buying a home that you plan to live in as your primary residence you need to buy what is often referred to as a Homeowners or H3 policy. If you are buying a condo, you need to buy what is often referred to as a Condo/Contents or H6 policy. Finally, if you are buying a n investment property that you will be the landlord of and renting out to other people, you will need to buy a Fire Dwelling or FN policy. All three of these policies have similar coverages and unique coverages. Let’s examine them separately.
Primary Residence Policy (H3)
There are specific coverages that are unique to this policy. This policy will cover damages extending from most causes. Excluded in Georgia are losses due to Hurricane, Earthquake and Flood. Once a hurricane moves inland, it is considered a Tornado, which is covered. Earthquake and Flood insurance is available for purchase at an increased cost, however is not required by most loan companies. Let’s look at a breakdown of this policy’s Primary Coverages.
First and foremost is the Dwelling Coverage. This is the actual structure of the house. This amount should be equal to the Replacement Cost of the dwelling and all attached structures (i.e. garage, breezeway, deck). Commonly on an independent appraiser’s report this will be referred to as Total Estimated Cost New or simply, the price to rebuild the house brand new. This coverage will dictate all of the supplemental coverages on the policy, that is, they are calculated as a percentage of the dwelling coverage. Many companies will now include Expanded Replacement Cost to your Dwelling Coverage. Expanded Replacement Cost coverage provides up to 20% in excess of the Dwelling coverage amount for repair or replacement of the home and attached structures.
Second you have coverage for your Other Structures. This indicates coverage for structures that are not attached to the main structure of the home (e.g. detached garage, shed, barn, fence and some swimming pools). The policy automatically includes coverage equal to 10% of the amount of your Dwelling Coverage. If the total value of the other structures exceeds this amount then you may purchase additional coverage for an additional premium.
The third piece of coverage to this policy is Personal Property. Personal Property coverage provides protection for personal items (e.g. clothing, furniture) that are inside your house. In the state of Georgia, there are specific theft limits on personal property. That is, if certain items are stolen out of your house, the insurance company can limit how much they will pay out for those items. It is important to be familiar with what items have these limits and how much exactly would be covered in the event of a theft. If you have personal property in a category that has a limit, and it exceeds that limit, you may want to talk to your agent about “scheduling” that/those items. This simply means adding a rider on to the policy to make special consideration for those items. There is an associated cost to scheduling items on the policy.
The fourth coverage on the policy is referred to as Loss of Use Coverage. This coverage provides protection for the loss sustained if the premises becomes unfit to live in due to damage caused by a covered loss. Coverage defaults to a standard amount and may be increased for an additional premium. Most companies will provide this coverage on an Actual Loss Sustained basis for up to 12 months.
The next two coverages are optional in the State of Georgia, however they are absolutely recommended. These coverages are Liability Coverage and Medical Payments Coverage. Liability Coverage provides coverage for a claim or suit brought against an insured for damages such as bodily injury or loss to property. Coverage includes damages for which the insured is liable (up to limit) and providing a defense or negotiating settlement. Limits are available in increments of $100,000 up to $1,000,000. Medical payments Coverage provides for medical expenses for bodily injury to other parties incurred on the insured premises and is not subject to the policy deductible.
Finally you come to the last piece of the policy, which is your Deductible. The deductible is the amount of a claim that the policyholder has agreed to pay (e.g. $1000). This amount is deducted from a claims payment. The higher the deductible, the lower your rate. Usually a 1000 deductible is recommended. Reason being, you want to reserve the home insurance for more of your catastrophic claims. Having a 1000 deductible is a deterrent from filing the smaller claims and is a good way to keep your annual premium down.
There are additional coverages for your dwelling and personal property that can be purchased. These are generally specific to the individual. If you have something that would fall outside of the basic outlined coverage, ask your agent about it.
Condo/Contents Policy (H6)
This policy acts a little different from your primary residence policy. Most condos will have a condo association that you will need to pay dues for. This association actually has what’s called a Master policy. This Master policy usually covers the outside structure of your condo. It is important to request a copy of the Master Policy to see exactly what it covers. Let’s look at a breakdown of this policy’s Primary Coverages.
Again the first coverage we come to is the Dwelling Coverage. This is however, much different from the dwelling coverage on a H3 policy. This dwelling coverage should be equal to the Replacement Cost of that part of the condominium, which you are responsible for insuring. This is defined in the Unit Boundaries section of the Condominium bylaws. This amount should include any additions or alterations that are made to the unit that are not covered by the Master Policy. This amount would include other structures that are owned solely by you that are located on the residence premises that are not covered by the Master Policy. Most times, you are responsible for everything from the drywalls in. That is light fixtures, counter tops, bathroom fixtures, cupboards, etc.
The second coverage for a Condo policy is the most important. This is your Personal Property coverage. Again this coverage provides protection for personal items (e.g. clothing, furniture) that are inside your condo. In the state of Georgia, there are specific theft limits on personal property. That is, if certain items are stolen out of your condo, the insurance company can limit how much they will pay out for those items. It is important to be familiar with what items have these limits and how much exactly would be covered in the event of a theft. If you have personal property in a category that has a limit, and it exceeds that limit, you may want to talk to your agent about “scheduling” that/those items. This simply means adding a rider on to the policy to make special consideration for those items. There is an associated cost to scheduling items on the policy.
Third, there is your Loss of Use Coverage. This works exactly as it would on a H3 policy in that it provides protection for the loss sustained if the condo becomes unfit to live in due to damage caused by a covered loss. Coverage defaults to a standard amount and may be increased for an additional premium. This is usually calculated as a percentage of the Personal Property amount.
With the Condo policies, the next two coverages are also optional in the State of Georgia, however again they are absolutely recommended. These coverages are Liability Coverage and Medical Payments Coverage. Liability Coverage provides coverage for a claim or suit brought against an insured for damages such as bodily injury or loss to property. Coverage includes damages for which the insured is liable (up to limit) and providing a defense or negotiating settlement. Limits are available in increments of $100,000 up to $1,000,000. Medical payments Coverage provides for medical expenses for bodily injury to other parties incurred on the insured premises and is not subject to the policy deductible.
Next we have a coverage that is also optional but highly recommended. This is Loss Assessment coverage. This provides coverage for your share of loss assessment charged against you be a corporation or association of property owners when the assessment is made as a result of direct loss to property owned by all members collectively or as a result of liability from property damage or bodily injury. Basically, the Master policy will have a deductible. If there is a large claim that needs to be paid, your condo association can exercise its right to assess your portion of that deductible. This coverage will provide you available funds in the event that this happens.
Finally, again with this policy you will have a Deductible. The deductible is the amount of a claim that the policyholder has agreed to pay. This amount is deducted from a claims payment. The higher the deductible, the lower your rate.
There are also additional coverages for your dwelling and personal property that can be purchased.
Fire Dwelling Policy (FN)
This policy covers you as a landlord when a tenant chooses to rent your property. You are the owner of the property but you will not be living in this home. Most insurance companies will not write a policy on a vacant dwelling so it is important to make sure there will be a tenant in the home. Also, more and more, companies are requiring that they have the policy on your primary residence before they will write a policy on your investment property. Let’s look at a breakdown of this policy’s Primary Coverages.
First, again you have the Dwelling Coverage. This is similar to the Dwelling coverage on your primary home, but does have some subtle differences. This is the actual structure of the house. This amount should be equal to the Replacement Cost of the dwelling and all attached structures (i.e. garage, breezeway, deck). Commonly on an independent appraiser’s report this will be referred to as Total Estimated Cost New or simply, the price to rebuild the house brand new. This however, is a stated value policy so here is no Expanded Replacement cost. You need to insure the structure for the price to rebuild.
Second, you have coverage for your Other Structures. This indicates coverage for structures that are not attached to the main structure of the home (e.g. detached garage, shed, barn, fence and some swimming pools). The policy automatically includes coverage equal to 10% of the amount of your Dwelling Coverage. If the total value of the other structures exceeds this amount, you may purchase additional coverage for an additional premium.
Next, you have coverage called Fair Rental Value. This is also referred to as Loss of Rental income. Basically, if there is damage to your rental property caused by a covered loss, which prevents you from renting this property out, the insurance company will pay you your loss of rental income. This is usually 6 months worth of coverage or a percentage of the Dwelling Amount. (Ex: Dwelling insured for 100k, and you have 10% of that dwelling for Fair Rental Value coverage, you would have up to 10k to cover you for loss of income during the time you cannot rent out the property.)
This policy also has the option of Personal Property coverage. This usually refers to appliances or furniture that you own as the landlord that you are keeping in the house for use by the tenant. The amount of coverage is dictated by what items you are leaving for the tenant and what their replacement cost would be.
This policy offers Liability Coverage and Medical Payments Coverage as optional coverages. They work the same way for all three policies. That is Liability Coverage provides coverage for a claim or suit brought against an insured for damages such as bodily injury or loss to property. Coverage includes damages for which the insured is liable (up to limit) and providing a defense or negotiating settlement. Limits are available in increments of $100,000 up to $1,000,000. Medical payments Coverage provides for medical expenses for bodily injury to other parties incurred on the insured premises and is not subject to the policy deductible.
Finally, as with the other types of policies, you will have a Deductible. The deductible is the amount of a claim that the policyholder has agreed to pay. This amount is deducted from a claims payment. The higher the deductible, the lower your rate.
Understanding what type of policy will be required by your loan company, and how they work is a very important step in the buying cycle. This outlines simple coverages and the basic features of these three different types of policies. Every situation is different, as are most insurance companies. It is important to ask questions of your current/potential agent to make sure you can make the best-educated decision.
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