State Offers Guide to Understanding Insurance Policies
“It is extremely important that property owners or renters have the proper insurance coverage.... To do that, they must first understand the basic language of the policy..." ~ state Department of Banking and Insurance Acting Commissioner Ken Kobylowski.
Editor's Note: The following is a news release issued by the New Jersey Department of Banking and Insurance.
Recent disasters such as Tropical Storm Irene, the wildfires in southern New Jersey and the apartment building fire in Woodbridge all call attention to the vital role that homeowners and renter’s insurance plays in helping consumers rebuild their homes and replace their property following a loss. Unfortunately, consumers may be confused, which can prevent them from buying the insurance product that best fits their needs.
“It is extremely important that property owners or renters have the proper insurance coverage to protect their home and its contents in the event of a loss. To do that, they must first understand the basic language of the policy and know what to look for in the document, and that is not always easy,” said New Jersey Department of Banking and Insurance Acting Commissioner Ken Kobylowski.
The Acting Commissioner offered tips to consumers to help them better understand their homeowners and renter’s insurance policies.
He also referred them to: “Insuring Your Home – A Consumer Guide to Homeowners, Renters and Condominium Insurance,” which was recently revised by the Department and can be found here:
Anatomy of a Policy
An insurance company paper policy usually contains four parts:
- Declaration/information page – Contains the policy number, the effective dates, the address of the insured property, the mortgage holder, coverage and limits, the premium and any discounts provided.
- Insuring agreement – Summarizes policy coverage and explains perils covered. This is called a “named perils” policy. Some policies are “all risk” which then name the coverage types excluded.
- Exclusions section – Describes specific perils not covered by the policy. This section may alter the insuring agreement. Generally, flood and earthquakes are excluded in homeowners and renter’s policies. Personal property such as animals and autos will also typically be excluded.
- General conditions section – Explains the policyholder’s duty in the event of a loss. It also includes definitions for the terms used on the declaration page and insuring agreement.
On the Declarations Page
Homeowners and renter’s insurance premiums are set by many factors. This page helps consumers verify their carrier has accurate information and that the policy provides coverage desired. When reviewing their policies, consumers should check the following:
- Name and property location – Confirm that the address and names listed on the policy are correct. In most cases, all parties involved in the mortgage should be named as insureds. Also, check the address of the insured property. Discrepancies in the address could create problems in the event of a claim filing.
- Effective dates/policy period – These are the dates the policy is in force. Your lienholder or mortgage company will check to make sure the policy continues without interruption.
- Property coverage – This includes the amount of coverage on the dwelling (attached structures, plumbing, heating and electrical); other structures (detached garages, sheds, fences); personal property (contents of the home, other personal items); and loss of use (living expenses if you cannot live in the home). The method of property replacement should be listed here. Some policies specify replacement cost, which is the amount required to repair or replace the home or repair damages with similar kind and quality, without deducting for depreciation. Other policies provide Actual Cash Value (ACV), which is reimbursement for what it would take to repair or replace damage with depreciation. These amounts should be reviewed annually and adjustments made as new purchases are added to the home.
- Liability coverage – This is the amount of coverage for personal liability (protection for the named insured against liability for accidents that cause injury to other people or damage to their property) and medical payments (pays medical expenses when people are injured on the insured’s property). Extra coverage can be obtained through an umbrella policy for a person with assets greater than the value of the house and its contents.
- Endorsements – Coverage added to the policy will be placed in this section. Typically, jewelry or other valuables that exceed basic policy limits would be covered through an additional rider for extra premium.
- Deductibles – Declarations pages differ between carriers, but they commonly describe the amount the insured is responsible for when a loss occurs. This might be a dollar amount or a percentage. Consumers should clearly understand these limits. The insured’s agent or carrier can answer any questions regarding the applicability of deductibles for any potential loss.
- Discounts – Discounts applied to the policy should be listed. Policyholders should make certain that all available discounts are applied to the premium.
- Premium – This is the cost for the policy term. Discounts are generally applied first to arrive at this figure.
- Lienholder – The name and address of the lienholder listed on the policy designates where the proof of coverage will be mailed. The homeowner should verify that this matches the information provided by the mortgage company servicing the home’s mortgage.
- Agent/insurance company contact – This should include the name and contact information for the agent from whom the policy was purchased or the company issuing the policy.
What Renters Should Know
Renter’s insurance varies slightly from homeowners insurance because it covers only the insured contents of a home and the insured’s personal liability. As a renter, the insured is not responsible for the structure.
On the other hand, renters should understand that their contents will not likely be covered by their landlord’s policy and not find this out after a loss occurs and their claim is denied.
“Renters do not want to find out the hard way that their valuable contents are not covered,” said Kobylowski. “When renters learn after a fire that they cannot replace their furniture, clothes and jewelry because they have not purchased renter’s insurance, it makes a difficult recovery even harder. Renters who do not have insurance now should seriously consider purchasing it.”
The contents and liability sections of a renter’s policy are generally very similar to a homeowners policy. The primary goal of a renter’s insurance policy is to adequately cover contents. Items with considerable value, like jewelry and antiques may require additional limits or endorsements to the policy.
The liability portion covers the named insured for medical expenses related to an injury sustained on the property. An umbrella policy is an option for additional coverage as necessary.
While the structural value of residential and apartment properties in the Garden State tends to be one of the highest in the nation, the average standard homeowners insurance policy is priced at around the national average, making it one of the better insurance deals in the country. New Jersey’s standard average annual homeowners premium is $865 or $72 a month. Renter’s insurance tends to be even less expensive, on average in New Jersey the annual premium is $169 or $14 per month, which is below the national average and often very affordable for the typical renter.
Keep in Mind
Homeowners and renter’s need to remember what can impact their coverage.
- Leisure items – Backyard recreational features, such as swimming pools or trampolines, may require more liability coverage through an umbrella policy. In some cases, a carrier may cancel the policy upon learning of a pool installation. Before installing such items, homeowners should consult their agent or carrier.
- Valuables – Generally, renter’s and homeowners policies place monetary limits on jewelry, art and antiques that may not cover the total value in the event of a loss. Check the policy limits when acquiring valuables to understand whether the policy adequately covers possessions.
- Claims experience – Whether a consumer is applying for a new policy or renewing an existing one, the carrier routinely verifies the named insured’s claims history. This generally involves running a report through a data bank that insurance companies share. This information is used to help determine the cost of insuring a property. Consumers should verify how long the previous claims history may adversely impact premium rating.
Create a Home Inventory
A home inventory helps consumers understand how much personal property insurance they will need to cover their contents and valuables. It also helps ease the claims filing process in the event of a loss. An inventory should include all vital information on each personal item such as name, price, date purchased, model, serial number and receipts. Photos of each article should accompany the inventory. The National Association of Insurance Commissioners has a free smartphone app that can walk a consumer through setting up a home inventory.
The iPhone version of the app is here: http://itunes.apple.com/app/myhome-scr-app-book/id414273863?mt=8 .
The Android version is here: https://play.google.com/store/apps/details?id=org.naic.scrapbook&feature=search_result .
A hard copy version of the home inventory checklist is here: http://www.insureuonline.org/home_inventory_checklist.pdf .
Once completed, share your home inventory with trusted friends, family, your insurance carrier and, if applicable, your insurance agent.
“If they haven’t already done it, homeowners and renters should take a few minutes out of their day to create a home inventory and become familiar with their homeowners or renter’s policy,” said Acting Commissioner Kobylowski. “Consumers do not want to wait for a severe loss to review their policy or to make that checklist. Renters should remember that their landlord probably does not have insurance coverage for their personal property. Renters should seriously consider buying rental insurance if they do not already have it. The cost is relatively inexpensive and well worth it following a loss.”
For more information
Visit the Department’s Website at www.dobi.nj.gov<http://www.dobi.nj.gov/>
Call the Department at 800-446-7467 or 609-292-7272.