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Homeowner's Insurance
Frequently Asked Questions


ANSWERS

I AM CONFUSED ABOUT THE AMOUNT OF HOMEOWNERS INSURANCE COVERAGE I SHOULD BUY FOR MY HOME. HOW MUCH IS ENOUGH?

Homeowners insurance covers both damage to your property (your home, garage and their contents) and the liability of you and your family arising from their actions (such as a lawsuit arising from your child accidentally injuring another child during a baseball game.) "Enough" needs to take both of these types of losses into account.

Property Insurance:

If all you want to do is pay off your mortgage and walk away from the property, "enough" would be the outstanding balance of your mortgage.

The replacement cost of the home is the amount it will cost you to rebuild the house with material of like kind and quality (excluding the foundation, which is usually not damaged during a loss,) it is not any of the following:

  • The market value of the house
  • The assessed value of the house, or
  • The value the mortgage company used as its worth.

All of these values include the cost of the land and the foundation of the home.

If you want to rebuild the house and replace the contents, you will need to insure for considerably more than the amount of any outstanding mortgage. Unless you insure for at least 80% of the replacement cost of your home (the building itself, not including the cost of the land and the foundation,) if you have a loss, you will be "underinsured" and the insurance company will not pay the full loss. While a discussion of "coinsurance" and the "coinsurance penalty" is beyond the scope of this question, your insurance agent can give you examples of what might happen.

You should remember that even if you insure for at least 80% of the replacement cost of the home but less than the full replacement cost, the loss may exceed the amount of insurance. In that case, the insurance company will only pay the policy limit, leaving you to pay the remainder yourself. Many companies offer some type of "guaranteed replacement cost" or "inflation guard" endorsements which will increase the value of the property as construction costs increase.

Special valuation situations: the homeowners policy is designed for the typical house. If your house was built before World War I, has hand-made details, stained glass windows, or unique features not commonly found in houses today, the homeowners policy may not provide adequate coverage. Your agent can help you tailor the policy to your particular needs.

Liability Insurance:

The basic homeowners policy provides $100,000 of coverage, which, for many individuals, is sufficient. Higher limits are available for an additional premium.

If you have an umbrella policy, you should determine what limits of insurance it requires for your primary policy.

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WHAT IS THE DIFFERENCE BETWEEN ACTUAL CASH VALUE AND REPLACEMENT COST?

Replacement Cost is the amount to repair or replace the damaged property using materials of the like kind and quality, without deduction for depreciation. Depreciation is the loss of value that develops as an item ages, wears out, or becomes obsolete. Actual Cash Value is the replacement cost of an item, less the amount for depreciation.

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I AM BUYING A HOUSE AND THE BANK SAYS I MUST HAVE INSURANCE TO COVER THE MORTGAGE. THE MORTGAGE IS ABOUT $20,000 MORE THAN THE REPLACEMENT COST OF THE HOUSE. NOW WHAT DO I DO?

First, talk to the bank. Your agent should be able to help you substantiate the replacement cost of the building. In the event of a loss, the replacement cost is the most your insurance company would pay, even if you have more insurance. Banks are well aware of this, but your particular loan officer may not be.

While you are talking to your agent, you should also ask him to find out if the house is in a flood plain, and, if it is, if Federal Flood Insurance is available. This is relatively inexpensive, and, since your homeowners policy excludes flood damage, can be a lifesaver if you are flooded. (In addition, if you are in a flood plain, many banks will require you to obtain it.)

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I HAVE COVERAGE ON MY HOMEOWNERS POLICY FOR SPECIFIC JEWELRY ITEMS. I HAD A RECENT LOSS AND MY INSURANCE COMPANY WANTS ME TO USE THEIR JEWELER TO REPLACE THE ITEMS. WHAT HAPPENS IF I DECIDE NOT TO REPLACE THE ITEMS THROUGH THEIR JEWELER?

Generally, insurance companies will replace the items if possible through their jeweler because they receive a better price than if they used your jeweler. If you decide not to replace the jewelry, your company will pay you only the amount of money that they could replace it through their jeweler.

 

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SEVERAL ITEMS THAT I USED FOR MY BUSINESS WERE STOLEN FROM MY HOME. WHY DID MY INSURANCE COMPANY ONLY PAY PART OF MY CLAIM FOR MY LOSS?

Most homeowners policies will cover business items up to $2,500 in your home or $250 away from you home, subject to your deductible. There are some exceptions to this limitation on business items, but it is so important that you check your policy in each case. You should also be aware that there are other policies available that specifically cover business equipment. You should contact your agent to determine the cost of the coverage for these items.

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MY INSURANCE COMPANY JUST NOTIFIED ME THAT THEY ARE NOT RENEWING MY POLICY. CAN THEY DO THIS AND ARE THEY REQUIRED TO SEND ME A NON-RENEWAL NOTICE BY CERTIFIED MAIL?

Under Massachusetts law, your company must notify you of their decision not to renew your policy, at least 45 days prior to its expiration date. Your insurance company does not have to send you a notice by certified mail. They are only required to use first-class mail to the address listed on your policy.

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I LIVE NEAR THE OCEAN AND MY INSURANCE COMPANY IS NOT RENEWING MY POLICY. WHERE ELSE COULD I PURCHASE INSURANCE IF THIS HAPPENS?

Your company has the right to renew or not renew your policy. Recent severe storm losses incurred by many insurance companies have caused them not to renew policies in coastal areas. You have several options if your insurance is not renewed. First, you can check with your company agent to see if they have companies writing business in the area other than the one that is not renewing you. Second, you can ask about purchasing insurance through the FAIR PLAN, technically, the Massachusetts Property Insurance Underwriting Association. It was formed by the Massachusetts legislature in 1968 to make available insurance protection to individuals who were having problems getting insurance for their home. Third, you could also contact the FAIR PLAN directly. Their phone number is (617) 723-3800 or 1-800-392-6108. And do not forget to ask your agent about the Federal Flood Insurance Plan, especially if you are in a coastal area. It is a good companion to a homeowners policy.

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MY HOME SUFFERED A WATER LOSS LAST WINTER DUE TO ICE DAMS ON THE ROOF. Read more about Ice Damming

WITH THE MELTING OF ICE AND SNOW, BOTH THE ROOF AND THE INSIDE OF MY HOUSE SUFFERED WATER DAMAGE. WHAT WOULD BE COVERED UNDER MY HOMEOWNERS POLICY?

Generally, damage to both the exterior and interior of a home resulting from weight of ice and snow or ice dams is covered under that homeowners policy. However, when a claim is evaluated, the insurance company adjuster will look at the damage to the roof and will pay only for the area damaged in the loss. If further damage to the roof has occurred due to wear and tear, that part of the claim will not be covered.

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MY HOME WAS RECENTLY BROKEN INTO AND I DO NOT HAVE SALES RECEIPTS FOR THE STOLEN ITEMS. WHAT WILL THE INSURANCE COMPANY ACCEPT FOR PROOF OF OWNERSHIP?

If the actual receipts are not available, insurance companies generally will accept photos, warranties, owners manuals, canceled checks, credit receipts, bills, servicing agreements, even video tapes, as proof of ownership. We suggest that you consider video taping your home before a loss.

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WHEN CAN AN INSURANCE COMPANY CANCEL MY HOMEOWNERS COVERAGE DURING THE POLICY TERM?

According to Massachusetts General Laws Chapter 175, Section 99 (12), your policy can be canceled for these reasons:
  1. Non-payment of premium;
  2. Material misrepresentation/Fraud. That means that they honestly believed you planned on committing fraud;
  3. Conviction of a crime arising out of acts increasing the hazard insured against. (For example, conviction for illegal storage of fireworks);
  4. Discovery of willful or reckless acts or omissions by the insured increasing the hazard insured against. (An example of this would be not getting a gas leak fixed);
  5. Physical changes in the property insured which result in the property becoming uninsurable. (For example, should the home become vacant for more that 60 consecutive days, there is automatically assumed to be a greater exposure to vandalism and damage); and
  6. A determination by the Commissioner of Insurance that continuation of the policy would place the insurance company in violation of the law.

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I HAVE SPECIFICALLY INSURED ANTIQUE ITEMS LISTED ON MY HOMEOWNERS POLICY. IF I HAVE A TOTAL LOSS, WOULD THE INSURANCE COMPANY PAY ME THEIR INSURED VALUE?

Your insurance company would first confirm the value of the items with one or more independent antique dealers. You should then be paid a dollar value based on the dealer(s) estimate of the worth of the antique items. If you disagree with the settlement offered by your company, then you can follow the dispute resolution process outlines in your policy. There is a simpler way. Get appraisals and have your company agent establish what the values are specifically in the policy. You should also keep your appraisals up to date.

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DURING A STORM, A TREE FROM MY NEIGHBOR'S YARD FELL AND DESTROYED MY FENCE. DOES MY HOMEOWNERS POLICY PAY FOR THE DAMAGE OR DOES MY NEIGHBOR'S POLICY?

Generally, your own policy should cover such a loss. Your insurance company may be able to recover the amount it pays you for the loss and your deductible from the homeowners insurance that your neighbor may have, in the event that the loss occurred as a result of your neighbor's negligence.

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SEVERAL RECENT RAINSTORMS HAVE FLOODED AND DAMAGED MY BASEMENT. IS THERE ANY COVERAGE UNDER MY HOMEOWNERS POLICY?

Flood coverage is generally excluded on the basic homeowners policy. However, some homeowners policies provide coverage for backup of sewers and drains that cause flooding in your basement. This coverage can be purchased for a nominal premium. You should check with your company agent to see if this coverage is provided and how much it costs.

However, if you live in a flood-prone area, you should consider purchasing a flood insurance policy. Flood policies have certain provisions that may limit recovery at the time of a claim. For example, unless two or more acres are flooded, or your neighbor's home as well as yours is damaged, the National Flood Insurance Plan will not cover your loss. It also is limited as to what it will cover in basements. Generally, it is the washer and dryer. Your agent should be able to inform you about the advisability of purchasing flood insurance depending on the area in which you live and on coverage other than for official floods.

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THE FOOD IN MY FREEZER WENT BAD BECAUSE I LOST POWER IN MY HOME. DOES MY HOMEOWNERS POLICY PROVIDE COVERAGE FOR THIS?

The basic homeowners policy usually does not. But, this is a popular coverage for insurance companies to offer and you may be able to buy it for a nominal additional premium. There is also the issue of where the power was lost. Some policies are limited to coverage for electricity lost in the home or where the electricity enters the home. Others will limit it to within so many yards from the home. Your agent should be able to tell you about the availability of coverage and how much it would cost.

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The Homeowners Insurance Questions & Answers were compiled to help consumers answer some of the most frequently asked questions about homeowners insurance. 

Developed with the assistance of the 
Massachusetts Department of Insurance.
Contents were written by DOI Staff.