AARP Financial

Insurance

Homeowner's and Renter's Insurance

Do you own a home? Then, it's a good idea to buy insurance that will pay for repairing and replacing your home if it's damaged or destroyed. Renters should buy insurance to protect their furniture and other personal property.

What are the main types of coverage?

Your policy should at least cover the following (although some may only apply to homeowner's insurance):

Dwelling - This covers damage to your house and any outbuildings, such as detached garages and storage sheds. Renters don't need this coverage. If you're an owner, be sure to raise the coverage as the value of your home increases.

Personal property - This covers household items, including furniture, clothing and appliances that are damaged, stolen, or destroyed.

Liability - This protects you against financial loss if you're found legally responsible for someone else�s injury or property damage. Typically, you can buy up to $1 million in coverage.

Medical payments - This covers medical bills for people who are injured on your property. It also pays for some injuries that happen away from your home, such as your dog biting someone.

Loss of use - This covers living expenses if your home is too damaged to live in during repairs. The common policy coverage is up to 20% of the amount for which your house is insured, but you may be able to buy higher coverage.

What's not covered?

Typically, standard policies don't cover earthquakes (or even earth movement), flooding (if you're in areas prone to flooding), damage to landscaping from wind and hail, and termites, as well as wear and tear from normal use. There may be other exclusions as well. Even if you don't read the entire policy, it's a good idea at least to read the exclusion section. It's extremely important to know what situations are excluded from coverage, because you may want to consider a supplemental policy for a particular liability, such as an earthquake, hurricane, or flood.

How to Keep Your Policy Up to Date

As home values rise, you may find that your dwelling replacement coverage is wholly inadequate for the home you have. Over time, you may also buy personal property of high value that may not have adequate insurance protection. Be sure to reassess your coverage annually and increase your coverage if you need to. It's also wise to inventory valuables in your house ahead of time; otherwise you may not be able to prove their loss and receive coverage. Take photos of your valuables and keep them in a handy and safe place.

Keep your credit score up.

Insurance companies may use your credit score in determining the risk you pose as a homeowner or renter. This will affect the premium you pay. In other words, a poor credit score could force you to pay more for your policy. So, it pays to borrow wisely and consistently repay your debts on time.

Know your home's claim history before you buy. Companies are now including a home's past insurance history when considering all the factors that determine your policy's premium. In other words, if the previous owners put in a lot of claims, you may pay higher premiums because of them�or even be denied coverage entirely. Be sure to check a home's claim history before buying.

Take advantage of discount offers.

Insurers may offer premium discounts if you take steps to reduce the chances of a loss. Discounts will vary from company to company. Some of the more common discounts are based on having:

  • Impact-resistant roof
  • Noncombustible roof
  • Personal property marked with an identifying number (inspection required)
  • Age of house (companies set own standards)
  • Premises in good condition (companies set own standards)
  • Good claims experience for three consecutive years
  • Other policies with same company or group
  • The house insured to full replacement cost
  • A senior citizens discount
  • Burglar, fire, and smoke alarm systems
  • Automatic sprinkler systems
  • Fire extinguishers
  • Home security devices

Other Residential Policies

Renters. A landlord�s insurance does not cover a renter�s personal property. Renters insurance covers your belongings, provides liability protection, and pays extra living expenses if a fire or other disaster forces you to move temporarily from your rented home.

Condominiums. Condominium insurance is similar to renters insurance, and also covers damage to improvements, additions, and alterations to the condominium unit.

Townhouses. Townhouses may be insured by either an individual homeowner's policy or an association master policy. If a townhouse is owner-occupied and the townhouse association does not have a master policy on the building, you can purchase a homeowners policy on your individual unit. If the association has a master policy, you might still want to get a separate tenant homeowners policy to insure your personal property.

Mobile homes. Policies are designed to meet the needs of mobile home owners, covering physical damage to the home, contents, and personal liability.

Take Action

  • In case you are denied property coverage, get your CLUE report. Many companies use the Comprehensive Loss Underwriting Exchange (CLUE) to review an applicant�s claims history. CLUE lists the property insurance claims history of houses for the preceding three years. Federal law gives you the right to challenge wrong information. If an insurance company based part of its decision to deny you coverage on a CLUE report, you can get a free copy of the report by calling the ChoicePoint Consumer Center at 1-800-456-6004 or visiting its website at www.choicetrust.com/index2.htm.
  • Look for an insurer in your state for any type of insurance, using an online service from the Insurance Information Institute.
  • Be sure that the insurance company offering the policy will be financially sound when, or if, it comes time to pay your claim. Use these services:

    A.M. Best
    908-439-2200
    www.ambest.com

    Moody's Investors Services
    212-553-0300
    www.moodys.com

    Standard & Poor's Insurance Ratings Service
    212-438-2000
    www.standardandpoor.com

Additional Resources

  • For state insurance information, visit the National Association of Insurance Commissioners at www.naic.org/state_web_map.htm
  • At Choice Trust learn how insurers are using credit scores to help them determine the risk you pose as an insured homeowner — and how much in premiums they will charge you.
  • The National Association of Insurance Commissioners (NAIC) has published "A Consumer's Guide to Home Insurance," which discusses homeowners and renters insurance. You can order the guide from NAIC. Or, you can view the guide online at the Indiana Department of Insurance Web site.


These articles are not meant to be a financial plan. A financial plan generally addresses a wide spectrum of financial needs including insurance, savings, investments, tax and estate planning.