Homeowner's Insurance

Get the basics on homeowner's insurance and the importance of doing a home inventory.

Before finalizing a mortgage loan, lenders require homebuyers to purchase hazard insurance to pay the lender in the event the house is damaged or destroyed by fire, smoke, wind, hail, vandalism or another similar act. Virtually all homeowners buy comprehensive homeowner's insurance, not just the minimum required by the lender.

In addition to covering the house, homeowner's insurance protects furnishings and other personal items, as well as any other structures on the property, such as a pool or separate garage. Homeowner's insurance also covers some types of personal liability -- if the mail carrier trips over your kid's skateboard, your policy will pay for his medical expenses and other losses. You will want to purchase additional insurance if your house is in a high-risk area for fire, floods, earthquakes or other natural disasters or you have expensive art or business equipment at home.

Finding good homeowner's insurance coverage has become surprisingly difficult in some states, such as California and Texas, where high payouts for mold and other disasters have made the insurance industry skittish. You might actually find that you can't purchase a policy -- or at least not a reasonably priced policy -- if you've filed many insurance claims in the past, or if either you or the seller of the property have made claims for water damage (the usual precursor to mold). You'll have to shop carefully and guard your policy well once you've got it. You are best advised to get a policy with a high deductible, so that you've got no reason to file lower-cost claims that will raise your premiums or lead to cancellation of your policy in the future.

For more information on homeowner's insurance, see www.insure.com. This informative website provides a wealth of consumer information, from choosing a basic policy to purchasing earthquake or flood insurance to filing a claim. You can also check the websites of individual companies such as State Farm or Allstate.

Making a Home Inventory
If your home is struck by a burglary, fire, flood, earthquake, or another natural disaster, an up-to-date home inventory will make it easier to deal with police and your insurance company. Without one, you'll have to create a list of all your property from memory.

Fortunately, making a home inventory isn't an onerous task. And doing so not only prepares you for possible losses -- it can help you prevent the loss itself. As you inventory your possessions, you'll become more aware of their vulnerability, and you can take steps to secure them.

Start by walking through your house with a pad of paper and a still or video camera. Take pictures and jot down a list of any items worth more than $50 or so. Go room by room, and don't forget the garage, attic and basement. Be sure to include jewelry, clothing, stamp or coin collections, CD and record collections, silver, tools and electronic equipment.

Then take a little time to formalize your inventory. Insurance companies often supply inventory forms. Making and updating an inventory can be even easier if you own a computer.

Whatever your method, record key information about each item:

  • Complete description, including whether or not it's marked with an ID number such as your driver's license number. (You can buy an electric engraving pen for $20 or so at a hardware store.) Record the make, model and serial number, if any; this will help you justify the estimated value of the item to your insurance company. The ID and serial numbers help police identify stolen goods.
  • Location. This will help you identify what you've lost if only one area, such as the garage, is hit.
  • Location of ownership documents, receipts, owner's manuals and repair bills.
  • Purchase price, current value and replacement cost. For most items, your best estimate will do. For antiques or other difficult-to-price items, such as a stamp collection, jewelry or art, you may need a professional appraisal, and the items may need to be listed specifically on the insurance policy (a "rider").

Keep your written and photographic inventory in a safe place, such as a fire-resistant file cabinet, the freezer or a safe deposit box. Keep at least one copy away from home. If you take a long vacation, give a copy to a friend or neighbor; that way, if your house is broken into while you're gone, they can determine what's missing and report it to the police.

Copyright 2004 Nolo