Transcript Document

Consumer Guide to
Homeowners Insurance
Illinois Insurance Hotline
(an industry-sponsored consumer resource)
1-800-444-3338
We’re here to help!
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Homeownership is a significant financial
investment.
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Many people identify their home as their largest
asset.
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Homeowners insurance provides a way to protect
this financial investment.
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Do you have enough saved to rebuild, repair, or replace
your home and belongings if a sudden and unexpected loss
happens?
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Homeowners insurance allows you to share costs
associated with rebuilding or repairing
covered losses with an insurance
company.
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Did you borrow money to buy your home?
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Most lenders require proof of insurance before
finalizing a loan transaction. You will need to
carry homeowners insurance throughout your
loan, or pay for coverage the lender secures on
your behalf. “Forced placed” policies are very
expensive and primarily protect the lender.
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Continue insuring your home –
even after the loan is paid off.
Your home is a financial asset;
insure it for as long as you
own it.
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Are you concerned that a visitor could be hurt on your
property, or that your negligence could lead to another
person’s injuries or property damage?
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Homeowners insurance provides “peace of mind”
liability protection for you and other members of
your household, including your pets.
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What is homeowners insurance?
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Legal agreement between an insurance company
and its policyholder.
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Insurer promises the policyholder financial
protection for covered losses associated with
owning a home.
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Policyholder agrees to pay a premium
in return for this financial protection.
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Homeowners improve
their insurance options when they…
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Take care of the property. The homeowner is
responsible for routine maintenance and repair – not
the insurance company. Seek assistance/advice from
a local housing organization or insurance agent if
necessary.
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Prevent losses. Identify and correct hazards that
increase the likelihood of property damage (i.e.
replace frayed electrical cords, proper storage of
flammable materials) and injury to others (i.e. repair
broken steps, clear impassable walkways).
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Show financial responsibility. Statistics show those
with good credit have fewer claims. In turn they pay
less for insurance and have more options.
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Property losses covered
by homeowners insurance…
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Policies vary in the kinds of property losses they
cover.
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Insurers identify “perils,” or causes of loss that
describe when property damage is covered.
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Covered perils are identified and explained in the
homeowners insurance policy.
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Common homeowners insurance policies…

Insurers combine coverages for dwelling, other
on-premise structures, personal property,
additional living expense, and liability into one
package.
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There are different policy packages (called
coverage forms) with varying levels of property
coverage.
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Homeowners 2 (Broad Form) and Homeowners 3
(Special Form) are the most common
homeowners insurance policy coverage forms.
Some insurers use these generic terms to
describe their policies. Others come up with their
own names.
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Homeowners 2 (Broad Form)
Covers dwelling, other structures, and personal
property for losses caused by:
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Fire
Lightning
Windstorm
Hail
Explosion
Riot/Civil Commotion
Aircraft
Smoke
Non-owned Vehicle
Vandals
Burglary
Glass Breakage
Robbery and Theft
Volcanic Eruption
Damage from Falling Objects
Weight of ice, snow, sleet
Sudden & accidental tearing apart, cracking, burning or bulging of
a steam of hot water heating system
Accidental discharge, leaking or overflow of water or steam from
within a plumbing, heating or air conditioning systems or domestic
appliances
Sudden & accidental injury from artificially generated currents to 10
electrical appliances, devices, fixtures and wiring.
Homeowners 3 (Special Form)
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Broadens coverage to “open perils” for dwelling
and other structures.
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An “open perils” policy covers all causes of loss
except those specifically excluded.
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Personal property is covered for HO-2 perils.
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Additional living expense coverage is included.
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Homeowners insurance provides
personal liability coverage too…
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In addition to property coverage, the HO2 and HO3
homeowners package policies include personal liability
protection and coverage for medical payments to others.
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Liability coverage protects you when you, other
members of your household, or your pets are legally
responsible for injury to others or damage to their
property.
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If necessary, liability coverage will also pay for a lawyer
to defend you.
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Medical payments coverage pays medical expenses for
someone who’s accidentally injured on your property or
injured by you, a member of your household, or your 12
pets. Fault is not a factor.
Where to buy insurance…
Insurance is sold through:
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Independent Agents – represent many different
insurance companies.
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Exclusive Agents – represent one insurer.
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Direct Writer Companies –
insurer works directly with
client.
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FAIR Plan…
Fair Access to Insurance Requirements
 Last-resort option for those unable to get
insurance from a private company.
 Association that operates like an insurance
company.
 Offers most of the same home, personal
property, and personal liability coverages that
private insurers provide.
 Available from local property insurance agents.
 Explore other options when your situation
improves.
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Things to know when you’re ready to buy
insurance on your home…
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There are many companies to choose from.
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Shop around. Price, eligibility, and coverage vary
by company.
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A quote is an estimate of what the insurance will
cost, and may vary from the final policy
premium.
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To get an accurate quote you must provide:
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Personal information – Name, address, insurance loss
history, nature & breed of household pets, social
security number.
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Dwelling information – Year & type of construction,
years of updates on heating, wiring, plumbing & roof,
square feet, special features inside, number of
families in dwelling.
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Insurance coverages – Dwelling, personal property, &
liability limits, as well as additional endorsements.
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Deductible – How much you’re willing to pay out-ofpocket before the insurance company begins paying.
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Optional coverages to consider…
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Earthquake
Flood
Home Business
Increased Limits on Liability, Medical Payments,
Other Structures, Personal Property
Inflation Guard
Mine Subsidence
Personal Property Replacement Cost
Scheduled Personal Property
Sewer Backup
Watercraft
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Price is important,
but there are other factors to consider…
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Coverage. The least expensive policy may also provide the
least amount of coverage.
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Financial Stability. A company’s financial strength indicates
its ability to pay future claims. Be certain the company
you’re considering is financially sound.
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Licensing Status – An insurer not licensed to operate in
your state is not subject to its rules and regulations.
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Service. Check the company’s customer satisfaction record
available through your state’s insurance regulatory agency.
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Comfort. Buy insurance from an agent or company
representative you are comfortable with. He/She should be
able to discuss your coverage needs and offer insight into
the claim settlement process.
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Insurance to Value…
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Dwelling coverage limit that satisfies the
insurance policy’s valuation requirement.
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Basis upon which insurers accept property risks,
so that sufficient premiums are collected to pay
normal claim expenses, and allow rates to be
actuarially sound.
Total Reconstruction Costs
 Cost to reconstruct, at one time, an entire
building of equal quality and utility.
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Common dwelling
insurance to value terms…
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Replacement Cost
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Actual Cash Value
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New Construction Cost
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Total Reconstruction Cost
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Market Value
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Insurance to value terms Replacement cost…
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Cost to reconstruct, at one time, an entire
building of equal quality and utility.
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Insurance to value terms Actual cash value…
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Value of property at a certain time, arrived at by
deducting from the property’s replacement cost
an amount of depreciation caused by physical
wear and tear and/or obsolescence.
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Generally described as the property’s
replacement cost less depreciation.
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Insurance to value terms New construction cost…
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Cost to construct, at one time, an entire building
of equal quality and utility.
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The construction or replacement uses modern
materials and current methods, designs, and
layouts.
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Insurance to value terms Total reconstruction…
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Cost to rebuild or reconstruct, at one time, an
entire building of equal quality and utility.
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Costs used for labor, materials, and fees are
those in effect after the occurrence of a loss.
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These costs include demolition, debris removal,
building codes, accessibility, and other costs.
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Insurance to value terms Market value…
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Amount a seller can expect to obtain for the sale
of property in the open market.
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Value will vary based on the economic conditions
that exist at the time of the sale.
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Other insurance to value terms…
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Agreed amount:
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Mortgage value:
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Guaranteed replacement cost:
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Co-insurance provisions:
A provision in a property policy under
which the insurer agrees with the insured that the amount of
insurance purchased satisfies the coinsurance, average or
contribution clause of the policy. (Rupp’s Insurance and Risk
Management Glossary)
Value of the mortgage on the property.
Homeowners policy that
pays the full cost of replacing or repairing a damaged or
destroyed home, even if it is above the policy limit. (Insurance
Information Institute Glossary)
In property insurance, requires
the policyholder to carry insurance equal to a specified percentage
of the value of property to receive full replacement on a loss. (III
Glossary)
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Determining the
replacement cost of your home…
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Ask your homeowners insurance agent for
assistance.
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Follow up with an Internet-accessed valuation
service vendor.
Marshall & Swift/Boeckh –
www.accucoverage.com
Exactware – www.xactinfo.com/apps/hov
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Choosing a policy limit for your dwelling…
The amount of insurance you have on your home
determines how much insurance you have for:
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Other structures (usually 10% of dwelling limit)
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Personal property (usually 50 – 75% of dwelling
limit)
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Additional living expense (usually 40% of the
dwelling limit).
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Choosing a personal property limit…
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Find out how much the policy automatically provides.
Most people have more invested in personal property
than they realize.
Take a room-by-room inventory to determine how
much insurance you need. Include brand names,
make & model information, serial numbers, and
receipts whenever possible.
Compare your personal property coverage needs with
the insurance policy’s limitations. Look for restrictions
on items like jewelry, guns, furs, golf equipment, etc.
Ask about buy back endorsements to address gaps in
coverage.
Unless stated otherwise, personal belongings are
insured for actual cash value (loss settlements are
reduced for depreciation).
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Choosing a liability limit…
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Choose a liability limit that is sufficient to protect
your financial assets.
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You may need more coverage than the automatic
$100,000 limit.
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Determining the cost of
homeowners insurance coverage…
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Insurance pricing is linked to loss potential. The
lowest premiums go to those least likely to have
claims.
Factors affecting your premium (insurance cost):
Age of Dwelling
Amount of Coverage
Building Construction Materials
Condition of Dwelling
Credit
Deductible
Location
Loss Experience
Policy Form
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Lowering your premium…
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Shop around.
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Request a high deductible.
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Maintain good credit.
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Ask about discounts
Auto-Home (Multi-Line)
Protective Devices (i.e. Smoke Detectors, Alarm System,
Deadbolt Locks)
Mature Homeowner
Non-smoker
New Home
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An insurance policy consists of…
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Declarations (Dec Page) – overview of your
policy.
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Policy Form – describes what the insurance
company will do in return for the premium.
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Endorsements – automatic and “buy back”
coverages that modify or change the terms
the policy form.
of
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Declarations “Dec” Page
Look here for:
 Name
 Address
 Property Location
 Year & Type of Construction
 Lien Holder
 Amount of Coverage
 Deductible
 Policy Identification Number
 Coverage Beginning and Ending Dates
 Applicable Policy Form
 List of Endorsements
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Policy Form
Look here for:
 Definitions – explanation of coverage terms used
throughout the contract.
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Coverages – how you’re protected for property
losses and personal liability.
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Exclusions – situations when the policy will not
protect you.
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Conditions – policyholder responsibilities when a
loss occurs.
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Supplementary Payments – expenses the insurer
will pay in addition to the policy’s liability limits.
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Endorsements
Look here for:
 Addendums to the policy form.
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Each endorsement describes how it changes the
terms of the policy.
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Before a loss…
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Prepare a room-by-room personal property
inventory. Include date of purchase, price,
receipts, and appraisals when possible.
Videotape or take pictures of your valuables.
Keep information on valuables in a safe deposit
box or secure place away from home.
Read your insurance policy. Find out what is and
isn’t covered.
Ask about buy back endorsements to address
gaps in coverage before a loss occurs.
Compare your home’s replacement cost with your
policy’s co-insurance requirement. Adjust
coverage as needed.
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Tips to avoid theft…
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Keep garage doors closed and locked.
Park a car in your driveway when you’re away.
Use automatic timers on lights.
Keep your lawn mowed and shrubs trimmed.
Stop the paper, mail, and other deliveries when you
leave for more than a few days.
Arrange furnishings so that valuables are less visible to
people passing by.
Install exterior doors that are metal or solid hardwood
with equally strong frames.
Install deadbolt locks on exterior doors.
Don’t hide your key in a “secret” place outside. Burglars
usually know where to look.
Install a burglar alarm.
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Tips to avoid fires and fire damage…
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Install smoke detectors on each level of the home.
Do not smoke in bed.
Replace frayed electric cords.
Do not hide extension cords under the carpet.
Do not overload circuits.
Keep your house clean and debris-free.
Store gasoline, paint, and combustible materials at least
three feet away from heating sources.
Keep a charged, multi-purpose fire extinguisher in the
kitchen.
Hire a professional to inspect the furnace, fireplace,
wood burning stove, and/or space heater before the
heating season begins.
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Illinois Insurance Hotline
(an industry-sponsored consumer resource)
Questions?
1-800-444-3338
We’re here to help!
Contact: Illinois Insurance Hotline
 Address: 217 E. Monroe, Ste. 110,
Springfield, IL 62701
 Phone: 1-800-444-3338
 Hours: Monday – Friday, 9 - 4
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The Illinois Insurance Hotline is an
industry-sponsored educational
resource for consumers.
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