Home insurance or homeowners insurance is a form of property insurance that covers an individual’s home, providing protection against losses occurring to the home and to possessions within the home. Home insurance includes liability coverage against accidents which may occur in the home or on the property.
The first official home insurance policy in the United States began in September 1950, while identical policies were already being applied in Great Britain and in specific areas of the United States. Insurance law was reformed in the late 1940s, the same period when multiple line statutes were written, legalising homeowner’s policies.
Before the 1950s, the different accidents that could befall a home were covered by separate policies. To cover loss from fire, theft or loss to personal property, different policies had to be purchased. A complete insurance policy covering coving all the potential losses was later developed in the 1950s but they had the backing of different insurance companies with different requirements that were hard to understand.
To solve this issue, a private company, the Insurance Services Office (ISO) located in Jersey City, New Jersey, was created in 1971 to supply risk information and it issued policy forms that were highly simplified, for reselling to insurance companies. Over the years, these policies have been amended and improved upon.
There are different major factors that affect estimation of costs in home insurance. They include coverage, location, and the amount of insurance which is calculated based on an estimation of what it would cost to rebuild the home, i.e. replacement cost.
In cases where insufficient coverage is purchased to rebuild the home, the pay-out for the claim becomes subject to a co-insurance penalty. A survey conducted in 2013 discovered that up to 60% of residential properties are undervalued by an estimated 17%. Some insurance companies take measures to avoid getting a wrong estimate by offering extended replacement cost, providing extra coverage where the limit has been reached.
Certain factors may serve to lower the pricing. For instance, if the house is located close to a fire station, is equipped with fire sprinklers or fire alarms; if steps are taken to prevent or lower the consequences of a hurricane, or if there is a good security system and insurer-approved locks have been installed.
Home insurance provides protection in named perils and open perils.
A named perils policy offers coverage from losses specifically outlined in the policy. As long as it is listed, it is covered, and vice versa. This policy type is most commonly used in countries where the insurance markets are still developing. Examples of such perils include:
The named perils can also expand to cover broader forms of accidents to property such as:
The open perils policy is wider, providing coverage for all losses except those which your policy has exclusively excluded. This means that in the event of accidents and other mishaps to a property, as long as it is not listed in the open perils exclusion list, it will be covered. The excluded perils include:
Different factors, including an increase in fraud and an increasingly erratic weather contribute to the continuous rise of insurance premiums in the UK. This has created a change in the way insurance is purchased in the UK. Price comparison sites are heavily used in the UK to purchase policies because customers are highly price-sensitive.
Mortgage lenders within the UK request the rebuild value of a property to be covered as a condition to granting the loan. In many cases, the rebuild cost, i.e. the real cost of building a property from scratch, is usually lower than the value of the property on the market.
Home buyers in the United States borrow money in the form of a mortgage loan. Often times, as a condition for granting the loan, the mortgage lender requires home insurance to be purchased. This is to protect the bank in the case of destruction to the home. The policy lists anyone with insurable interest on the property. Home insurance can be waived f the value of the land is more than the amount of the mortgage balance. This is because, even if the entire house is destroyed, the full amount of the loan can still be recovered through the land.
There is significant difference between home insurance in the UK and home insurance in the UK. For example, insurers in Britain provides an insurance policy to cover subsidence and subsequent foundation failure. American insurers on the other hand stopped foundation insurance completely after first reducing it to damage from leaks.
The most common exclusions in home insurance policies are:
A standard homeowner’s insurance policy includes the following coverages. This is the standard buildings and contents policy. Depending on individual preferences, one can get cover for either or all of these at the same time.
Insurance policies generally require that a notification be sent to the insurer within an acceptable time period. When this has been done, a claims adjuster will be sent to investigate the nature of the claim and request various related information from the insured. After the adjuster has concluded the home insurance claims process, a settlement offer will usually be provided.
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