CALIFORNIA
HOMEOWNERS INSURANCE
About California Homeowners Insurance
California homeowners insurance provides financial protection against
disasters. A standard policy insures the home itself and the things you
keep in it.
Homeowners insurance is a package policy. This
means that it covers both damage to your property and your liability or
legal responsibility for any injuries and property damage you or members
of your family cause to other people. This includes damage caused by
household pets.
Damage caused by most disasters is covered but
there are exceptions. The most significant are damage caused by floods,
earthquakes and poor maintenance. You must buy two separate policies for
flood and earthquake coverage. Maintenance-related problems are the
homeowners' responsibility.
Different types of
Policies
A person who owns his or her home would have a different policy from
someone who rents. Policies also differ on the amount of insurance
coverage provided.
The different types of homeowners policies are fairly standard
throughout the country. However, individual states and companies may
offer policies that are slightly different or go by other names such as
“standard” or “deluxe”.
Do you need home
owners insurance?
Unlike driving a car, you can legally own a home without homeowners
insurance. But, if you have bought your home and financed the purchase
with a mortgage, your lender will most likely require you to get
homeowners insurance coverage. That’s because lenders need to protect
their investment in your home in case your house burns down or is badly
damaged by a storm, tornado or other disaster. If you live in an area
likely to flood, the bank will also require you to purchase flood
insurance. Some financial institutions may also require earthquake
coverage if you live in a region vulnerable to earthquakes. If you buy a
co-op or condominium, your board will probably require you to buy
homeowners insurance.
After your mortgage is paid off, no one will force
you to buy homeowners insurance. But it doesn’t make sense to cancel
your policy and risk losing what you’ve invested in your home.
Your
level of coverage
Regardless of whether you are an owner or renter, you have the following
three options:
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Actual cash value.
This type of policy pays to replace your home or possessions minus a
deduction for depreciation. |
|
Replacement cost.
The policy pays the cost of rebuilding/repairing your home or
replacing your possessions without a deduction for depreciation.
|
|
Guaranteed or extended replacement cost.
This policy offers the highest level of protection. A guaranteed
replacement cost policy pays whatever it costs to rebuild your home as
it was before the fire or other disaster – even if it exceeds the
policy limit. This gives you protection against sudden increases in
construction costs due to a shortage of building materials after a
widespread disaster or other unexpected situations. It generally won't
cover the cost of upgrading the house to comply with current building
codes. You can, however, get an endorsement (or an addition to) your
policy called Ordinance or Law to help pay for these additional costs.
A guaranteed replacement cost policy may not be available if you own
an older home.
Some insurance companies offer an extended, rather than a guaranteed
replacement cost policy. An extended policy pays a certain percentage
over the limit to rebuild your home. Generally, it is 20% to 25% more
than the limit of the policy. For example, if you took out a policy
for $100,000, you could get up to an extra $20,000 or $25,000 of
coverage.
Even though a guaranteed/extended replacement cost policy may be a bit
more expensive, it offers the best financial protection against
disasters for your home. |
