Today, 96 percent of homeowners carry insurance, paying a total of $55 billion in premiums each year. The average cost of homeowners insurance is $804 per year, with much less variation in the average cost among the states than for auto insurance. On average, six or seven of every hundred homeowners files insurance claims each year, with fire the largest cause, and the average amount paid on a claim is $7,567. Of every dollar paid to insurance companies in premiums for homeowners insurance, $.56 is paid out in property damage losses and $.03 in liability claims.
Homeowners insurance is complicated. The policy most commonly purchased by homeowners, the HO-3 produced by the Insurance Services Office (ISO), contains: three pages of declarations (the name of policyholder, the location of the property, the policy limits, and the list of the forms and endorsements that comprise the policy); two pages of general definitions ( not counting definitions stated elsewhere); six pages describing what property is covered; three pages stating what risks are covered; two pages describing what risks are excluded ( not counting exclusions stated elsewhere); three pages of conditions on the property coverage; and seven pages describing the liability coverage (including more statements of risk, exclusions, and conditions). And that is only the basic policy; attachments might include limited earthquake coverage, workers’ compensation for employees working at a residence, oil tank coverage, and other special provisions.
The homeowners’ insurance policy is complicated not only because it is long but because it is, simply put, complicated. Consider the description of what risks are insured against. Once most property damage policies sold were for fire insurance. By convention, however, “fire” includes lightning, and fire policies also nearly always include Extended Coverage, which, depending on the policy, includes such risks as windstorms, hail, smoke, and explosions. Today most homeowners have “Special Form” policies, which cover different risks for different types of property. Under the HO-3 policy the dwelling has “all risks” coverage under which the insurance company’s basic promise is: “We insure against risks of direct physical loss”. All risks does not mean all risks, however. After the basic promise there follow fifteen paragraphs (with multiple subparagraphs and sub-subparagraphs) of exclusions to the all-risk provision, including, for example, damage during construction and loss caused by ice or snow, mold, or pollutants. Then there are exceptions to the exclusions, such as “any ensuing loss to property described in Coverage A and B not precluded by any other provision of this policy not excluded is covered.”
Only basics are described above. Stay tuned for more articles on this topic.
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