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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.

Many people identify their home as their largest asset.

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?

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? 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.

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?

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? Legal agreement between an insurance company

and its policyholder.

Insurer promises the policyholder financial protection for covered losses associated with owning a home.

Policyholder agrees to pay a premium in return for this financial protection.

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Homeowners improve their insurance options when they… 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.

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).

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…

Policies vary in the kinds of property losses they cover.

Insurers identify “perils,” or causes of loss that describe when property damage is covered.

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.

There are different policy packages (called coverage forms) with varying levels of property coverage.

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: 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 electrical appliances, devices, fixtures and wiring.

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Homeowners 3 (Special Form)

Broadens coverage to “open perils” for dwelling and other structures.

An “open perils” policy covers all causes of loss except those specifically excluded.

Personal property is covered for HO-2 perils.

Additional living expense coverage is included.

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Homeowners insurance provides personal liability coverage too… In addition to property coverage, the HO2 and HO3

homeowners package policies include personal liability protection and coverage for medical payments to others.

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.

If necessary, liability coverage will also pay for a lawyer to defend you.

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 pets. Fault is not a factor.

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Where to buy insurance…

Insurance is sold through:

Independent Agents – represent many different insurance companies.

Exclusive Agents – represent one insurer.

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… There are many companies to choose from.

Shop around. Price, eligibility, and coverage vary by company.

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:

Personal information – Name, address, insurance loss history, nature & breed of household pets, social security number.

Dwelling information – Year & type of construction, years of updates on heating, wiring, plumbing & roof, square feet, special features inside, number of families in dwelling.

Insurance coverages – Dwelling, personal property, & liability limits, as well as additional endorsements.

Deductible – How much you’re willing to pay out-of-pocket before the insurance company begins paying.

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Optional coverages to consider… 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… Coverage. The least expensive policy may also provide the

least amount of coverage.

Financial Stability. A company’s financial strength indicates its ability to pay future claims. Be certain the company you’re considering is financially sound.

Licensing Status – An insurer not licensed to operate in your state is not subject to its rules and regulations.

Service. Check the company’s customer satisfaction record available through your state’s insurance regulatory agency.

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… Dwelling coverage limit that satisfies the

insurance policy’s valuation requirement.

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…

Replacement Cost

Actual Cash Value

New Construction Cost

Total Reconstruction Cost

Market Value

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Insurance to value terms - Replacement cost…

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…

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.

Generally described as the property’s

replacement cost less depreciation.

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Insurance to value terms - New construction cost…

Cost to construct, at one time, an entire building of equal quality and utility.

The construction or replacement uses modern materials and current methods, designs, and layouts.

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Insurance to value terms - Total reconstruction…

Cost to rebuild or reconstruct, at one time, an entire building of equal quality and utility.

Costs used for labor, materials, and fees are those in effect after the occurrence of a loss.

These costs include demolition, debris removal, building codes, accessibility, and other costs.

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Insurance to value terms - Market value…

Amount a seller can expect to obtain for the sale of property in the open market.

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… Agreed amount: 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)

Mortgage value: Value of the mortgage on the property.

Guaranteed replacement cost: 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)

Co-insurance provisions: 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…

Ask your homeowners insurance agent for assistance.

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:

Other structures (usually 10% of dwelling limit)

Personal property (usually 50 – 75% of dwelling limit)

Additional living expense (usually 40% of the dwelling limit).

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Choosing a personal property limit… 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…

Choose a liability limit that is sufficient to protect your financial assets.

You may need more coverage than the automatic $100,000 limit.

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Determining the cost of homeowners insurance coverage… 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 DwellingAmount of CoverageBuilding Construction MaterialsCondition of DwellingCreditDeductibleLocationLoss ExperiencePolicy Form

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Lowering your premium…

Shop around.

Request a high deductible.

Maintain good credit.

Ask about discountsAuto-Home (Multi-Line)Protective Devices (i.e. Smoke Detectors, Alarm System, Deadbolt Locks)Mature HomeownerNon-smokerNew Home

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An insurance policy consists of…

Declarations (Dec Page) – overview of your policy.

Policy Form – describes what the insurance company will do in return for the premium.

Endorsements – automatic and “buy back” coverages that modify or change the terms of the policy form.

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Declarations “Dec” PageLook 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 FormLook here for: Definitions – explanation of coverage terms used

throughout the contract.

Coverages – how you’re protected for property losses and personal liability.

Exclusions – situations when the policy will not protect you.

Conditions – policyholder responsibilities when a loss occurs.

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.

Each endorsement describes how it changes the terms of the policy.

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Before a loss… 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… 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… 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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Questions? Contact: Illinois Insurance Hotline Address: 217 E. Monroe, Ste. 110,

Springfield, IL 62701 Phone: 1-800-444-3338 Hours: Monday – Friday, 9 - 4

The Illinois Insurance Hotline is an industry-sponsored educational resource for consumers.

Illinois Insurance Hotline(an industry-sponsored consumer resource)

1-800-444-3338 We’re here to help!