Guide to Home Ownership Insurance A Center for Continuing Education 1465 Northside Drive, Suite 213 Atlanta, Georgia 30318 (404) 355-1921 – (800) 344-1921 Fax: (404) 355-1292 HOMEOWNER’S INSURANCE GUIDE TABLE OF CONTENTS Chapter 1 –Guide to The Basics of Homeowner’s Insurance 1 The History of Insurance 1 Defining Homeowner’s Insurance 2 Basic Aspects of Homeowner’s Insurance 2 Considering The Structure 5 Considering Building Codes 5 The Basics of Insuring Personal Property 6 The Basics of Home Inventory 7 Chapter 2 -- Guide to The Value of A Home 9 Determining The Value of a Home 9 Types of Value 9 Appreciation Value 9 Liquidation Value 10 Fair Value 10 Appraisal Value 11 Comparative Market Analysis (CMA) - Property Valuation 11 Fair Market Value 12 Replacement Cost 12 Guaranteed Or Extended Replacement Cost Coverage 12 Assessing The Value of The Property 13 Chapter 3 – Guide to Home Appraisal 15 Defining Appraisal 15 Guide to The Basics of Appraisal 15 Guide to Reasons For Appraisals 16 Refinancing 16 Mortgage Lending 16 Other Ad Valorum Tax Consequences 17 Property Tax Issues 17 To Determine Value 18 To Provide Information to Lender 18 Insurance 18 Guide to The Appraiser’s Job 18 Guide to Types of Appraisals 19 A Refinance Appraisal 20 County Appraisal 20 Independent Appraisal 20 Full Appraisal 20 Exterior-Only Appraisal 21 Guide to Appraisal Methods 21 The Cost Approach 21 The Sales Comparison Approach 22 The Income Approach 22 Guide to Tax Assessments 23 Guide to Regulations For Appraisals and Appraisers 23 Chapter 4 – Guide to Elements of Homeowner’s Insurance 25 Key Elements Of The Homeowner’s Insurance Policy 25 Insurance Contract 25 Parts of The Insurance Contract 27 Legal Aspects of The Insurance Contract 27 The Insurance Binder 28 Homeowner’s Insurance Policy Cost 29 Trigger Theories in Homeowners Insurance 29 The Trigger Analysis 31 State Applied Trigger Methods 31 The Courts and The Trigger Issue 31 The Cost of Homeowners Insurance 32 Limitations and Exclusions 32 Discounts For Homeowner’s Insurance 33 Deductible and Risk 34 A Good Credit Record 34 Guide to Insurance Disclosures 34 Homeowner’s Liability 34 Individuals Covered Under Liability Insurance 35 Renters Insurance 35 Chapter 5 – Guide to Homeowner’s Insurance Policies 37 Dwelling vs. Property 37 Levels of Coverage 37 HO Coverages 38 HO-1 -- Limited Coverage Policy 38 HO-2 -- Broad Form 38 HO-3 -- Special Form 39 HO4 – Renter 39 HO-5 – Comprehensive Form 39 H0-6 -- Condo/Co-op 39 HO-8 -- Older Home 40 Chapter 6 – Guide to The Standard Homeowners Insurance Policy 41 HO-4 – Special Form 41 Section 1 — Property Coverage 41 Declarations 41 Insuring Agreement 41 Definitions 42 Coverage A; Coverage B 42 Coverage C - Personal Property Coverage 42 Coverage D – Loss of Use Coverage 43 Section 1 Additional Coverages 43 Perils Insured Against 43 Section 1 Exclusions 44 Section 1 Conditions 44 Section 2 Liability Coverage 44 Coverage E: Personal Liability 45 Coverage F: Medical Payments to Others 45 Section 2 Exclusions 48 Section 2 Additional Coverages 48 Sections 1 and 2 Conditions 49 Chapter 7 – Guide to Provisions, Exclusions and Endorsements 50 Guide to The Provisions 50 Cancellation and Non-renewal Provision 50 Guaranteed Replacement Provision 50 Special Deductibles Provision 51 The Policy Premium Provision 51 Guide to Exclusions 51 Guide to Endorsements and Riders 52 Inflation Guard Endorsement 52 Special Loss Settlement Endorsement 53 Home Office Coverage Endorsement 54 Additional Living Expenses Endorsement 55 Scheduled Personal Property Endorsement 55 Buy Replacement Cost Insurance 55 Personal Property Replacement Cost Endorsement 56 Earthquake Insurance Endorsement 57 Theft Endorsement 57 Increased Blanket Endorsement 57 Personal Injury Endorsement 57 Building Code Coverage Endorsement 57 Riders 58 Jewelry 58 Electronic Equipment 58 Art and Antiques 59 Guide to Floaters 59 Personal Articles Floater 59 Chapter 8 – Guide to Catastrophic Insurance Coverages 61 Guide to Catastrophic Events and Losses 61 The Impact of Catastrophic Losses 61 The Risk From Catastrophic Events 62 Guide to The Insurability of Catastrophe Risk 63 The Limits to Insurability 63 Guide to Disaster Insurance 63 Named Perils Policy vs. All-Risk Policy 64 Guide to Mitigation 65 Loss Mitigation Measures 66 Earthquake 66 Hurricane 67 Tornado 68 Wildfire 69 Guide to Reinsurance 70 The Reinsured and The Reinsurer 71 Reinsurance Plans and Types 72 Stabilizing Profits 73 Underwriting 74 Reinsurance For Catastrophic Events 74 Reinsurance Angle 74 The Mechanics of Reinsurance 75 Limiting Liability 76 Cause and Probability Factors 77 Chapter 9 – Guide to Flood Insurance 78 Guide to the Dynamics of Floods 78 Guide to Flood Zones 78 Low to Moderate Risk Areas 79 High Risk Areas 79 High Risk - Coastal Areas 81 Undetermined Risk Areas 81 One Hundred Year Flood 82 The Mandatory Flood Insurance Purchase Requirement 83 National Flood Insurance Program 84 Forms 87 Dwelling Forms 87 General Property Form 88 ResidentialCondominium Building Association Policy 89 Provisions of Flood Insurance Policies 89 Preferred Risk Policy 91 Eligibility Requirements 92 Chapter 10 ~~ Toxic Mold Syndrome and Insurance Coverage 94 Guide to the Toxic Mold And Insurance Crisis 94 Characteristics of House Mold 95 Physical Signs of a Mold Problem 96 Mold Inspection and Testing 97 Standards and Guidelines for Testing 98 Environmental Control and Mold Growth 100 The Remediation Process 101 The Levels of Mold Remediation 102 Liability From Toxic Mold 105 Toxic Mold Insurance Regulation 106 The United States Toxic Mold Safety and Protection Act 107 Chapter 11 – Guide to Umbrella or Excess Liability 109 Defining The Umbrella Insurance Policy 109 The Umbrella Insurance Policy As Liability Coverage 109 Guide to The Cost of Umbrella Insurance 110 Guide to Coverages of Umbrella Insurance 111 Bodily Injury Liability 111 Property Damage Liability 112 Owners of Rental Units 112 Guide to Provisions of the Umbrella 112 Affect of Limits On Homeowner’s Insurance 113 Provision of High Deductible 113 Actual Function of The Umbrella Insurance Policy 113 Guide to the Benefits of Umbrella Insurance 114 Chapter 12 – Mortgage and Title Insurance 115 Mortgage Insurance 115 FHA Mortgage Insurance Program 115 Private Mortgage Insurance 116 Title Insurance 117 Chapter 13 --Guide to Underwriting Homeowners Insurance Policy 119 Underwriter Responsibilities 119 Dwelling Environment and Risk Evaluation 120 Premise Location 121 Dwelling Construction 121 Building Ordinance 122 Personal Property Risk and Valuation 122 Property Appearance 122 Underwriting Guidelines 123 Underwriting and Cancellation 125 Issues For Underwriting Homeowners’ Insurance 125 Underwriting and Discounts 127 Chapter 14 – Guide to Specialty Endorsements 128 Personal Property Loss Endorsement 129 Scheduled Personal Property Endorsement HO 04 60; HO 04 61 129 Loss Assessment Coverage 130 Types of Theft Loss Endorsement 130 Theft Coverage Protection Endorsement 130 Identity Fraud Expense Coverage – HO 04 55 130 Residence Rental Theft HO 04 80 131 Motorized Vehicle Loss Endorsement 131 Watercraft And Recreational Vehicle Endorsement 131 Owned Snowmobile -- HO 24 64 131 Home Business Related Endorsements 131 Special Computer Coverage HO 04 14 131 Home Day Care Coverage Endorsement -- HO 04 97 132 Home Business Insurance Coverage HO 07 01 133 Weather or Natural Disaster Related Endorsements 135 Increase Wind & Hail Deductibles 135 Sinkhole Collapse HO 04 99 135 Earthquake HO 04 54 135 Structure Related Endorsements 136 Extended Replacement Cost on Dwelling 136 Secondary Residence Premises Endorsement 136 Special Loss Settlement HO 04 56 136 Chapter 15 – Guide to Federal Legislation 137 National Flood Insurance Reform Act of 1994 137 Flood Insurance Reform and Modernization Act of 2007 138 Flood Disaster Protection Act of 1973 138 Homeowners Protection Act of 1998 139 Homeowners Insurance Protection Act of 2009 140 Understanding Insurance Regulation 141 Insurance Regulation and Legislation 142 The Sherman Antitrust Act 142 The McCarran-Ferguson Act 143 Gramm-Leach-Bliley Act (GLBA) 144 The Types of Regulators 144 Unauthorized Insurers Regulation 147 Defining The Unauthorized Insurer 147 Identifying and Avoiding Unauthorized Insurers 149 Chapter 16 -- Ethics and Fraud in The Insurance Industry 150 Establishing Ethics For Insurance Professionals 150 Considering Core Beliefs 150 Accountability 151 Integrity 152 Leadership 152 Professionalism 153 The Ethical Landscape of The Insurance Industry 153 The Need for Ethical Education 154 Ethics and Marketing 155 Understanding Ethics and Policy Replacement 155 Policy Replacement and Performance 156 Unethical Policy Replacement Issues 157 Policy Illustrations from an Ethical Aspect 157 Ethical Responsibility and Sales Illustrations 159 Deceptive Sales Practices 160 Defining Insurance Fraud 160 Fraudulent Activities 160 Commingling Funds 161 Unauthorized Insurers 161 Misrepresentation and/or False Advertising 162 Twisting 163 Two Categories of Fraud 163 The Loss Due To Insurance Fraud 164 Bibliography 166 Published in the United States of America © 2009 Royal Tech Writers & Translators Author: Sharon Finch O’Maley (386) 871-5520 Royal Tech Writers & Translators and the editors who have been involved with the production of this manual have produced this book as an educational tool for individuals or professionals in the most accurate and current manner possible. It is not written, however, for the purpose of giving legal advice to the reader or sold to render