HOME SAFETY TIPS

• Home Fire Safety ▼

  Home Fire Safety

  Fire: Nothing is more terrifying. The thought of flames racing through your home is probably your worst nightmare. Unfortunately, it is an all-too-frequent occurrence in this country. Every year, 4,000 Americans die in fires. The vast majority of those deaths occur at home—each year, 100,000 homes are destroyed, 40,000 family pets are killed and uncounted irreplaceable family treasures are lost forever.

  Tragically, most fires are preventable. The leading cause of fires in the home is faulty heating equipment. A couple of simple measures can ensure that your home heating system is safe. For example,

  • Changing your air filter regularly will ensure that your furnace isn't overtaxed.
  • Don't leave piles of newspaper or other combustibles within two feet of your furnace.

  While home heating systems are the No. 1 cause of fires in the home, cigarettes are the No. 1 factor in home fire fatalities.

  • If you do smoke, be sensible.
  • Don't smoke in bed.
  • Use a large metal or glass ashtray.
  • Put that cigarette out with water before you drop it in the trash.

  The No. 2 cause of fire-related deaths is arson. Intentionally set fires claim the lives of more people each year than all natural disasters—including floods, hurricanes, tornadoes and earthquakes—combined.

  • Most arson fires are fueled with combustible material found nearby.
  • A little diligence around the house, along with a watchful eye for strangers, can make a world of difference.

  In fact, a little diligence is the key to home safety in general. It may go without saying, but:

  • Smoke detectors that work,
  • fire extinguishers that are well-charged and quickly accessible,
  • and a ladder for the upper floors can easily save lives.

  How To Handle A Kitchen Fire:

  Many household fires start in the kitchen.  Untended cooking and human error account for most of these.  Not mechanical failure of stoves or ovens.  Here's how to handle a kitchen fire...

  • Call 911 immediately.  Prepare for the worst and don't hesitate to call.
  • Smother frying-pan fires by covering with a lid, then turn off heat with lid in place until the pan cools.  Do not try to carry the pan outside because this could seriously burn you should the contents spill out.
  • Other food fires may be extinguished with baking soda, so try to keep an extra box stored in an upper cabinet location.  Never use water or flour on cooking fires.
  • Turn off the heat to smother oven or broiler fires and keep the door shut.
  • Well prepared homeowners keep a fire extinguisher in the kitchen and know how to use it.  The National Fire Protection Association recommends extinguishers classified 2A:10B:C.  Make sure the one your choose is always UL (Underwriters Laboratories) approved.

   

• Theft Prevention ▼

  Theft Prevention

  Did you know that every day in this country, more than 16,000 homes and apartments are broken into and ransacked by thieves? That makes burglary a very big business. Break-ins cost Americans about $3 billion every year.

  The good news is that 9 out of 10 burglaries could be prevented with some basic precautions. 

  Begin with a little common sense:

  • Make it harder for thieves to gain entrance to your home. You can start by making doors more secure.
  • Standard, spring-catch locks can be opened easily by a crook with a credit card.
  • A single-cylinder deadbolt lock is enough to discourage many thieves. And you might be able to lower your insurance premiums in the bargain.

  Burglars like unprotected windows, too.

  • Key-locks on windows add an extra measure of security;
  • so do steel or wooden rods in the channels of sliding-glass doors.
  • A dark house is an invitation to a thief—install timers on your home's lighting systems, indoors and out.
  • And don't provide cover, camouflage or encouragement for the burglar who's casing your neighborhood—prune the shrubbery around doors and windows,
  • and keep ladders and tools locked up.

  One of the most satisfying ways to foil burglars is to organize a neighborhood blockwatch. Keeping an eye on each other's homes not only prevents crime, it promotes a sense of community. Let your neighbors know when you leave town (as long as you know them personally), and ask them to do the same. Most police and sheriff's departments will gladly help you start a neighborhood watch program.

  And one more thing:

  • Don't "hide" spare keys under doormats or flower pots or in the mailbox. And forget about ordering one of those fake rocks used for hiding keys...burglars have seen those catalogs, too!

   

• Winter Weather ▼

  Winter Weather

  A lot of homeowners don't know what ice dams are -- until it's too late.
  
  Ice dams are most common in northern climates. They occur when heavy snow buildup melts during the day and then refreezes when temperatures drop overnight.
  
  After several days of melting-freezing cycles, it's common for the melted water and ice to work up under the shingles until water enters the attic and eventually does damage to the ceilings, wall and contents. In cases where the ice dam goes unnoticed for an extended period of time, it can do significant damage to the building and its contents.
  
  There's no way to guarantee an ice dam won't damage your home, but you can take steps to cut the chances of an ice dam forming in the first place:

  • If you haven't already, thoroughly clean all leaves, sticks and other debris from your home's gutters and down spouts. This lets melting roof snow flow into gutters and through down spouts, just as they were designed.
    
  • Make every effort to keep snow on your roof to a minimum. Long-handled devices on the market called "roof rakes" let you stand on the ground and pull the snow off the roof. Keeping heavy snow loads off your roof reduces the chances for both ice dam formation and roof failure due to the weight.
    
  • All winter long, keep gutters and down spouts clear of snow and icicles.
    
  • Evaluate the insulation and ventilation in your attic. Most experts agree the R-value of attic insulation should be at least R-30 (R-38 is preferable in northern climates). In addition, good airflow from under the eaves or soffit area along the underside of the roof and out through the roof vents is essential to a cool, dry attic. Consult a reputable roofing and/or insulation contractor about these improvements.

  Prevent Frozen Pipes

  If you think turning the heat down in your home while you're away on vacation will save you a few dollars, think again. If your home's pipes should freeze and burst, it could end up costing thousands of dollars to repair floors and replace furniture and keepsakes. The damage could be so severe that you and your family would have to relocate while repairs are made.
  
  By taking a few simple precautions, you can save yourself a ton of aggravation.

  
  Here are a few simple steps to protect your home or apartment:

  • Insulate pipes in your home's crawl spaces and attic. Exposed pipes are most susceptible to freezing.
    
  • Heat tape or thermostatically controlled heat cables can be used to wrap pipes. Be sure to use products approved by an independent testing organization, such as Underwriters Laboratories Inc., and only for the use intended (exterior or interior).
    
  • Seal leaks that allow cold air inside. Look for air leaks around electrical wiring, dryer vents and pipes. Use caulk or insulation to keep the cold out and the heat in.
    
  • Disconnect garden hoses and, if practical, use an indoor valve to shut off and drain water from pipes leading to outside faucets.
    
  • When you're away from home, set the thermostat in your house no lower than 55 degrees. Ask a friend to stop by your house daily to make sure it's warm enough to prevent freezing, or shut off and drain the water system.

  Here are a few additional helpful tips from the National Association of Remodelers:

  • Make sure your furnace is in good working order for the cold spurts. Check that the furnace filter is clean and replace it if it's not. Ensure that the thermostat and pilot light are working properly and that the pipe bringing fuel to your furnace isn't leaking or loose.
  • Have your heating ducts cleaned. It's recommended that the ducts be vacuumed every five years.
  • Check the caulking around doors and windows to make sure there's no cracking or peeling. Recaulking if needed prevents cold air from entering your home. Why pay a higher heating bill if you don't have to?
  • Keep snow and ice from building up around the bottom of the garage door so it closes completely and doesn't warp.
  • Frozen water pipes can quickly crack followed by gallons of water all over your home. Prevent this by draining your pipe's hose bibs and by keeping your heat on even when you're away from home.
  • Safely drain and properly dispose of the gasoline from lawnmowers, weedwackers, and other engines that won't be used until summer.

   

• Tornado Safety ▼

  Tornado Safety

  Long before you see the black clouds on the horizon, your family should designate a place in your home to go if a tornado approaches. A place away from windows is best. In case you don't have time to make it to the basement, an interior hallway is a wise place to go.

  When a tornado watch is issued, the American Red Cross advises people to listen to local television and radio stations for updates on the weather. A tornado watch is issued when conditions are favorable for the formation of a tornado. The Red Cross stresses the importance of keeping aware of the changing weather situation; the more time you have to move to safety, the more likely you and your family are to survive unharmed.

  A tornado warning presents an immediate threat. A tornado warning is issued when a tornado is spotted visually or on weather radar. In case of a tornado warning, the Federal Emergency Management Agency (FEMA) advises people to: 

  • Go at once to the basement, storm cellar, or the lowest level of the building
  • If there is no basement, go to an inner hallway or a smaller inner room without windows, such as a bathroom or closet
  • Get away from the windows
  • Go to the center of the room. Stay away from corners because they tend to attract debris
  • Get under a piece of sturdy furniture such as a workbench or heavy table or desk and hold on to it
  • Use your arms to protect your head and neck
  • If in a mobile home, get out and find shelter elsewhere.

  FEMA stresses the last point, especially. It is very easy for a mobile home to be overturned in high winds. FEMA suggests arranging for a safe place to go well ahead of time, such as with a friend, family member, or a neighbor.

  Myths Debunked
  There are many myths about what to do during a tornado. The American Red Cross is hoping to put to rest these fallacies.

  One popular belief is that opening a building's windows allows the air pressure to equalize as a tornado passes overhead. Air pressure can equalize itself through normal openings within a building and opening windows doesn't particularly help, especially given the likelihood of glass breaking due to flying debris. The American Red Cross stresses that it is much more important to get to safety than to open windows.

  Another persistent myth says that the southwest corner of a building is the safest. Studies have shown that the safest place in a building is away from all of the windows regardless of what corner of the building you're in.

  If you're caught outdoors during a tornado, don't try to outrun it in your car. A tornado can change directions quickly. You should seek shelter indoors. If that isn't possible, get out of your car and duck down in the lowest spot you can find, such as a ditch or gully. Because a tornado doesn't suck objects up, but rather blows them around at speeds which can easily exceed 300mph, a highway underpass is not safe since it leaves you exposed to flying debris.  During these devastating storms even the smallest of item caught in its furry such as small roof shingle parts, glass fragments, wood splinters and the like are bullets in the wind causing serious or even fatal injuries.  Staying low to avoid this debris is the key to survival if caught outdoors.

  Here Comes The Sun
  Keep your radio tuned to a local station, too. It may be possible that the tornado that has passed overhead is one of many tornadoes in your area.

  After the storm has blown over, carefully inspect your home for damage. The sooner you start the claims process for any damage that did occur, the quicker you can get started on repairs.

  When inspecting your home, be sure to avoid downed power lines. FEMA warns that just because a power line is down doesn't mean it can't give you a serious shock.

  The American Red Cross mentions that flashlights, not candles, should be used for inspecting your home because of the possibility of gas leaks.

  Disaster Planning Made Simple

  Of course to be deeply affected by a disaster you don't have to be directly hit by it.  Lengthy interruptions in basic services can catch you off guard.  Downed power lines, broken water and gas mains can threaten your safety even when your home was untouched and survived an ordeal.   For many people, a little preparation could make a big difference in coping with the aftermath of a severe earthquake or storm. Disaster-planning experts say people should be prepared to go without power and most other basic services for up to 72 hours. That means no electricity, water, fire fighters or police.

  With a few simple additions, the average household already has many of the resources needed to deal with a disaster. Here are a few suggestions and hints on how best to use what's already on hand.

  • Water. The water heater (30-40 gallons) should contain enough water to last a four-person household four days. (Turn off power before draining and be careful of sediments that can accumulate at the bottom of the tank.) Ice cubes in the freezer and liquid from canned food can be used. If you'd rather not store extra bottles of water, consider keeping purification tablets on hand. Household chlorine bleach will disinfect water, too. Use one-eighth of a teaspoon per gallon of water and let stand for 30 minutes before drinking. Do not use bleach with added soaps or fragrances.
  • Food. Most houses have ample food for several days. Use food in the refrigerator first, then the freezer. Frozen food will keep up to three days in an unopened freezer. Keeping a few extra canned goods in the back of the cupboard is always smart.
  • First Aid. Most homes have the necessary items to handle routine accidents. A basic first-aid kit and a book on first aid should be kept in a central location. It's a good idea to take a first-aid and CPR course from the Red Cross.
  • Fire Extinguishers. Have one or more fire extinguishers and learn how to use them. Have the extinguisher serviced according to the manufacturer's instructions.
  • Other essentials. Identify your home's utility shut-off valves and learn how to turn them off. Have at least one flashlight and a battery-powered radio. Make an evacuation plan so all family members know several escape routes and where to meet outside.

   

• Flood Survival Tips ▼

  Flood Survival Tips

  Heavy rains can quickly lead to flooding. Floods have a different set of challenges to prepare for than other severe weather events.

  A homeowners policy doesn't automatically cover damage from flooding, and you can't simply purchase flood insurance as an endorsement to your policy like you might expect.  Instead, you must purchase a separate flood insurance policy through an insurance company that participates in the National Flood Insurance Program.  Or contact us for details.

  Well in advance of flooding conditions, assess your chances of being affected by a flood. A call to the town or county clerk is a good way to find out if you live in a flood plain.

  Before a flood arrives, you should have an evacuation route planned; know how long it will take to evacuate your area and build in time to account for others evacuating at the same time.

  You should carefully examine your need for flood insurance according to the flood threat as determined by the Federal Emergency Management Agency (FEMA) for your area. Generally, homeowners insurance does not cover damage done by flooding. It's a mistake to believe that flood insurance isn't necessary because of federal disaster aid. Often, federal aid comes in the form of a loan that has to be paid back.

  FEMA points out that $50,000 worth of damage done to a home worth $100,000 can be financially devastating. While paying the typical flood premium of $324 a year may seem steep, not having the insurance after a flood is more costly. FEMA estimates that getting a loan to repair $50,000 damage can cost you $3,732 a year for 20 years as you repay the loan.

  Getting your house in order
  Prior to evacuation, you can prepare your home. Moving furniture and other valuables to an upper floor can help protect them from water damage.

  Never cross a road flooded in water
  If you live near a river or creek, be alert during any heavy rain. It is not uncommon for a flash flood to sweep down a river and catch nearby residents by surprise.

  When the time comes to evacuate, it is paramount that you never cross a road covered in water. People die every year during floods because they attempt to cross washed-out roads and are swept away by the current. According to the Ohio Committee for Severe Weather Awareness, even if you drive a sport utility vehicle, you shouldn't attempt to cross because it's difficult to gauge the water depth as well as the current.

UNDERSTANDING THE BASICS

• Insuring Your Home ▼

  Insuring Your Home

  What is homeowners insurance?
  Homeowners insurance is a policy covering your home (the structure) and its contents (personal belongings). It can save you from severe financial loss if your home is damaged or destroyed. It covers your family's possessions and can provide you with compensation for liability claims, medical expenses, and other amounts that result from property damage and personal injury suffered by others. Most lenders require homeowners insurance in order to obtain a mortgage.

  For example, a homeowners insurance policy can protect you against the following scenarios:

  • A tornado or storm shattering your home's windows or scattering your roofing shingles across the neighborhood
  • A burglar breaking into your home and stealing that figurine you inherited from your grandmother
  • Your dog biting a neighbor or delivery person
  • Physical therapy costs for a guest injured by a fall in your home
  • A successful personal injury lawsuit brought by a neighbor the last time you practiced your chip shot in the backyard
  • Damage from a vehicle crashing into your house

  Homeowners insurance is also a way for condominium and cooperative unit owners, mobile home owners, and renters to protect their possessions from damage or theft, and to obtain liability coverage for property damage and personal injury suffered by others.

  Who is covered?
  Homeowners insurance protects more than just the owner of the house, condominium, or other property. Depending on your living situation, the following individuals are covered under your homeowners policy:

  • Named insured
    The insurance policy identifies the "Named Insured" (meaning the individual who is primarily insured under the policy), who is usually the same person named on a deed or lease as the owner or tenant, respectively. You, as the named insured, receive the most extensive coverage under your homeowners policy, for you are covered by property insurance on your dwelling and other structures, in addition to personal property and liability insurance. Named insured condominium owners and renters do not receive such extensive coverage because they do not, on an individual basis, own their dwelling or other structures.
  • Spouse
    If your spouse resides in your dwelling, then he or she is covered by personal property and liability insurance, even if he/she isn't identified on the Declarations Page as a named insured.
  • Residents
    Individuals who reside in your dwelling are covered by personal property and liability insurance if they are your relatives (e.g., your children) or if they are under 21 years of age and in the care of any member of your family.
  • Employees
    Housekeepers, au pairs, or gardeners, for example, are covered by personal property insurance.
  • Guests and other visitors
    Your guests and other invited visitors can typically be covered by personal property insurance so long as you contact the insurance company or your agent to request coverage.

  What is covered?
  The property insurance section of your homeowners policy protects more than just your actual home or dwelling. In most cases, your insurance company will reimburse you for damage or theft affecting:

  • Your dwelling, any structures attached to the dwelling, and building materials and supplies that are stored near the dwelling and are used to construct, alter, or repair the dwelling or other structures on your property
  • Structures on your premises that are not attached to the dwelling, such as a tool shed or detached garage
  • Personal property such as the contents of your house like furniture, clothing, and stereo equipment, as well as outdoor items like sporting equipment and gardening tools

  Generally, the coverage limit for other structures and personal property coverage is a set percentage of the dwelling coverage amount. If you wish, you can increase a policy's preset coverage amount by endorsement (see below).

  Condominium or cooperative unit coverage
  If you own a condominium or cooperative unit, your homeowners insurance does not cover you for your entire dwelling space because you do not individually own the structure you live in. Instead, you are covered for your personal property and any portion of the unit you own under the terms of the condominium or cooperative documents. Renters are covered for personal property only because renters do not own any portion of the property.

  Specific coverage
  In most cases, whether you own or rent a home, the homeowners insurance company will reimburse you for costs, expenses, and other amounts related to:

  • Loss of use
    If your dwelling is not fit to live in because of damage covered by the policy, you should receive reimbursement for your family's or household's living expenses while you wait to permanently relocate or wait for the dwelling to be repaired. A set coverage limit is always applied to a policy's standard loss-of-use coverage, but it can be increased by endorsement.
  • Liability
    If you or another insured are found responsible for personal injury or property damage suffered by another person, your insurance company will offer a settlement amount owed to that person. This is only true if carelessness or negligence, rather than intentional misconduct, caused the injury or damage. If an injured or damaged person brings a lawsuit, your insurance company should pay to defend you or any other insured named in the lawsuit. For example, you may be found negligent if a meter reader was injured by falling off your tricky cellar stairs because the railing was broken (and you knew about the situation but failed to repair it). You may be found liable for intentional misconduct if you cut down a tree on your neighbor's property to improve your view.
  • Medical payments to others
    If a nonresident requires medical assistance as a result of an injury suffered on or near your premises, your insurance company should pay his or her medical expenses. Injuries that take place away from your premises are also covered, as long as you, another insured, a household employee, or your pet caused the injury.

  Open perils vs named perils
  Your policy can also cover either open perils or named perils. A named perils policy specifies which perils are covered as well as which perils are not. Rather than covering a number of listed or named perils, an open perils policy covers you broadly against risk of direct loss to your dwelling and other structures, and also includes an extensive list of perils which are not covered.

  What is not covered?
  There is a wide variety of damages, conditions, and costs that are not covered by homeowners insurance. Your insurance policy describes a number of situations that are specifically excepted or excluded from coverage (called exclusions). Some policies contain more exclusions than others. Your policy also describes certain conditions you must meet, and duties you must perform, in order for you to be covered. Terms and limitations that were originally included in your policy can be changed by a document called an "endorsement." For these reasons, you should carefully read your homeowners policy to learn the limitations and exclusions that apply to your specific situation. Here are just a few examples of situations when you may not be covered by a standard homeowners insurance policy:

  • Land
    Although the structures and possessions that lie upon a parcel of land are usually covered by a homeowners policy, the land itself is not. This means, for example, you're not covered by your policy if your neighbor's pool overflows and contaminates your untilled garden.
  • Coverage Limitations
    The Declarations Page of your policy recites maximum coverage amounts that limit what the insurance company must pay. Separate limits are set for the dwelling, other structures, personal property, loss of use, personal liability, and medical payments to others. This means that even if you suffer a loss to your personal property in the amount of, let's say, $50,000, the insurance company will pay you no more than the policy's stated limitation recited on the Declarations Page.  If this figure within your policy is $100,000 then you're covered for all of it.  On the other hand, if it's only $30,000 then you'll have a $20,000 deficit.
  • Flooding
    Your homeowners policy will not cover you for damage that results from floods, waves, sewer overflows, or water seeping into your basement.
  • Business
    If you're involved in a business activity, your homeowners policy will not cover you for liability or medical payments due other persons, even if the damage or injury occurred in your home. Other structures located on your premises that are used for business purposes are also not covered by the policy. This means your standard homeowners policy will not reimburse you for medical care required by a client who slips and falls  in your home office as he's putting his coat on the rack.
  • Your tenants
    Your standard homeowners policy will not cover you for damages or injuries suffered by the tenants who rent any part of your home.
  • Other insurance
    If an injury or damage is covered by other insurance in addition to your homeowners policy, your homeowners insurance company will only pay its proportionate share of the amount due.
  • Theft by another insured
    Your homeowners insurance will not cover you for a loss caused by a theft committed by another insured person under the policy. This means your policy will not cover you if your nephew (who lives with you) steals a valuable baseball card from the family room.
  • One or two family dwellings
    Structures that have more than two family dwelling units cannot be covered by homeowners insurance
  • Cars
    Registered motor vehicles are specifically excluded from personal property coverage. Only vehicles like motorized wheelchairs and lawn mowers, which are not usually registered with the state, are covered by personal property insurance. Your car is also not covered under the "Personal Liability and Medical Payments to Others" sections of your homeowners policy because insurance companies prefer you to insure vehicles with an automobile insurance policy.

  How much coverage is needed?
  Your home can be insured for either:

  • Replacement Cost--pays you the cost of replacing damaged property, with no deduction for depreciation, but with a maximum dollar amount
  • Guaranteed Replacement Cost--pays the full cost of replacing damaged property, with no deduction for depreciation and no dollar limit. This coverage is not available in all states. Some insurance companies may limit coverage to 120 percent of the cost of rebuilding your home.
  • Actual Cash Value--pays you an amount equal to the replacement value of damaged property minus a depreciation allowance.

  Unless a policy specifically states that property is covered for its replacement value, coverage is for actual cash value.

  It is important that your policy should cover 100% of the replacement cost of your home. That way, the insurance company will pay you the full replacement cost for any damage up to the coverage limit. If you fear inflation will decrease the value of your policy, an inflation guard endorsement, which is built-in to many homeowners policies these days, ensures that your coverage amount increases a bit every year to keep up with inflation.  What this means, for example, is if your house increases in value next year by 5% your policy's replacement limit will also increase, according to some predetermined index of local home values.

  Additions to your home
  If you add improvements to your home, you should increase your coverage. Don't wait until the addition is completed to increase your coverage, contact your insurance agent or representative shortly before or after construction begins. Otherwise, if the new addition is damaged or destroyed before you have increased your coverage, you may be responsible for the cost of repairing or rebuilding the addition.

  Also, make sure that contractors and subcontractors working on your addition have workers compensation by requesting copies of their insurance certificates. If the coverage is insufficient you may need to extend the liability limits portion of your homeowners policy, or simply find a company whose insurance meets your requirements. The reason for this is relatively simple to understand... Workers injured while working on your addition could sue you if the contractor doesn't have the proper insurance coverage.

   

• Insuring Property ▼

  Insuring Property

  Why insure your property?
  Property insurance covers risk from loss or damage to your personal property. Even the smallest residence can contain property worth thousands of dollars--for instance, an entertainment or sound system, home computer, or jewelry. If a catastrophe struck tomorrow, and you could afford to replace everything you own, then you may not need property insurance. If that isn't the case, then it's likely you need it.

  Homeowner policies cover personal property to some extent
  In addition to your home, a standard homeowners policy also covers personal property, meaning articles you own other than land and buildings. Your personal property consists of the contents of your house (like furniture, clothing, and stereo equipment, as well as outdoor items like sporting equipment and gardening tools). Generally, the limit for personal property coverage is stated as a percentage of the dwelling coverage amount listed within the policy.

  If you own a condominium or cooperative unit, your homeowners insurance provides coverage for your personal property and any portion of the unit you own under the terms of the condominium or cooperative documents. Similar to a homeowner, you must choose a specific amount of coverage for the building. It is crucial to determine how much responsibility you have under the condominium or cooperative documents.  In these types of situations one should never guess what these amounts or percentages are.  It is advisable to find out for sure and if possible receive this information in writing.  Then keep it in a safe place in case you need it in the future.

  Homeowners policies have set limits
  Homeowners policies set specific dollar limits for particular categories of personal property in a section entitled Special Limits of Liability. Note that for some categories, the policy specifies a limit only for theft, not for damage or destruction. The reason is that items such as jewelry, firearms, and furs are especially susceptible to theft, and insurance companies want to limit their exposure to these fairly common incidents. The damage or destruction of these items is less common, and insurance companies are willing to cover them up to their actual cash value.

  Below are some examples of the standard limits for particular categories of personal property:

  • $200 for money, bank notes, bullion, gold, silver, coins, and metals
  • $1,000 for securities, accounts, deeds, letters of credit, notes other than bank notes, manuscripts, personal records, passports, tickets, and some other related items
  • $1,000 for the theft of jewelry, furs, watches, and precious and semi-precious stones
  • $2,000 for the theft of firearms
  • $2,500 for the theft of silverware, silver-plated ware, goldware, gold-plated ware, and pewterware
  • $2,500 for property at the residence used for business purposes
  • $250 for property used away from the residence for business purposes

  *Of course, depending on your policy's type, limits and endorsements these figures may or may not be accurate.

  Additional coverage
  Chances are, the value of many of your personal belongings may exceed the limits in your homeowners policy.  Only you know for certain.  That's why you have the option of increasing these specific limits by purchasing either a Scheduled Personal Property endorsement or a floater. You may need an increased jewelry limit, for instance, for covering engagement or wedding rings. If you buy a personal property rider, you must be able to verify the cost and condition of the item. Photos or a video can be used to inventory your property. However, you should be sure to keep the inventory away from the premises (i.e., safe deposit box). Professional appraisals are needed for certain items, such as jewelry, antiques, or camera equipment (beyond a basic camera).

  Renters need property insurance, too
  Many renters are under the mistaken belief that they are covered under their landlord's homeowners insurance policy. This is not true. Your landlord's policy covers the building itself, not the personal belongings of you or other tenants. The fact that you pay rent instead of a mortgage payment doesn't make your personal possessions any less valuable. By taking out a renters insurance policy, you can cover your personal property from loss or damage that results from broken pipes, fire, theft or any other event specified in the policy.  In fact, renters may even be more likely to suffer from a loss of personal belongings because they live in close proximity to other individuals and families.

  Renters insurance also protects you from liability claims against you if someone suffers an injury or property damage because of something you did or didn't do. For example, if you forget to turn your stove off, and your apartment catches fire and destroys the building, you could be held liable by the landlord. Your renters insurance policy provides a set amount of liability protection.

  In addition to protecting you from property loss or damage and liability claims, renters insurance (HO4) is very reasonably priced.

  Protect your possessions wherever they are
  Property insurance may protect your possessions wherever they are. For example, if you are on vacation and lose a valuable item, as long as the loss is by a covered peril or event, in most cases the location doesn't matter. Your policy will specify covered perils and events.

  How much property coverage do you need?
  To determine how much property insurance coverage you need, make an inventory of all your home's contents. Don't forget to include furniture, appliances, jewelry, artwork, and the contents of your closets, cabinets and the toy chest. When possible, list the serial number, date and cost of purchase. Include receipts if possible. An easy way to inventory your possessions is to use a video camera or take photos. When using a video camera, you can talk about the specific items, their cost, and when you bought them. Ideally, you would want enough insurance coverage to replace your possessions if they were destroyed.

  Keep a copy of your inventory in a location away from your home, like a safety deposit box, or maybe at a close friend or relative's house. This way, if your home is destroyed, your inventory list will be safe at another location. When you make major purchases, remember to add them to your inventory and check with your insurer--you may need to increase your coverage levels.

  Two methods to determine value
  Insurance companies use one of two methods to determine the value of property:

  • Replacement cost--pays you the cost of replacing damaged property, with no deduction for depreciation, but with a maximum dollar amount.
  • Actual Cash Value--pays you an amount equal to the replacement value of damaged property minus a depreciation allowance.

  Unless a policy specifically states that property is covered for its replacement value, coverage is for the lower, actual cash value. Check your policy, or ask your insurance agent or representative if you are not sure what level of coverage you have.

  Periodically review your existing coverage
  Review your existing homeowners or renters policy to make sure you have enough coverage for all valuable possessions. Periodically review your coverage to make sure it is keeping pace with new purchases and/or gifts you have received.

   

• How Much Should It Cost? ▼

  How Much Should It Cost?

  One question insurance customers never fail to ask is, "What's it going to cost me?" The cost of homeowners insurance is influenced by a broad range of market factors:

  • From rising construction costs to the
  • Increasing number of liability lawsuits.
  • But it's also affected by the customer's needs, policy choices and habits.
  • We are dedicated in helping our clients control their insurance costs.

  Homeowners insurance is one of the most important investments you'll make. You should keep in mind the difference between market value and replacement value, and make certain your home is insured "to value." In many cases, it costs more to reconstruct a house than the house would bring on the open market. Talk with us to make sure you have the right amount of coverage.

  You can take steps to lower the cost of your premiums.  Our companies offer special discounts and credits for such features as fire extinguishers, sprinkler systems, and burglar alarms. These are factors in loss prevention, which ultimately help control insurance costs.

  You can also lower your home insurance costs can by raising your deductible. Small claims are expensive for insurance companies to handle. You can reduce your premiums by as much as 10 percent if you increase your deductible from $250 to $500. Increasing the deductible to $1,000 can lower premiums by almost a third.

  In addition, the price you pay is influenced by how you pay. Our companies offer different payment plans, so you can pay your premiums in a way that best fits your lifestyle.

  Finally, you can save money by placing all your home and auto policies with us because we offer discounts if you have more than one policy with us.

• Do I Have Enough Home Insurance? ▼

  Do I Have Enough Home Insurance?

  If your home is completely destroyed, you want to be able to rebuild it to its original condition. This requires having enough insurance to replace your home, which may cost more than its value on the open market. The cost of rebuilding is usually more expensive than new construction, especially if your home was destroyed along with many others in a single neighborhood or town. In the wake of a flood, for example, simple supply and demand can drive the cost of materials and labor up and cause the price of rebuilding to skyrocket.

  • Our companies will work with you to determine your home's replacement cost. Normally using data from the E.H. Boeckh Company, the U.S. authority on replacement value, the insurance company will consider the construction costs of homes in your area that are of similar size and quality.
  • Typically, a homeowners policy covers possessions whose total value equals 70 or 75 percent of the homeowners coverage. In simple terms, that translates to $70,000 to $75,000 worth of coverage for your personal possessions if you have $100,000 in coverage on your home.
  • If you collect art, have valuable jewelry or keep other things of special value, consider expanding your coverage to protect those items.
  • When the value of the things you own exceeds the 70 to 75 percent coverage included in a typical policy, additional coverage can be critical.
  • In addition, many policies have sub-limits on specific categories of valuables. If the value of those items exceeds the policy sub-limit, extra coverage is probably in order.

  A standard policy will probably insure your possessions at actual cash value, which is the value of an item at the time of a loss. To make sure you can fully replace lost or stolen items, you may want to add an endorsement for replacement cost coverage, which will replace the item with one of similar make and model, regardless of the stolen or damaged item's actual cash value. In many of our companies homeowners policies, replacement coverage is included at no extra cost. Check with us, about your policy, to be sure.

  Finally, we suggest that you take the time to inventory your possessions.

  • In the wake of a catastrophe such as a fire, it can be very difficult to create a list of all the things you owned.
  • Now is the time to walk through your house and make an inventory of your possessions.
  • One easy way to do this is to videotape the contents of your home.
  • When you're done, place a copy of the tape in a safe deposit box. Or make a copy of your tape or inventoried documents, and store them at a family members home.  Then, if the worst ever does happen, you'll have a record that can help us to help you in the replacement of your possessions.

• Creating A Household Inventory ▼

  Creating A Household Inventory

  A household inventory is a complete and detailed written list of all the personal property located in your dwelling, or stored in other structures like garages and tool sheds. Your inventory should include your possessions as well as items owned by individuals who are also insured under your homeowners policy, such as family members, other household residents, and domestic employees. You should prepare an inventory whenever you move into a new dwelling and update it periodically (say once every six months) to keep track of new and discarded items.

  • Create a home inventory by downloading our Personal Organizer

  Why do it?
  Total recall of all the contents of any one room is quite an accomplishment for any of us, even at the calmest of moments. Remembering all the contents of your house and garage after a fire, theft, or other calamity is practically impossible. Yet that's what you'll be asked to do when you submit a claim on your homeowners insurance, unless you previously prepared a written inventory of your household possessions and property. Omitting or failing to include an adequate description of an item may prevent you from receiving compensation from your insurance company. Considering that the whole point of buying homeowners insurance is to obtain compensation for financial loss, why bet the farm (or your house and its contents) on your memory, or add to the emotional loss and stress which comes from any type of loss?

  You'll also find that a detailed inventory helps when filing a police report, or when trying to prove a loss to the Internal Revenue Service.

  What should the inventory contain?
  Under the terms of your homeowners policy, your claim for damaged or stolen personal property should show the quantity, description, actual cash value (if different from the purchase price), and amount of loss associated with each item. Copies of bills, receipts, and other documents that justify the figures in your claim are also typically requested. It makes sense for your inventory to include that information, as well as the purchase price and purchase date of every item. It's a good idea to note serial numbers for appliances and electrical equipment. Listing the contents of each room and building separately helps organize the inventory and promotes completeness. Make sure you include all the contents of every room, excluding only the four walls, ceiling, and floor. Include rugs and carpets, wall hangings, curtains, blinds, and draperies. Be descriptive and refer to colors, dimensions, manufacturers, and composite materials whenever you can. Make sure you include component parts and the contents of drawers, shelves, closets, storage boxes, and built-in cabinets. For instance, describe not only the bed but the headboard, mattress, and bedding. Try to identify every item that you would have to box or carry out, if you were to move out of the house or apartment.

  For clothing, make sure you give a full description of any expensive items, such as leather or wool coats, boots, suits, or formal wear. If you'd rather not describe every item of clothing, at least list quantities (e.g., six wool sweaters, two pairs of sneakers, two pairs of corduroy trousers), and the family member these items belonged to which in most cases can be associated with the room you are inventorying.

  Make sure to include the items stored in your attic, basement, garage, or outbuildings. Sports equipment tends to be expensive and should be described in as much detail as possible. Don't forget tools and outdoor equipment like lawn furniture and barbecue grills.

  Just do it
  You won't be graded on your inventory for accuracy, completeness, or legibility. If you can't stand the soup-to-nuts approach, at least take the time to jot down any items valued at $50 or more. Since a picture's worth a thousand words, consider taking a photograph or videotape of each room, with separate photos for big-ticket items. If you use a camera, make sure you label each photo with notes about the items shown. If you use a video camera, provide a running commentary describing every item (date of purchase, price, etc.) that comes into view. Hopefully, you'll never have to use your inventory, but if worst comes to worst, and you have to deal with a calamity, you'll be happy you took the time to make a permanent record of all your possessions.

  Now is the time to inventory.

  Where should you store your inventory?
  Remember the purpose of the inventory. In the case of a fire or catastrophic event, your inventory will do you no good if it got burned up in the fire, or washed away with the flood. Regardless of whether the inventory is stored on film, video cassette, computer software, a sketchpad or a the back of an envelope, keep a copy of it stored somewhere safe--like a safety deposit box at a bank or at a trusted friend or relative's house.  But don't store your inventories copy at their home if they live next door or just down the street.  A strong storm or fire could sweep through your area and do extensive and broad range damage.

• Homebuyers Glossary of Terminology ▼

  Homebuyers Glossary Of Terminology

  Click on the first letter of the Term you are looking for:
  A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

  

  A

  • acceleration clause
    A provision in a mortgage that gives the lender the right to demand payment of the entire principal balance if a monthly payment is missed.
  • acceptance
    An offeree’s consent to enter into a contract and be bound by the terms of the offer.
  • additional principal payment
    A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.
  • adjustable-rate mortgage (ARM)
    A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index.
  • adjusted basis
    The original cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.
  • adjustment date
    The date on which the interest rate changes for an adjustable-rate mortgage (ARM).
  • adjustment period
    The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).
  • administrator
    A person appointed by a probate court to administer the estate of a person who died intestate.
  • affordability analysis
    A detailed analysis of your ability to afford the purchase of a home. An affordability analysis takes into consideration your income, liabilities, and available funds, along with the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that you might expect to pay.
  • amenity
    A feature of real property that enhances its attractiveness and increases the occupant’s or user’s satisfaction although the feature is not essential to the property’s use. Natural amenities include a pleasant or desirable location near water, scenic views of the surrounding area, etc. Human-made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities.
  • amortization
    The gradual repayment of a mortgage loan by installments.
  • amortization schedule
    A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.
  • amortization term
    The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.
  • amortize
    To repay a mortgage with regular payments that cover both principal and interest.
  • annual mortgagor statement
    A report sent to the mortgagor each year. The report shows how much was paid in taxes and interest during the year, as well as the remaining mortgage loan balance at the end of the year.
  • annual percentage rate (APR)
    The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points).
  • annuity
    An amount paid yearly or at other regular intervals, often on a guaranteed dollar basis.
  • application
    A form used to apply for a mortgage loan and to record pertinent information concerning a prospective mortgagor and the proposed security.
  • appraisal
    A written analysis of the estimated value of a property prepared by a qualified appraiser. Contrast with home inspection.
  • appraised value
    An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.
  • appraiser
    A person qualified by education, training, and experience to estimate the value of real property and personal property.
  • appreciation
    An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.
  • assessed value
    The valuation placed on property by a public tax assessor for purposes of taxation.
  • assessment
    The process of placing a value on property for the strict purpose of taxation. May also refer to a levy against property for a special purpose, such as a sewer assessment.
  • assessment rolls
    The public record of taxable property.
  • assessor
    A public official who establishes the value of a property for taxation purposes.
  • asset
    Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).
  • assignment
    The transfer of a mortgage from one person to another.
  • assumable mortgage
    A mortgage that can be taken over ("assumed") by the buyer when a home is sold.
  • assumption
    The transfer of the seller’s existing mortgage to the buyer. See assumable mortgage.
  • assumption clause
    A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.
  • assumption fee
    The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.
  • attorney-in-fact
    One who holds a power of attorney from another to execute documents on behalf of the grantor of the power.

   

  B

  • balance sheet
    A financial statement that shows assets, liabilities, and net worth as of a specific date.
  • balloon mortgage
    A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.
  • balloon payment
    The final lump sum payment that is made at the maturity date of a balloon mortgage.
  • bankrupt
    A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.
  • bankruptcy
    A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.
  • before-tax income
    Income before taxes are deducted.
  • beneficiary
    The person designated to receive the income from a trust, estate, or a deed of trust.
  • bequeath
    To transfer personal property through a will.
  • betterment
    An improvement that increases property value as distinguished from repairs or replacements that simply maintain value.
  • bill of sale
    A written document that transfers title to personal property.
  • binder
    A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.
  • biweekly payment mortgage
    A mortgage that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower’s bank account. The result for the borrower is a substantial savings in interest.
  • blanket insurance policy
    A single policy that covers more than one piece of property (or more than one person).
  • blanket mortgage
    The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.
  • bona fide
    In good faith, without fraud.
  • bond
    An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust.
  • breach
    A violation of any legal obligation.
  • bridge loan
    A form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as "swing loan."
  • broker
    A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them. See mortgage broker.
  • budget
    A detailed plan of income and expenses expected over a certain period of time. A budget can provide guidelines for managing future investments and expenses.
  • budget category
    A category of income or expense data that you can use in a budget. You can also define your own budget categories and add them to some or all of the budgets you create. "Rent" is an example of an expense category. "Salary" is a typical income category.
  • building code
    Local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards.
  • buydown account
    An account in which funds are held so that they can be applied as part of the monthly mortgage payment as each payment comes due during the period that an interest rate buydown plan is in effect.
  • buydown mortgage
    A temporary buydown is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower’s monthly payments during the first few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage.

   

  C

  • call option
    A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.
  • cap
    A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease. See lifetime payment cap, periodic payment cap, and periodic rate cap.
  • capital
    (1) Money used to create income, either as an investment in a business or an income property. (2) The money or property comprising the wealth owned or used by a person or business enterprise. (3) The accumulated wealth of a person or business. (4) The net worth of a business represented by the amount by which its assets exceed liabilities.
  • capital expenditure
    The cost of an improvement made to extend the useful life of a property or to add to its value.
  • capital improvement
    Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.
  • cash-out refinance
    A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.
  • certificate of deposit
    A document written by a bank or other financial institution that is evidence of a deposit, with the issuer’s promise to return the deposit plus earnings at a specified interest rate within a specified time period.
  • certificate of deposit index
    An index that is used to determine interest rate changes for certain ARM plans. It represents the weekly average of secondary market interest rates on six-month negotiable certificates of deposit. See adjustable-rate mortgage (ARM).
  • Certificate of Eligibility
    A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.
  • Certificate of Reasonable Value (CRV)
    A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.
  • certificate of title
    A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.
  • chain of title
    The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.
  • change frequency
    The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).
  • chattel
    Another name for personal property.
  • clear title
    A title that is free of liens or legal questions as to ownership of the property.
  • closing
    A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement."
  • closing cost item
    A fee or amount that a home buyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney's fees. Many closing cost items are included as numbered items on the HUD-1 statement.
  • closing costs
    Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country; lenders or realtors^® often provide estimates of closing costs to prospective homebuyers.
  • closing statement
    See HUD-1 statement.
  • cloud on title
    Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by a quitclaim deed, release, or court action.
  • coinsurance
    A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.
  • coinsurance clause
    A provision in a hazard insurance policy that states the amount of coverage that must be maintained -- as a percentage of the total value of the property -- for the insured to collect the full amount of a loss.
  • collateral
    An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.
  • collection
    The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.
  • co-maker
    A person who signs a promissory note along with the borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. See endorser.
  • commission
    The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.
  • commitment letter
    A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a "loan commitment."
  • common area assessments
    Levies against individual unit owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowners' association costs and expenses and to repair, replace, maintain, improve, or operate the common areas of the project.
  • common areas
    Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project's homeowners' association (or a cooperative project's cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.
  • common law
    An unwritten body of law based on general custom in England and used to an extent in the United States.
  • Community Home Improvement Mortgage Loan^®
    An alternative financing option that allows low- and moderate-income home buyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs. The repair work can account for as much as 30 percent of the appraised value.
  • Community Land Trust Mortgage Loan
    An alternative financing option that enables low- and moderate-income home buyers to purchase housing that has been improved by a nonprofit Community Land Trust and to lease the land on which the property stands.
  • community property
    In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.
  • Community Seconds^®
    An alternative financing option for low- and moderate-income households under which an investor purchases a first mortgage that has a subsidized second mortgage behind it. The second mortgage may be issued by a state, county, or local housing agency, foundation, or nonprofit organization. Payment on the second mortgage is often deferred and carries a very low interest rate (or no interest rate at all). Part of the debt may be forgiven incrementally for each year the buyer remains in the home.
  • comparables
    An abbreviation for "comparable properties"; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location , and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.
  • compound interest
    Interest paid on the original principal balance and on the accrued and unpaid interest.
  • condemnation
    The determination that a building is not fit for use or is dangerous and must be destroyed; the taking of private property for a public purpose through an exercise of the right of eminent domain.
  • condominium
    A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.
  • condominium conversion
    Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.
  • condominium hotel
    A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned.
  • construction loan
    A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.
  • consumer reporting agency (or bureau)
    An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources.
  • contingency
    A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
  • contract
    An oral or written agreement to do or not to do a certain thing.
  • conventional mortgage
    A mortgage that is not insured or guaranteed by the federal government. Contrast with government mortgage.
  • convertibility clause
    A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination.
  • convertible ARM
    An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.
  • cooperative (co-op)
    A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.
  • cooperative corporation
    A business trust entity that holds title to a cooperative project and grants occupancy rights to particular apartments or units to shareholders through proprietary leases or similar arrangements.
  • cooperative mortgages
    Mortgages related to a cooperative project. This usually refers to the multifamily mortgage covering the entire project but occasionally describes the share loans on the individual units.
  • cooperative project
    A residential or mixed-use building wherein a corporation or trust holds title to the property and sells shares of stock representing the value of a single apartment unit to individuals who, in turn, receive a proprietary lease as evidence of title.
  • corporate relocation
    Arrangements under which an employer moves an employee to another area as part of the employer's normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity.
  • cost of funds index (COFI)
    An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco. See adjustable-rate mortgage (ARM).
  • covenant
    A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.
  • credit
    An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.
  • credit history
    A record of an individual's open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.
  • credit life insurance
    A type of insurance often bought by mortgagors because it will pay off the mortgage debt if the mortgagor dies while the policy is in force.
  • creditor
    A person to whom money is owed.
  • credit report
    A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness. See merged credit report.
  • credit repository
    An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

   

  D

  • debt
    An amount owed to another. See installment loan and revolving liability.
  • deed
    The legal document conveying title to a property.
  • deed-in-lieu
    A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a "voluntary conveyance."
  • deed of trust
    The document used in some states instead of a mortgage; title is conveyed to a trustee.
  • default
    Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.
  • delinquency
    Failure to make mortgage payments when mortgage payments are due.
  • deposit
    A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan. See earnest money deposit.
  • depreciation
    A decline in the value of property; the opposite of appreciation.
  • discount points
    See point.
  • dower
    The rights of a widow in the property of her husband at his death.
  • down payment
    The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
  • due-on-sale provision
    A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.
  • due-on-transfer provision
    This terminology is usually used for second mortgages. See due-on-sale provision.

   

  E

  • earnest money deposit
    A deposit made by the potential home buyer to show that he or she is serious about buying the house.
  • easement
    A right of way giving persons other than the owner access to or over a property.
  • effective age
    An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.
  • effective gross income
    Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.
  • eminent domain
    The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.
  • Employer-assisted housing
    A special Fannie Mae housing initiative that offers several different ways for employers to work with local lenders to develop plans to assist their employees in purchasing homes.
  • encroachment
    An improvement that intrudes illegally on another’s property.
  • encumbrance
    Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.
  • endorser
    A person who signs ownership interest over to another party. Contrast with co-maker.
  • Equal Credit Opportunity Act (ECOA)
    A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
  • equity
    A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage.
  • escrow
    An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.
  • escrow account
    The account in which a mortgage servicer holds the borrower’s escrow payments prior to paying property expenses.
  • escrow analysis
    The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.
  • escrow collections
    Funds collected by the servicer and set aside in an escrow account to pay the borrower’s property taxes, mortgage insurance, and hazard insurance.
  • escrow disbursements
    The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
  • escrow payment
    The portion of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as "impounds" or "reserves" in some states.
  • estate
    The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.
  • eviction
    The lawful expulsion of an occupant from real property.
  • examination of title
    The report on the title of a property from the public records or an abstract of the title.
  • exclusive listing
    A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner’s right to sell the property alone without the payment of a commission.
  • executor
    A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. "Executrix" is the feminine form.

   

  F

  • Fair Credit Reporting Act
    A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.
  • fair market value
    The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.
  • Fannie Mae
    Fannie Mae is a New York Stock Exchange company and the largest non-bank financial services company in the world. It operates pursuant to a federal charter and is the nation's largest source of financing for home mortgages. Over the past 30 years, Fannie Mae has provided nearly $2.5 trillion of mortgage financing for over 30 million families.
  • Fannie Mae's Community Home Buyer's Program^SM
    An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family's buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.
  • Federal Housing Administration (FHA)
    An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.
  • fee simple
    The greatest possible interest a person can have in real estate.
  • fee simple estate
    An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.
  • FHA coinsured mortgage
    A mortgage (under FHA Section 244) for which the Federal Housing Administration (FHA) and the originating lender share the risk of loss in the event of the mortgagor's default.
  • FHA mortgage
    A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.
  • finder's fee
    A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.
  • firm commitment
    A lender’s agreement to make a loan to a specific borrower on a specific property.
  • first mortgage
    A mortgage that is the primary lien against a property.
  • fixed installment
    The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest.
  • fixed-rate mortgage (FRM)
    A mortgage in which the interest rate does not change during the entire term of the loan.
  • fixture
    Personal property that becomes real property when attached in a permanent manner to real estate.
  • flood insurance
    Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
  • foreclosure
    The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mrotgage debt.
  • forfeiture
    The loss of money, property, rights, or privileges due to a breach of legal obligation.
  • 401(k)/403(b)
    An employer-sponsored investment plan that allows individuals to set aside tax-deferred income for retirement or emergency purposes. 401(k) plans are provided by employers that are private corporations. 403(b) plans are provided by employers that are not for profit organizations.
  • 401(k)/403(b) loan
    Some administrators of 401(k)/403(b) plans allow for loans against the monies you have accumulated in these plans -- monies must be repaid to avoid serious penalty charges.
  • fully amortized ARM
    An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

   

  G

  • government mortgage
    A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Contrast with conventional mortgage.
  • Government National Mortgage Association
    A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA assumed responsibility for the special assistance loan program formerly administered by Fannie Mae. Popularly known as Ginnie Mae.
  • grantee
    The person to whom an interest in real property is conveyed.
  • grantor
    The person conveying an interest in real property.
  • ground rent
    The amount of money that is paid for the use of land when title to a property is held as a leasehold estate rather than as a fee simple estate.
  • group home
    A single-family residential structure designed or adapted for occupancy by unrelated developmentally disabled persons. The structure provides long-term housing and support services that are residential in nature.
  • growing-equity mortgage (GEM)
    A fixed-rate mortgage that provides scheduled payment increases over an established period of time, with the increased amount of the monthly payment applied directly toward reducing the remaining balance of the mortgage.
  • guarantee mortgage
    A mortgage that is guaranteed by a third party.
  • guaranteed loan
    Also known as a government mortgage.

   

  H

  • hazard insurance
    Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.
  • Home Equity Conversion Mortgage (HECM)
    A special type of mortgage that enables older home owners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property. Sometimes called a reverse mortgage.
  • home equity line of credit
    A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower's equity in a property.
  • home inspection
    A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. Contrast with appraisal.
  • HomeKeeper^SM
    Fannie Mae's adjustable-rate conventional reverse mortgage, which allows older homeowners to borrow against the value of their homes and receive the proceeds according to the payment option they select. The amount available is based on the number of borrowers and their ages and the adjusted property value. Anyone 62 years or older who either owns his or her own home free and clear or has very low mortgage debt is eligible.
  • homeowners' association
    A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.
  • homeowner's insurance
    An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.
  • homeowner's warranty (HOW)
    A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is provided by the builder or property seller as a condition of the sale.
  • HomeStyle^® Mortgage Loan
    A mortgage that enables eligible borrowers to obtain financing to remodel, repair, and upgrade their existing homes or homes that they are purchasing. The financing takes the form of a conventional second mortgage or a Federal Housing Administration (FHA) Section 203(k) first mortgage.
  • housing expense ratio
    The percentage of gross monthly income that goes toward paying housing expenses.
  • HUD median income
    Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD).
  • HUD-1 statement
    A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. The blank form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the "closing statement" or "settlement sheet."

   

  I

  • income property
    Real estate developed or improved to produce income.
  • index
    A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM.. This interest rate is subject to any caps that are associated with the mortgage.
  • in-file credit report
    An objective account, normally computer-generated, of credit and legal information obtained from a credit repository.
  • inflation
    An increase in the amount of money or credit available in relation to the amount of goods or services available, which causes an increase in the general price level of goods and services. Over time, inflation reduces the purchasing power of a dollar, making it worth less.
  • initial interest rate
    The original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). Sometimes known as "start rate" or "teaser."
  • installment
    The regular periodic payment that a borrower agrees to make to a lender.
  • installment loan
    Borrowed money that is repaid in equal payments, known as installments. A furniture loan is often paid for as an installment loan.
  • insurable title
    A property title that a title insurance company agrees to insure against defects and disputes.
  • insurance
    A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium.
  • insurance binder
    A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.
  • insured mortgage
    A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount.
  • interest
    The fee charged for borrowing money.
  • interest accrual rate
    The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments, although it is not used for an adjustable-rate mortgage (ARM) with payment change limitations.
  • interest rate
    The rate of interest in effect for the monthly payment due.
  • interest rate buydown plan
    An arrangement wherein the property seller (or any other party) deposits money to an account so that it can be released each month to reduce the mortgagor's monthly payments during the early years of a mortgage. During the specified period, the mortgagor's effective interest rate is "bought down" below the actual interest rate.
  • interest rate ceiling
    For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.
  • interest rate floor
    For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.
  • investment property
    A property that is not occupied by the owner.
  • IRA (Individual Retirement Account)
    A retirement account that allows individuals to make tax-deferred contributions to a personal retirement fund. Individuals can place IRA funds in bank accounts or in other forms of investment such as stocks, bonds, or mutual funds.

   

  J

  • joint tenancy
    A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.
  • judgment
    A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor.
  • judgment lien
    A lien on the property of a debtor resulting from the decree of a court.
  • judicial foreclosure
    A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.
  • jumbo loan
    A loan that exceeds Fannie Mae’s legislated mortgage amount limits. Also called a nonconforming loan.

   

  K

   

  L

  • late charge
    The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.
  • lease
    A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.
  • leasehold estate
    A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.
  • lease-purchase mortgage loan
    An alternative financing option that allows low- and moderate-income home buyers to lease a home from a nonprofit organization with an option to buy. Each month's rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that is earmarked for deposit to a savings account in which money for a downpayment will accumulate.
  • legal description
    A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.
  • liabilities
    A person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.
  • liability insurance
    Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party.
  • lien
    A legal claim against a property that must be paid off when the property is sold.
  • lifetime payment cap
    For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage. See cap.
  • lifetime rate cap
    For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap.
  • line of credit
    An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower. See home equity line of credit.
  • liquid asset
    A cash asset or an asset that is easily converted into cash.
  • loan
    A sum of borrowed money (principal) that is generally repaid with interest.
  • loan commitment
    See commitment letter.
  • loan origination
    The process by which a mortgage lender brings into existence a mortgage secured by real property.
  • loan-to-value (LTV) percentage
    The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has a LTV percentage of 80 percent.
  • lock-in
    A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.
  • lock-in period
    The time period during which the lender has guaranteed an interest rate to a borrower. See lock-in.

   

  M

  • margin
    For an adjustable-rate mortgage (ARM), the amount that is added to the index to establish the interest rate on each adjustment date, subject to any limitations on the interest rate change.
  • master association
    A homeowners' association in a large condominium or planned unit development (PUD) project that is made up of representatives from associations covering specific areas within the project. In effect, it is a "second-level" association that handles matters affecting the entire development, while the "first-level" associations handle matters affecting their particular portions of the project.
  • maturity
    The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.
  • maximum financing
    A mortgage amount that is within 5 percent of the highest loan-to-value (LTV) percentage allowed for a specific product. Thus, maximum financing on a fixed-rate mortgage would be 90 percent or higher, because 95 percent is the maximum allowable LTV percentage for that product.
  • merged credit report
    A credit report that contains information from three credit repositories. When the report is created, the information is compared for duplicate entries. Any duplicates are combined to provide a summary of a your credit.
  • modification
    The act of changing any of the terms of the mortgage.
  • money market account
    A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account.
  • money market fund
    A mutual fund that allows individuals to participate in managed investments in short-term debt securities, such as certificates of deposit and Treasury bills.
  • monthly fixed installment
    That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction.
  • monthly payment mortgage
    A mortgage that requires payments to reduce the debt once a month.
  • mortgage
    A legal document that pledges a property to the lender as security for payment of a debt.
  • mortgage banker
    A company that originates mortgages exclusively for resale in the secondary mortgage market.
  • mortgage broker
    An individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services.
  • mortgagee
    The lender in a mortgage agreement.
  • mortgage insurance
    A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency such as the Federal Housing Administration (FHA). Depending on the type of mortgage insurance, the insurance may cover a percentage of or virtually all of the mortgage loan. See private mortgage insurance (MI).
  • mortgage insurance premium (MIP)
    The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.
  • mortgage life insurance
    A type of term life insurance often bought by mortgagors. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.
  • mortgagor
    The borrower in a mortgage agreement.
  • multidwelling units
    Properties that provide separate housing units for more than one family, although they secure only a single mortgage.
  • multifamily mortgage
    A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex.

   

  N

  • negative amortization
    A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the remaining balance to create "negative" amortization.
  • net cash flow
    The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense, which includes principal, interest, taxes, and insurance (PITI) for the mortgage, homeowners' association dues, leasehold payments, and subordinate financing payments.
  • net worth
    The value of all of a person's assets, including cash, minus all liabilities.
  • no cash-out refinance
    A refinance transaction in which the new mortgage amount is limited to the sum of the remaining balance of the existing first mortgage, closing costs (including prepaid items), points, the amount required to satisfy any mortgage liens that are more than one year old (if the borrower chooses to satisfy them), and other funds for the borrower's use (as long as the amount does not exceed 1 percent of the principal amount of the new mortgage).
  • nonliquid asset
    An asset that cannot easily be converted into cash.
  • note
    A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
  • note rate
    The interest rate stated on a mortgage note.
  • notice of default
    A formal written notice to a borrower that a default has occurred and that legal action may be taken.

   

  O

  • original principal balance
    The total amount of principal owed on a mortgage before any payments are made.
  • origination fee
    A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.
  • owner financing
    A property purchase transaction in which the property seller provides all or part of the financing.

   

  P

  • partial payment
    A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan.
  • payment change date
    The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment adjustable-rate mortgage (GPARM). Generally, the payment change date occurs in the month immediately after the adjustment date.
  • periodic payment cap
    For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease during any one adjustment period. See cap.
  • periodic rate cap
    For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be. See cap.
  • personal property
    Any property that is not real property.
  • PITI
    See principal, interest, taxes, and insurance (PITI).
  • PITI reserves
    A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.
  • planned unit development
    See PUD.
  • point
    A one-time charge by the lender for originating a loan. A point is 1 percent of the amount of the mortgage.
  • power of attorney
    A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.
  • prearranged refinancing agreement
    A formal or informal arrangement between a lender and a borrower wherein the lender agrees to offer special terms (such as a reduction in the costs) for a future refinancing of a mortgage being originated as an inducement for the borrower to enter into the original mortgage transaction.
  • preforeclosure sale
    A procedure in which the investor allows a mortgagor to avoid foreclosure by selling the property for less than the amount that is owed to the investor.
  • prepayment
    Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.
  • prepayment penalty
    A fee that may be charged to a borrower who pays off a loan before it is due.
  • pre-qualification
    The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.
  • prime rate
    The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.
  • principal
    The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
  • principal balance
    The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges. See remaining balance.
  • principal, interest, taxes, and insurance (PITI)
    The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.
  • private mortgage insurance (MI)
    Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
  • promissory note
    A written promise to repay a specified amount over a specified period of time.
  • public auction
    A meeting in an announced public location to sell property to repay a mortgage that is in default.
  • Planned Unit Development (PUD)
    A project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.
  • purchase and sale agreement
    A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
  • purchase money transaction
    The acquisition of property through the payment of money or its equivalent.

   

  Q

  • qualifying ratios
    Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.
  • quitclaim deed
    A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.

   

  R

  • radon
    A radioactive gas found in some homes that in sufficient concentrations can cause health problems.
  • rate-improvement mortgage
    A fixed-rate mortgage that includes a provision that gives the borrower a one-time option to reduce the interest rate (without refinancing) during the early years of the mortgage term.
  • rate lock
    A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time. See lock-in.
  • real estate agent
    A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
  • Real Estate Settlement Procedures Act (RESPA)
    A consumer protection law that requires lenders to give borrowers advance notice of closing costs.
  • real property
    Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.
  • REALTOR^®
    A real estate broker or an associate who holds active membership in a local real estate board that is affiliated with the NATIONAL ASSOCIATION OF REALTORS®.
  • recission
    The cancellation or annulment of a transaction or contract by the operation of a law or by mutual consent. Borrowers usually have the option to cancel a refinance transaction within three business days after it has closed.
  • recorder
    The public official who keeps records of transactions that affect real property in the area. Sometimes known as a "Registrar of Deeds" or "County Clerk."
  • recording
    The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.
  • refinance transaction
    The process of paying off one loan with the proceeds from a new loan using the same property as security.
  • rehabilitation mortgage
    A mortgage created to cover the costs of repairing, improving, and sometimes acquiring an existing property.
  • remaining balance
    The amount of principal that has not yet been repaid. See principal balance.
  • remaining term
    The original amortization term minus the number of payments that have been applied.
  • rent loss insurance
    Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty that renders the leased premises unavailable for use and as a result of which the tenant is excused from paying rent.
  • rent with option to buy
    See lease-purchase mortgage loan.
  • repayment plan
    An arrangement made to repay delinquent installments or advances. Lenders' formal repayment plans are called "relief provisions."
  • replacement reserve fund
    A fund set aside for replacement of common property in a condominium, PUD, or cooperative project -- particularly that which has a short life expectancy, such as carpeting, furniture, etc.
  • revolving liability
    A credit arrangement, such as a credit card, that allows a customer to borrow against a preapproved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due.
  • right of first refusal
    A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.
  • right of ingress or egress
    The right to enter or leave designated premises.
  • right of survivorship
    In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.
  • Rural Housing Service (RHS)
    An agency within the Department of Agriculture, which operates principally under the Consolidated Farm and Rural Development Act of 1921 and Title V of the Housing Act of 1949. This agency provides financing to farmers and other qualified borrowers buying property in rural areas who are unable to obtain loans elsewhere. Funds are borrowed from the U.S. Treasury.

   

  S

  • sale-leaseback
    A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.
  • second mortgage
    A mortgage that has a lien position subordinate to the first mortgage.
  • secondary mortgage market
    The buying and selling of existing mortgages.
  • secured loan
    A loan that is backed by collateral.
  • security
    The property that will be pledged as collateral for a loan.
  • seller take-back
    An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage. See owner financing.
  • servicer
    An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
  • servicing
    The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.
  • settlement
    See closing.
  • settlement sheet
    See HUD-1 statement.
  • special deposit account
    An account that is established for rehabilitation mortgages to hold the funds needed for the rehabilitation work so they can be disbursed from time to time as particular portions of the work are completed.
  • standard payment calculation
    The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.
  • step-rate mortgage
    A mortgage that allows for the interest rate to increase according to a specified schedule (i.e., seven years), resulting in increased payments as well. At the end of the specified period, the rate and payments will remain constant for the remainder of the loan.
  • subdivision
    A housing development that is created by dividing a tract of land into individual lots for sale or lease.
  • subordinate financing
    Any mortgage or other lien that has a priority that is lower than that of the first mortgage.
  • subsidized second mortgage
    An alternative financing option known as the Community Seconds^® mortgage for low- and moderate-income households. An investor purchases a first mortgage that has a subsidized second mortgage behind it. The second mortgage may be issued by a state, county, or local housing agency, foundation, or nonprofit corporation. Payment on the second mortgage is often deferred and carries a very low interest rate (or no interest rate). Part of the debt may be forgiven incrementally for each year the buyer remains in the home.
  • survey
    A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.
  • sweat equity
    Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.

   

  T

  • tenancy by the entirety
    A type of joint tenancy of property that provides right of survivorship and is available only to a husband and wife. Contrast with tenancy in common.
  • tenancy in common
    A type of joint tenancy in a property without right of survivorship. Contrast with tenancy by the entirety and with joint tenacy.
  • tenant-stockholder
    The obligee for a cooperative share loan, who is both a stockholder in a cooperative corporation and a tenant of the unit under a proprietary lease or occupancy agreement.
  • third-party origination
    A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market. See mortgage broker.
  • title
    A legal document evidencing a person's right to or ownership of a property.
  • title company
    A company that specializes in examining and insuring titles to real estate.
  • title insurance
    Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.
  • title search
    A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.
  • total expense ratio
    Total obligations as a percentage of gross monthly income. The total expense ratio includes monthly housing expenses plus other monthly debts.
  • trade equity
    Equity that results from a property purchaser giving his or her existing property (or an asset other than real estate) as trade as all or part of the down payment for the property that is being purchased.
  • transfer of ownership
    Any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property "subject to" the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device. In cases in which an inter vivos revocable trust is the borrower, lenders also consider any transfer of a beneficial interest in the trust to be a transfer of ownership.
  • transfer tax
    State or local tax payable when title passes from one owner to another.
  • Treasury index
    An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. See adjustable-rate mortgage (ARM).
  • Truth-in-Lending
    A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.
  • two-step mortgage
    An adjustable-rate mortgage (ARM) that has one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.
  • two- to four-family property
    A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed.
  • trustee
    A fiduciary who holds or controls property for the benefit of another.

   

  U

  • underwriting
    The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.
  • unsecured loan
    A loan that is not backed by collateral.

   

  V

  • VA mortgage
    A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.
  • vested
    Having the right to use a portion of a fund such as an individual retirement fund. For example, individuals who are 100 percent vested can withdraw all of the funds that are set aside for them in a retirement fund. However, taxes may be due on any funds that are actually withdrawn.
  • Department of Veterans Affairs (VA)
    An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.

   

  W

  • what-if analysis
    An affordability analysis that is based on a what-if scenario. A what-if analysis is useful if you do not have complete data or if you want to explore the effect of various changes to your income, liabilities, or available funds or to the qualifying ratios or down payment expenses that are used in the analysis.
  • what-if scenario
    A change in the amounts that is used as the basis of an affordability analysis. A what-if scenario can include changes to monthly income, debts, or down payment funds or to the qualifying ratios or down payment expenses that are used in the analysis. You can use a what-if scenario to explore different ways to improve your ability to afford a house.
  • wraparound mortgage
    A mortgage that includes the remaining balance on an existing first mortgage plus an additional amount requested by the mortgagor. Full payments on both mortgages are made to the wraparound mortgagee, who then forwards the payments on the first mortgage to the first mortgagee.

   

  X

  Y

  Z

  A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

OTHER HOME INSURANCE CONSIDERATIONS

• Condos & Co-ops ▼

  Condos & Co-ops

  Insuring a condo or co-op is a little different than insuring a typical home because you don't own the entire building. There are typically two policies involved: the master policy provided by the condo association or co-op board, and your individual policy, which is typically written on a standard form HO-6. If you know what is covered by the master policy, and purchase individual coverage for the rest, then you should have the protection you need.

  The master policy
  The common areas you share with other tenants should be covered by a master policy owned by the property. These areas include, the roof, stairways, elevators and basements. The master policy should protect the policyholder(s) from liability and physical damage. The master policy may also cover individual units as they were originally built, and may or may not cover fixtures. It is important for you to know exactly what the master policy covers so that you can purchase appropriate individual coverage for your unit and its contents. For instance, the master policy may cover original fixtures, but not improvements. If you or a former tenant has made improvements, you will want to be sure they are covered under your individual policy. The condo association or co-op board should be able to supply you with the information you need, or provide you with the appropriate documents that explain the coverage.

  Your personal policy
  Typically, your personal condo or co-op coverage will be written on Form HO-6. While the liability coverage on Form HO-6 is similar to that found in other homeowner's policies, the property coverage is different. Form HO-6 covers your personal property, and other property such as improvements, additions, private balconies, private entranceways, private garages, and other property that is your insurance responsibility under the condo or co-op documents. However, the policy only covers physical damage to property if it is caused by a "named peril" identified in the policy. Those include fire, lightning, storm, explosion, riot, aircraft, smoke, vandalism, theft, broken glass and volcanic eruption to name a few. Review the perils covered by your policy and remember, you always have the option to purchase coverage to protect you against additional perils.

  Things not covered on the typical policy
  If your policy is written on Form HO-6, your possessions are not covered for property damage resulting from perils listed in the "exclusions" section of your policy. These can typically include damage due to enforcement of building codes, earthquakes, flooding, power failures, neglect, war, nuclear hazard or intentional acts.

  Loss Assessment
  If your personal policy is written on Form HO-6, pay particular attention to the paragraph entitled "Loss Assessment." This paragraph entitles you to collect up to $1,000 for loss assessments charged to you by the condo or co-op association. Loss assessments typically result from losses suffered by the condominium or co-op as a whole, such as damage to a roof. These damages are then passed through to all unit owners.

  Loss Settlement
  Your policy will also specify what amounts you can recover in the event of a loss. In the case of property such as fixtures, balconies, improvements and certain other such items, you are entitled to receive the actual repair or replacement cost if the damage is repaired or replaced within a reasonable time. If the damage is not repaired or replaced, you may only receive the actual cash value of the property. As for your own personal property, you are entitled to receive the actual cash value of any damaged property, but no greater than the repair or replacement cost of the property. Loss settlement is always subject to the coverage limits described in your policy.

  In order to qualify for payment from your insurance company, you must meet the conditions that are spelled out in your homeowners policy. Some conditions dictate your responsibilities before a loss occurs, and some dictate the actions you must take after the loss to remain eligible for coverage. Reading your policy carefully to familiarize yourself with your responsibilities under the policy is always advisable and can speed things along should a loss occur.

  Where loss is covered under master policy and personal policy
  Form HO-6 has a unique feature. When a loss is covered by both the condominium's or co-op's master insurance policy and your individual policy, your homeowners insurance will pay only for the balance of the loss that remains after the master insurance policy pays 100 percent of its limit.

   

• Renters Insurance ▼

  Renters Insurance

  If you rent a house or an apartment, you might think you don't need insurance because you don't own the building. Your landlord has coverage, right? Probably. But your landlord's insurance only covers the building, not your belongings. Without insurance of your own, you could be left with nothing in the event of a fire or burglary. And what if a friend slips on your bathroom floor and hits his head on the bathtub? Your landlord's insurance won't pay for his medical expenses, either.

  What is it?
  Renters insurance (HO-4) is a special kind of homeowners insurance. It provides no coverage for the building itself. Instead, it covers your personal possessions if you rent a house or apartment and offers a level of liability protection.

  What is covered?
  Standard renters insurance policies only cover losses which result from any of 17 "named perils." If your property is lost or damaged as a result of one of these perils, your insurance company will compensate you for your loss. The covered perils are as follows:

  • Fire or lightning
  • Windstorm or hail
  • Explosion
  • Riot or civil disturbance
  • Aircraft
  • Vehicles
  • Smoke
  • Vandalism or malicious mischief
  • Theft
  • Broken glass
  • Volcanic eruption
  • Falling objects
  • Weight of ice, snow, or sleet
  • Accidental discharge or overflow of water
  • Sudden and accidental tearing apart
  • Freezing
  • Artificially generated electrical charge

  What is not covered?
  It should go without saying that losses caused by any other event are not covered. However, most renters insurance policies go a step further, listing specific events which the policy does not cover. Typical exclusions include:

  • Enforcement of building codes and similar laws
  • Earthquakes
  • Flooding
  • Power failure
  • Neglect
  • War
  • Nuclear hazard
  • Intentional acts

  If you live in an area prone to earthquakes or flooding, you should consider purchasing a separate policy to insure your possessions against damage caused by these hazards.

  Replacement cost vs. Actual cash value
  These may sound like highly technical terms, but they are actually very important in determining how much money you will get if you ever have to file a claim. When you get a quote you should always make sure you know which type of coverage is being described.

  Actual cash value coverage reimburses you for only the amount your property was worth when it was stolen, damaged, or destroyed. This means that if all your clothes suffer smoke damage in a fire, your insurance company probably won't pay much more than you could've made at a garage sale - not the $4,000 you spent over the last six years to create the perfect wardrobe.

  Replacement cost coverage, on the other hand, reimburses you for the amount it will cost to replace your property. If you bought a $400 television two years ago, you'll receive enough money to go out and buy another television just like the old one. Replacement cost coverage typically pays significantly more than actual cash value coverage.

  Limitations
  Like any type of insurance, your renters insurance policy places a limit on the amount it will pay out. Coverage levels can typically start somewhere around $15,000 and go up from there. As you increase your level of coverage, your premiums will increase as well.

  In addition, insurance companies have per-category limits for certain items such as jewelry, antiques, computer equipment. If the value of your property exceeds these limits, you will want to get an appraisal proving its worth. You can then purchase an additional rider to cover the full value of your property.

  Liability coverage
  Renters insurance also provides liability coverage. A typical renters insurance policy covers you for accidents and injuries that occur in your home, as well as accidents outside of your home that are caused by you or your property. (This does not include automobile accidents.) This liability coverage includes legal defense costs, if you are taken to court over such an accident.

  Additional living expenses
  If your house or apartment is unlivable as a result of any of the 17 named perils, renters insurance will typically cover your "additional living expenses." That means that it will pay for you to live somewhere else (usually in a comparable house or apartment) while your home is being repaired. The dollar limit on this type of coverage is stated within the policy. There may also be a time limit on this type of coverage.

  What does it cost?
  The cost of renters insurance varies greatly depending on such factors as where you live, the construction of the building, your deductible, and how much insurance coverage you need. But renters insurance is much less expensive than homeowners insurance. Replacement cost coverage is somewhat more expensive than actual cash value coverage, but in the event of a catastrophic loss is always worth the extra premium.

   

• Flood Insurance ▼

  Flood Insurance

  Your homeowners policy doesn't cover damage from flooding, and you can't simply purchase flood insurance as an endorsement to your policy like you might expect. Instead, you must purchase a separate flood insurance policy through an insurance company that participates in the National Flood Insurance Program (NFIP), a partnership between the Federal Emergency Management Agency (FEMA) and the private insurance industry. A flood insurance policy can offer you protection for both the building and its contents. You are eligible to purchase flood insurance if your community is one of the approximately 19,000 nationwide that participate in the National Flood Insurance Program. The participating communities must adopt certain floodplain management practices in exchange for the availability of flood insurance for their residents.

  Do you need flood insurance?
  You should consider purchasing flood insurance even if you don't live in a high-risk area for floods. According to FEMA, approximately 25 percent of all flood insurance claims come from areas that are at low to moderate risk for floods. Even if you don't live near the ocean, a river, or other body of water, factors such as storms, melting snow, inadequate or overloaded drains, or hurricanes can cause serious flooding. As long as your community participates in the NFIP, flood insurance is an option worthy of consideration. If you are buying a home located in a high-risk flood zone, you are required to purchase flood insurance as a precondition for obtaining a federally-backed mortgage.

  How do you purchase flood insurance?
  If you decide you want or need flood insurance, the perfect place to start is by asking your homeowners insurance agent for assistance. They may be able to write a flood insurance policy for you. Buying homeowners insurance and flood insurance policies through the same company may have advantages. If we can't offer you flood insurance, you can call the NFIP Telephone Response Center at 1-888-CALL FLOOD, extension 445.

  How much flood insurance can you get?
  A flood insurance policy offers flood protection for both your home and its contents. You can purchase up to $250,000 worth of coverage for the building itself, and up to $100,000 worth of coverage for the contents. However, a flood insurance policy is not a catchall. For example, it offers some degree of protection for flood-related basement damage, but doesn't cover all types of damage (sewer backups, for instance, would not be covered unless directly related to a flood).

  How much does flood insurance cost?
  Flood insurance costs vary widely, depending upon your location. However, if you live in a lower-risk area, you can typically reduce the premium by purchasing a lesser amount of coverage.

  What else should you know about flood insurance?
  You should be familiar with several miscellaneous facts about flood insurance. First, you can purchase flood insurance most any time if you live in a participating community (except when flood is imminent--i.e., an impending hurricane). You generally have a 30-day waiting period before the policy becomes effective. Second, you can purchase flood insurance even if you live in a high-risk region for floods. As long as your community participates in the NFIP, insurance companies will be able to offer you a policy. Third, flood insurance policies don't cover flooding from wind-driven rain or damage from hail. Your homeowners policy will likely cover these situations.

  Finally, flood insurance offers some protection for flood-related basement damage, but doesn't cover all types of damage. It ordinarily covers items like furnaces, hot water heaters, foundation elements, stairways, and oil or natural gas tanks, as well as appliances such as clothes washers and dryers, and freezers. It doesn't cover basement structures such as finished walls, floors, ceilings, or personal belongings like furniture or clothes. Your homeowners policy doesn't cover basement flooding, period. So, although flood insurance doesn't cover every situation, it's your best bet for dealing with basement flooding expenses.

   

• Ordinance Or Law Coverage ▼

  Ordinance Or Law Coverage

  One of the most needed types of insurance coverage by many consumers is also one of the most commonly overlooked, or even known about.  It's called Ordinance or Law Coverage.  As your home becomes older certain changes in your county's building codes and ordinance change to reflect new standards for home construction.  If your older property suffers a substantial loss, fixing it may require a higher construction standard to reflect new laws, therefore simply replacing your home as it was just isn't good enough to meet these new laws and codes.  

  Let's say, for example, your home was built in 1972 and the building code called for your home to be built 5 feet off the ground, and in 1993 the building ordinance was upgraded to call for the same building to be 10 feet above the ground following a minor flood a few years earlier. Complying with this code requires a change in design and building materials, and will incur substantial additional costs for labor and materials. 

  As this occurs the cost of replacing your dwelling is greatly increased.  If these new laws are not met during re-construction the codes inspector must stop construction and name the dwelling as uninhabitable until such time as these building standards are properly met.  If your insurance doesn't cover this increase in government standards then you risk being in a "catch 22" situation where you will have to pay for these upgrades before completing the repairs and resuming residence.

  As your independent agent we may offer many types of policies from many different insurers.  Although the companies we represent have different ways of offering coverage for ordinance or law based upon costs and inclusions, you need to be aware of your policy's specific protection value.  Please review your policy to find out exactly what it offers for ordinance or law coverage, or contact us to help in your personal policy review.

COVERAGE AMOUNTS

• Understanding The Benefits of Home Insurance ▼

  Understanding The Benefits of Home Insurance

  Why You Need Homeowners Insurance

  Your home is your castle, so the saying goes. In order to protect it, people purchase homeowners insurance, one of the most popular forms of insurance today. Of course, if you have an outstanding mortgage on your home, chances are you had no choice--your lender required you to secure homeowners insurance before the loan was approved. But if the choice is up to you, remember that homeowners insurance provides important benefits. A few hundred dollars a year can buy you a hundred times that in peace of mind.

  The three benefits of homeowners insurance include:

  • protecting your home,
  • protecting your personal property, and
  • providing liability coverage.

  Your house
  The main purpose of homeowners insurance is to protect your home (and other structures, like a shed or detached garage). This coverage is the bread and butter of any homeowners policy. Your house is often the most important investment you'll ever make, and even a relatively small amount of damage may set you back financially if you don't have insurance, or don't have enough insurance.

  Take the following scenarios:

  • Lighting strikes a power line leading into your house, causing a fire.
  • A delivery truck careens off the road into your house.
  • Your hot water heater explodes.
  • A tree falls through your roof during a storm.

  With the typical homeowners policy, you are covered in each of these situations. You don't have to worry about the unpredictable. The financial problems created by random accidents and perils will not force you out of your home.

  Not only will your policy cover the cost of the damage (exactly how much depends on your policy), but also it will cover (up to a limit) your living expenses in makeshift quarters while you wait for your home to be repaired.

  Personal property
  In addition to protecting your home, the typical homeowners policy covers your personal property as well. Your personal property consists of the contents inside your home--for example, furniture, clothing, stereo, computer equipment, jewelry, and sentimental items--as well as outdoor items like sporting equipment and lawn tools. So if a fire damages both your kitchen walls and your appliances, your appliances will be covered.

  An important aspect of homeowners insurance is that its coverage is not limited to property damaged on your premises, but applies to your personal property anywhere in the world. This is known as "off-premise protection". If you travel now or ever intend to travel, this protection can be invaluable. In sum, if you value your personal possessions, the personal property coverage of a homeowners policy can be very important.

  Liability coverage
  In addition to insuring your property, the typical homeowners policy includes a specific level of liability protection that covers you for damage you cause inside or outside of your home. Unlike the random perils that govern your property (e.g., fire, explosion, theft), the trigger for this coverage is your negligence and, unfortunately, the "I'll see you in court" mentality. Included here are medical payments to third parties, and your legal costs for any lawsuits brought against you. The importance of this coverage may not be as obvious as that of property coverage. Nevertheless, it may protect you against potentially troubling personal injury lawsuits. For example: you invite your neighbor over for coffee, and she trips and breaks her leg on a pair of shoes you left in the middle of your floor. Your insurance will cover her medical bills and other costs (the ceramic vase she was carrying) if you're held responsible. Or, away from home, suppose you run over someone's foot with your golf cart on the way to the clubhouse. Your insurance will cover the injured person's medical bills if you're found liable.

  What is covered?
  The most typical homeowners insurance policy in the United States is referred to as the "HO-3" policy. Among other things, it commonly provides coverage for damage resulting from:

  • Fire and lighting
  • Windstorm and hail
  • Explosion
  • Theft, vandalism, or malicious mischief
  • Damage from vehicles
  • Sudden and accidental damage from smoke
  • Objects falling from sky (meteorite, airplane etc.)
  • Weight of ice, snow, and sleet
  • Accidental discharge or overflow of water from your plumbing
  • Freezing of plumbing
  • Sudden and accidental tearing, cracking, burning, or bulging of a steam or hot water heating system
  • Your personal property
  • Your negligent and unintentional act, whether on or off your premises

  In fact, with the HO-3, every calamity is covered except those that are specifically excluded in the policy. The standard exclusions in the HO-3 policy are:

  • The land under your house
  • Floods (this insurance must be purchased separately)
  • Earthquakes (this insurance must be purchased separately)
  • War
  • Nuclear accident
  • Intentional damage
  • Sewer backup or overflow
  • Structures used for a business (this insurance must be purchased separately)
    wear and tear on a home, including deterioration, insect and rodent infestation, settling, cracking, bulging, or expansion of pavement, walls, or foundations, or damage from domestic animals
  • Cars, trucks, vans, motorcycles, aircraft, and boats with anything more than a small motor
  • Theft from a house under construction (this insurance must be purchased separately)
  • Freezing of pipes in an unoccupied, vacant, or under-construction house
  • Vandalism and malicious mischief if the house has been vacant for more than 30 days
  • Freezing, thawing, pressure, or weight of water or ice to a fence, pavement, patio, swimming pool, or dock
  • property belonging to tenants
  • animals, birds, and fish
  • losses resulting from the failure to protect property after a loss

  Keep in mind that you can always add available additional endorsements to complement standard coverages.

   

• Determining Coverage Levels ▼

  Determining Coverage Levels

  Insuring your home
  Homeowners insurance provides three basic coverages. 

  • First, the policy covers damage to your home--the dwelling itself.
  • Second, it provides coverage for the contents of your home.
  • Third, it provides a level of liability protection for claims arising from the actions of you and your family.

  Two methods to determine value
  Insurance companies use one of two methods to determine the value of property:

  • Replacement cost--pays you the cost of replacing damaged property, with no deduction for depreciation.
  • Actual Cash Value--pays you an amount equal to the replacement value of damaged property minus a depreciation allowance.

  Unless a policy specifically states that property is covered for its replacement value, coverage is for the lower, actual cash value. If you are not sure which type you have, first check your policy, or ask your insurance agent or representative if you are not sure what level of coverage you have.

  Assessing your need
  Certain factors can affect the appropriate level of homeowners coverage. If, in the event your house is destroyed, you want to rebuild your home with materials of like kind and quality, and replace the contents, you should insure your home for an amount which may be considerably larger than your mortgage balance. On the other hand, if you just want to be able to pay off your mortgage and walk away, then your level of coverage should match the balance of your mortgage. Be careful, however, because this is where some consumers slip up by thinking that "cheaper" is "better".  Without sufficient insurance coverage, the insurance company may pay only a portion of the cost to replace or repair your home and its contents.

  In most cases, policy holders want to insure their possessions for replacement values. But make no assumptions.  The replacement value is probably different than the market value of your home and the depreciated cash value of its contents.

  Determining your level of coverage--the building
  If you have a mortgage, your lender may require you to maintain a certain level of insurance, and the lender will be named on your policy as an insured party or copayee. While the level of coverage required by the lender may be enough to cover its exposure, that actual level may not be sufficient to fully protect you.  The reason for this is easy to explain... Lenders want to know that the mortgage balance will be paid if the home is destroyed.  They have no specific interest in seeing that your home is built back to its former level of glory.

  To decide how much homeowners coverage you should have, determine the cost to rebuild your home. As a licensed independent agent we can help you calculate the current cost of construction for a house like yours, or you can hire a professional appraiser. You may or may not be surprised to discover that it would could cost more today to rebuild your home than the price you initially paid for it. This is not something you want to discover after your home has been destroyed and you need to rebuild it.

  Often, consumers mistake market value or taxable value for the amount at which they should be insuring their home, but this could result in being horribly underinsured. For example, assume your home is a 2,000-square-foot-home, has a taxable value of $75,000, and would cost $45 per square foot to rebuild. The total cost to rebuild this home would be $90,000. If you were insured for the taxable value, you would be trying to rebuild a your home while facing a $20,000 deficit. Plus you don't want include the value of the land your home is on when calculating your coverage; land is not at risk from theft, fire, windstorm, and other perils covered in your homeowners policy.

  Determining your level of coverage--your home's contents
  In a standard policy, possessions are usually covered at stated percentage of the value of the structure coverage, and there are listed limits for certain items. This level may not be sufficient to cover the replacement of all your property. To determine how much property insurance coverage you need, make an inventory of all your home's contents. Don't forget to include furniture, appliances, draperies, jewelry, artwork, and the contents of your closets, cabinets and the toy chest. When possible, list the serial number, date and cost of purchase. Include receipts if possible. An easy way to inventory your possessions is to use a video camera or take photos. When using a video camera, you can talk about the specific items, their cost, and when you bought them. Ideally, you would want enough insurance coverage to replace your possessions if they were destroyed. If the value of your possessions is larger than the stated percentage of your structural coverage, don't panic--you can buy additional coverage for your possessions.

  Keep a copy of your inventory in a location away from your home--like a safety deposit box, or with a trusted friend or family member. This way, if your home is destroyed, your inventory list will be safe at another location. When you make major purchases, remember to add them to your inventory and check your policy--you may need to increase your coverage levels.

  Determining your level of coverage--liability protection
  The standard amount of liability coverage in a homeowners policy is $100,000, which covers personal liability, medical payments, and property damage for damage, or personal injury caused to others. If you feel you need more coverage, talk to us about the availability of a higher level of coverage or the possibility of purchasing a separate liability umbrella policy.

  Periodically review your existing coverage
  At least once a year, review your homeowners coverage to make sure it is keeping pace with any major purchases or additions to your home. In addition, if you fear inflation will decrease the value of your policy, an inflation guard endorsement, which is built-in to many homeowners policies these days, ensures that your coverage amount increases a bit every year to keep up with inflation.  What this means, for example, is if your house increases in value next year by 5% your policy's replacement limit will also increase, according to some predetermined index of local home values.

   

• Common Exclusions ▼

  Common Policy Exclusions

  Homeowners insurance policies not only state what perils are covered, they also can list which perils are excluded from coverage. Neither the named perils policy types (HO-1, HO-2, HO-4, HO-6, HO-8) nor the open perils policy form (HO-3) cover the following events:

  • Enforcement of building codes and similar laws
  • Earthquakes
  • Flooding
  • Power failures
  • Neglect (meaning your failure to take reasonable steps to protect your property)
  • War
  • Nuclear hazard
  • Intentional acts

  Flood insurance and earthquake insurance are only available as separate policies.

  Additional exculsions--open peril policies
  In addition to the above-named exclusions, the following perils are excluded from coverage if you have an open perils (HO-3) policy:

  • Freezing pipes and systems in vacant dwellings
  • Damage to foundations or pavements from ice and water weight
  • Theft from a dwelling under construction
  • Vandalism to vacant dwellings
  • Latent defects, corrosion, industrial smoke, pollution
  • Settling, wear, and tear
  • Pets, other animals, and pests
  • Weather conditions that aggravate other excluded causes of loss
  • Government and association actions
  • Defective construction, design, and maintenance

  While HO-3 does not cover you for the above exclusions, it does cover you for ensuing losses that result from excluded events (as long as the ensuing loss is not itself excluded from coverage). For example, if your fireplace is defective or was improperly installed so that smoke and flames are blown out into your living room, you're not covered for the replacement of the fireplace, but you are covered for the smoke and fire damage that your house had to endure the first time you used the fireplace.

  While the list of exclusions is longer with open perils policies, you are usually covered for everything not specified on the list of exclusions. With a named perils policy, your coverage is only for the perils named within the policy. Remember also that under HO-3 policies, the open perils list applies to the dwelling and related structures. Your personal possessions are covered for the more restrictive broad named perils.

  Apartment tenants
  Tenants in rental buildings don't own the building or the unit in which they live, so the policy coverage and exclusions apply only to personal possessions.

   

• Saving Money ▼

  Saving Money

  Because the cost of your homeowners insurance can vary by hundreds of dollars depending on the size of your home, where you live, the type of home you live in, construction and feature types, etc.. Because every penny counts, here are some possible steps to help you save money on your homeowners insurance:

  • Raising your deductible--A deductible is the amount of money you must pay up front out of pocket for a loss before the insurance company will pay for anything. The typical minimum deductible for a homeowners policy starts at $250. But look at the following chart:

  If you increase your deductible to...	You may save on your homeowners policy...
  $500	up to 12%
  $1,000	up to 24%
  $2,500	up to 30%
  $5,000	up to 37%

  • Obtain home insurance and auto insurance from the same insurer--These days companies will commonly give you a discount of 5% to 15% off your total premium if you purchase two or more policies from them.

  • Avoid flood areas--According to the National Flood Insurance Program's statistics, the average cost of flood insurance is slightly more than $400 a year.

  • Don't insure your land--Don't include the value of your land in deciding how much homeowners insurance to buy. The reason is the land under your house is not prone to theft, fire, or other weather extremes that are covered in your homeowners policy.

  • Improve your home security--We typically offer a discount if you have a smoke detector, burglar alarm, or dead-bolt locks. In addition, we may be able to reduce your premium if you install a sprinkler system and burglar alarm that is monitored by the police. However, these systems can be costly. Before installing them, check with us to find out what is specifically required to qualify for a discount.
     
  • Stay with an insurer--Loyalty may have its advantages and translate into real money savings.
     
  • Look for private insurance first--The cost of private insurance is often equal to or less than that of government-sponsored insurance, especially if you live in a high-risk area (plagued by storms, fires, or crime).

   

• Cash Value & Replacement Costs ▼

  Cash Value & Replacement Costs

  There are several different methods by which your insurance company may calculate the amount it will pay you for a loss. Payment based on the replacement cost of damaged or stolen property is usually the most favorable figure from your point of view, because it compensates you for the actual cost of replacing property. If your camera is stolen, a replacement cost policy will reimburse you the full cost of replacing it with a new camera of like kind. The insurer will not take into consideration the fact that you ran three rolls of film through the camera every day for the last two years, causing a considerable amount of wear and tear.

  In contrast, actual cash value (ACV), also known as market value, is the standard that insurance companies arguably prefer when reimbursing policyholders for their losses. Actual cash value is equal to the replacement cost minus any depreciation (ACV = replacement cost - depreciation). It represents the dollar amount you could expect to receive for the item if you sold it in the marketplace. The insurance company determines the depreciation based on a combination of objective criteria (using a formula that takes into account the category and age of the property) and subjective assessment (the insurance adjuster's visual observations of the property or a photograph of it). In the case of the stolen camera, the insurance company would deduct from its replacement cost an amount for all the wear and tear it endured prior to the time it was stolen.

  How to get replacement cost coverage
  Personal property generally loses value over time due to ordinary wear and tear. Accordingly, you are arguably better off with a replacement cost policy. If you prefer such coverage, then read your policy and check with your insurance agent. There are certain requirements you typically need to meet before you are entitled to receive replacement cost for your house and possessions. Remembering, you will most likely need to replace the item and provide a receipt to get the "replacement" dollar amount.

  When is actual cash value better?
  Although actual cash value is a smaller figure than replacement cost, you may prefer ACV in certain situations. If you don't intend to repair or replace the damaged or destroyed property, you may just want cash as soon as possible. You can receive ACV compensation more quickly than replacement cost compensation, and thus have the cash in hand at an earlier date.

FILING A CLAIM

• Filing General Claims ▼

  Filing General Claims

  If a covered loss does occur, the claims process is completed by:

  • First filing your claim,
  • and then settling your claim.

  Filing your claim
  Filing your claim is a seven step procedure:

  1. Report burglaries, thefts, and other crimes to the police.

  2. Telephone your insurance agent and formerly report the loss. You'll receive any additional information you need at this time.

  3. Take any steps necessary to prevent further damage. For example, repair any windows broken during a burglary. Save your receipts so that you can submit them to the insurance company for reimbursement.

  4. Take an accurate inventory of all lost property.

  5. Save receipts for living expenses if you must make temporary living arrangements while damage is being repaired.

  6. Obtain claims forms. Once received, complete and return them as soon as possible as this greatly helps in speeding things along.

  7. Make sure that an adjuster inspects any & all damage.

  Settling your claim
  You and your insurance company must come to an agreement on the terms of settlement; that is, how much you will be compensated for your loss. Generally, the insurance company will make an offer. If it is acceptable to you, the insurance company must send the payment to you promptly. If you are unsatisfied with the offer, follow these simple steps:

  1. Discuss the matter directly with your insurance company or agent. Explain why you think the offer is not fair. Send copies of all supporting bills, receipts, and other documents. 

  2. Before resorting to any formal dispute resolution procedures, you may find it worthwhile to attempt more informal negotiations. In particular, you may save valuable time and money this way if the amount in dispute is relatively small. 

  3. If, on the other hand, the amount in dispute is considerable, or you have unsuccessfully attempted to negotiate, you can follow the more formal procedures outlined in your policy. The appraisal and arbitration clauses in your homeowners policy govern disagreements over the compensation paid on a claim.

   

• Filing Disaster Claims ▼

  Filing a Claim After a Disaster, Fire, Etc.

  If you have a homeowners insurance policy, you should review it very carefully, and understand exactly what is covered and what is not in the event of a disaster, such as a fire or storm. This is important because if a loss should occur, you will certainly want to know whether or not you can make a successful claim. It may be a good idea to reevaluate your current coverage to make sure that you have adequate protection.

  Remember, homeowners policies don't cover flood damage, but do cover other kinds of water damage. For example, damage caused by rain that comes in through a window or roof broken during a storm is covered. You will need separate flood insurance to cover damage caused by flooding.

  What should you do after a disaster has struck?
  Of course we're all human and therefore susceptible to the emotional toll if a disaster strikes, but keeping a clear head can help us to do certain things right away.

  1. Make temporary repairs. You will need to make whatever repairs are necessary in order to make your home habitable and prevent further damage. For example, you may need to put plastic coverings over windows or holes in the roof, and replace electrical appliances damaged by water. Be very careful if you are not used to this kind of work and get professional help if you need it. But, be careful not to make extensive repairs at this time. An adjuster must appraise the damage first. Save any and all receipts so that you can be reimbursed by the insurance company later.

  2. Call your insurance agent to report the loss.  By doing so, you'll be provided with any additional information you need at this time. If the disaster is widespread, your agent may be very busy. Be patient, and keep trying.

  3. Save receipts for living expenses if temporary living arrangements are needed. Such expenses may include temporary housing costs, storage expenses, and furniture rentals.

  4. Make a list of all the damaged property. Try to include makes, models, and serial numbers. If you had previously made a complete home inventory list, then now is the time to retrieve it.  Take pictures of the damaged items, if you can. Organize old bills and receipts, if they are available, to establish value and age. Work from memory, if necessary. Remember to include clothing, personal items, kitchenware, china, sporting goods, garden equipment and tools, toys and games, outdoor furniture, towels and linens, curtains, wall hangings, and decorations. Don't throw anything away no matter how bad the damage until the adjuster has a chance to inspect and appraise it.

  5. Identify structural damage. Don't enter the property if "good-sense" judgment tells you it's unstable.  Don't forget the garage, sheds, and pool areas. Look for cracks, and missing shingles or roof tiles. You may want to hire a licensed engineer to identify damage you can't see. Have an electrician inspect the electrical system, and a plumber inspect the plumbing system. Get bids for the repair work.  Never hire the first person who comes along and tells you they can fix your property right away without first checking them out, and never sign a work contract until you are satisfied with their professional credentials and abilities.

  6. Have an adjuster appraise the damage. Your insurance agent or company will arrange this, and there should be no charge. Again, remember if the disaster is widespread, adjusters will be busy. Be patient. When your adjuster comes, he or she should do a complete inspection and appraisal. If not, make sure he or she comes back for a second look. Be sure to point out all damaged areas.

  7. Complete the "proof of loss" forms which will be sent to you by your insurance company. Return them as soon as possible. Keep copies of all forms you send back. Send copies of lists and other documents as needed to prove your losses. Make sure to keep the originals.

  How is the settlement amount determined?
  You and your insurance company will have to reach an agreement as to the amount of compensation you will receive. The settlement amount will depend on the type of policy you have, including all listed endorsements and exclusions.

  Cash value vs. replacement cost
  A cash value policy pays only the actual cash value of the property that is damaged or destroyed. Replacement cost pays the full dollar amount needed to replace the property.

  Extended replacement cost
  This kind of coverage replaces your entire house if it is completely destroyed. A typical policy will pay up to the limit of the policy.

  Guaranteed replacement cost
  Guaranteed replacement cost coverage pays whatever it costs to rebuild your home as it was before the disaster.

  How do you receive payment?
  You may receive as many as four separate checks. The first may be an advance, not a final payment. This is so you can pay for temporary living expenses, if needed. If you suffer both structural damage and loss of personal property, you will get a separate check for each. You may also get a separate check for temporary living expenses (minus the advance).

  If you're offered a settlement right away, and you accept it, you may get just one check. If you find more damage later, you can reopen the claim, and receive a second check. You typically may have up to one year to file or reopen a claim.

  What if your home is mortgaged?
  If your home is mortgaged, the check you receive for structural damage may be made payable to both you and your lender. The lender gets equal rights to this payment so that it can make sure that repairs are suitably completed. The lender will probably endorse the check, and put it in an escrow account. The lender will inspect the final repairs, and then release the funds.

  Funds in excess of the mortgage, in payment for personal property, and in payment for additional living expenses should be made payable to you alone, and not to your lender.

   

• Claims & Your Premiums ▼

  Claims & Your Premiums

  Will Your Insurance Go Up After a Claim?

  The answer typically is no. A single claim, no matter how large, won't raise premiums, especially if it is the result of an act of God (meaning forces of nature). That's the good news.

  What if it is a claim for a dog bite?
  Here's the one exception. If the claim is for a dog bite, and you do nothing to improve the situation, rates are sure to increase.

  Okay, you've filed two claims under your homeowners insurance policy. Will your premiums go up now?
  It depends upon the type of claim, and how much time has passed between the two claims. Say, for example, you have one claim for a slip and fall in one year, and another claim for damage due to faulty plumbing three years later. Your premium will probably increase. But, if a wild fire damages your house one year, and a storm rips through it the next year, chances are you won't have to worry about your premiums going up.

  The difference is whether or not you, the homeowner, could have done something to prevent the loss. In cases of natural disasters, there is almost nothing you can do to prevent damage, and you won't be penalized. But, if it seems that you don't maintain your home properly, or it is unsafe in some way, or you make multiple similar claims, red flags go up at the insurance company, and you'll pay with increased premiums or nonrenewals.

PLANNING CONCERNS

• Insuring Construction ▼

  Insuring a New Home During Construction

  You should definitely consider insuring your new home during construction. If you don't, you're exposing yourself to a great deal of risk if a fire, theft, or other event damages or destroys your partially-completed home.

  How can you insure your new home during construction?
  One way to cover your new home during construction is to purchase a standard builders risk policy. This will cover any damage to the building as it's being built, and may also provide some coverage for the theft of building supplies. It also provides liability coverage, which may come in handy if one of your friends trips during a "tour" of your dream house, and decides to sue you. However, the policy will not cover your personal property until the building is made secure or "lockable."

  Another option is to purchase a "dwelling and fire" policy. This type of policy covers damage to the physical structure, but provides no theft coverage. A dwelling and fire policy may be an appropriate choice if you are living in your old house during construction because the homeowners policy on that house will cover the theft of items from the construction site. Dwelling and fire policies also provide liability coverage, just like a standard homeowners policy.

  What happens once the building is complete?
  Once the building is complete, you should re-evaluate your coverage. If you opted for dwelling and fire coverage, you will need to purchase a full homeowners policy right away. If you bought standard homeowners insurance, make sure that you have purchased the right amount, especially if you have made alterations to the original building plan.

   

• Insuring Remodeling ▼

  Insuring Your Home During Remodeling

  If you are adding an extra room or improving your home in some way, you will likely need to update your homeowners insurance policy so that the new addition or improvements will be covered. You should do this before you start any work, because if you don't and the new addition or improvement is damaged or destroyed while being built, you may have to pay for the loss.

  It's always advisable to contact your insurance agent before construction begins to increase your coverage to reflect the new changes in your home.

  Make sure contractors and subcontractors carry the proper insurance coverage
  When you have contractors and subcontractors on your property to do work on your house, you run the risk of one of them being injured on the job and suing you. You need to do two things to adequately protect yourself from this potential liability:

  • Make sure that all contractors and subcontractors carry adequate workers' compensation coverage. Don't be bashful. Demand to see a copy of their policies before work begins.
  • If the workers' compensation coverage is not adequate, you may need to extend the limits of the liability portion of your homeowners policy or find a contractor whose policy limits are acceptable.

• Insuring A Move ▼

  Insuring Your Property During a Move

  Whether you are moving across the country or just down the street, you will likely need to insure your property. Just think of all your belongings being picked up and set down at least twice, carried up and down stairs, around sharp corners, and being tossed about in the back of a truck or van. Something is bound to be dropped, scraped, chipped, broken, damaged, or destroyed. Or, worse yet, the truck or van may be stolen with all your property still stowed onboard.

  Most moving companies limit their liability. And if you're moving yourself, your moving helpers probably won't take responsibility. You will end up paying for the loss.

  The answer to this problem is to insure your belongings during transit. This type of insurance is called moving insurance, and is part of an insurance line called inland marine insurance.

  Where can you get inland marine?
  You can get inland marine insurance in several ways:

  • Your own homeowners insurance policy might cover moves. Check your policy to find out if it does, and what the limits are.
  • If you are having a moving company move you, they may offer moving insurance. All commercial moving carriers must provide a basic moving insurance policy to you at no charge. This covers both local and interstate moves but generally pays only 60 cents per pound.
  • If you are moving yourself, you may be able to buy a policy from a move-it-yourself company.

  What kind of coverage is available?
  Basically, three kinds of coverage are available:

  • Basic coverage (which pays 60 cents per pound) at no cost to you,
  • Coverage based upon the value of the item less depreciation, and
  • Coverage based upon total replacement cost.

  The third choice provides you with the best coverage but it will be slightly more expensive.

  Is there a deductible?
  That depends on the policy, too. Typically, a policy that provides total replacement cost allows you to choose a deductible (e.g., $250 or $500).

  How much does moving insurance cost?
  Moving insurance is affordable. If you choose the basic moving insurance policy that the carriers must offer you, the cost is zero because it's added into their quote. If you choose a policy based upon the value of your property less depreciation, the cost will be added. Coverage based on total replacement cost depends on the value of the shipment.

   

• Insuring A Home Based Business ▼

  Insuring A Home Based Business

  Generally speaking, homeowners insurance does not cover your home business. Some standard homeowners policies cover a maximum of $2,500 for business equipment in the home, but none cover business-related liability or other losses.

  If you run a business from your home (and there are about 12 million Americans who do), it is likely that you need both property insurance to cover fire and theft and liability insurance to cover anyone who gets hurt by using your product or who gets hurt on your property.

  What kind of losses do you need insurance protection for?
  As a business owner, you will need insurance to cover the following types of losses:

  • Property and equipment damage or loss from fire or theft
  • Customer or supplier injuries on your property, or caused by your product
  • Advertising liability
  • Inability to collect accounts receivable
  • Business record damage or loss
  • Lost income due to damage to your home

  What kind of policies are available?
  If you operate a home day-care service or if your company is "incidental" (which means it grosses less than $5,000 per year), you may be able to simply add an endorsement to your existing homeowners policy.

  Perhaps a package policy for your small home-based businesses is the key. This package usually covers loss or destruction of business property on or off the premises, loss of valuable papers, personal injury and advertising liability, and accounts receivable protection.

  Typically, if you purchase a package policy, you'll also want to purchase homeowners and auto policies from the same company. This way, the package plan extends the property and liability coverage on your home and car to your business. This prevents gaps or duplication of coverage.

  If the package policy is not available to you (not all states allow them), you will have to buy individual policies, such as business property, general liability, and business income insurance.

  What other types of insurance policies might you need?

  • Car insurance
    Your existing personal car insurance policy may cover some of the business tasks you use your car for. However, depending on the type of vehicle and what it's used for, you may need a separate business automobile policy.
  • Health and disability insurance
    You need health insurance in case you become sick and incur medical expenses, and disability insurance if in case you become unable to work because of illness or injury. If you have employees, you may want to consider offering a group policy, if your business is eligible.
  • Workers' compensation
    You are required by law to have a workers' compensation insurance policy in place if you have employees working for you on the premises. These laws vary from state to state, so check with your insurance agent or your state's insurance department to find out exactly what you need.