Before selecting a certain home owners insurance policy, it is imperative that you know how insurance policies categorize your house and the items that lie within it into different classes. That will enable you to make a better decision while choosing one among the many home owners insurance policies that exist. The Insurance Services Office (ISO) or American Association of Insurance Services (AAIS) has formed five different classifications for the coverage of houses and belongings within them against potential causes of damage. These classifications are as follows:
The first category secures the primary structure of the house you own. It includes the basement and attic and may or may not include the structure(s) next to the main building such as a garage. This category does not include land. According to law, the property has to be insured up to 80% of its market value to cover replacements. This 80% mark up has been set to buffer the effects of inflation later on. However, if you live in a rented apartment or house, you will be opting for Renter’s Insurance which does not cover Dwelling but has additional coverage for improvement.
This category of home owners insurance is applicable for owned homes only while being invalid for apartments. The ‘Other Structures’ policy of home owners insurance covers structures around the property being used for domestic purposes such as garages, painter’s room or room for wood broilers. Usually the amount paid for ‘Other Structures’ is 10 to 20% of what is paid for the ‘Dwelling’. However, the amount can be increased by endorsement.
You can insure your personal property regardless of whether you live in a rented house/ apartment or in your own one. Usually the amount paid to insure personal property is 50 to 70% of the amount paid to insure your ‘Dwelling’, in spite of the worth of personal property being much below that 50% of that of your ‘Dwelling’. This excessive cost has led to the creation of more choices for insurants when it comes to protecting your personal property. This class covers all the belongings placed inside your house. However, insurance is limited for certain items including banknotes, coins, bullion and medals.
The fourth category of insurance includes charges for protecting rental income. This may be applicable even if part of your house has been rented while you yourself occupy the rest of it. It is also inclusive of other expenses such as fair rental value. However, it is not inclusive of utilities provided in the rented space such as electricity, sewage and gas.
Other events of damage to your property are covered under the fifth category named ‘Additional Coverages’. It recovers costs incurred due to cleaning up of debris, damage to trees (damaged by an aforementioned list of perils excluding regular causes such as ice and wind), theft of property such as credit cards or identity and damage to landlord’s furniture or other items.
Even if you have opted for an ‘all-risk’ coverage, there will always be a few perils which insurance will not guard you from. Such causes of damage include earthquakes, power failure, water damage, war, intentional loss, nuclear hazards and concurrent causation.
As an insurant, it is necessary that you consider the cost of insurance as an investment. It is a protective investment against the unforeseen. However, we can roughly predict the probability of the occurrence of different calamities or accidents. For example, a fire is less like to occur than an incident of credit card theft. Hence, judging from the probability, you must invest more money in securing items that are more likely to be damaged. You can only do so by knowing the five basic categories that your house and personal items are classified into.
Once you know what the different classes are into which your house and items have been categorized into, you can increase the money spent on a particular category. Such a decision will depend on the value of items you possess that fall under a certain category.