Protect Yourself When Renting Your Home

You absolutely have insurance issues to consider when renting out your home. As you might have guessed, rental property owners have some unique insurance needs. A standard homeowners policy isn't appropriate for rental property, because:

(1) you don't need to insure the contents of the house, unless you provide furnished accommodations;

(2) you need to be more concerned about liability issues; and

(3) you need to protect yourself against the loss of rental income. Your tenants may purchase renters insurance, but even if they do, it won't provide any coverage for you as the owner of the property.

Fortunately, there's a policy designed especially to meet the needs of rental property owners. Most insurers who deal in commercial insurance can sell you a policy specifically for rental property. However, there are many variations among rental property policies. Some provide replacement cost coverage, while others only insure property on an actual cash value basis. Some policies only provide coverage for one or two named perils (such as fire), while others provide much broader coverage. Because of these variations, you may have to shop around to find a policy that provides complete coverage. A good rental property policy should provide the following:

• Broad coverage for the physical structure of the house, on a named-peril or open-peril basis
• Coverage for other structures located on the property (garages, sheds, etc.)--this coverage is often limited to 10 percent of the coverage for the house
• Coverage for your property left on the premises (appliances, maintenance equipment, etc.)
• Coverage for loss of use, if you lose rental income as a result of a covered peril
• Liability coverage for injuries or property damage that occur on the insured property
• Medical payments coverage, for medical expenses that arise from injuries to others on the insured property

New Homeowner Insurance Basics

The lowest mortgage rates in more than three decades have fueled America's appetite for home buying and refinancing, driving new home sales to a record level . Buying a home can be an intimidating process, especially for first-time homeowners who may feel overwhelmed by the number of decisions they are faced with, including choosing the right insurance coverage to protect their property. Find out what you need to know to protect one of their most important assets.

A home is often a person's largest asset and protecting it properly can be complicated. The unexpected can threaten people's homes or possessions and compromise them financially, making homeowners insurance an important consideration.

Insurance.com developed the following guidelines to ease the process of choosing the right insurance for new homebuyers.

First-time homebuyers may not realize that homeowners insurance covers more than just the structure of a house. It also protects the homeowner and generally anyone named on the policy, including a spouse, resident, household employee, guest or visitor. Most policies offer three kinds of protection:

1. Structures - A homeowners policy protects a person's dwelling for damage due to common threats like fire and smoke, lightning, theft and extreme weather. Unless it is listed among a policy's exclusions, anything that causes loss to a homeowner or his property is covered. To cover the exclusions, homeowners can often pay to add endorsements to their policy, although some exclusions, such as flood damage, may require the purchase of a separate policy.

• Coverage Amounts - When choosing coverage amounts, people should remember they are protecting the entire home, not simply the amount remaining on the mortgage or their equity in the building.

2. Personal Property - Family possessions and personal property also are covered by homeowners insurance. In most cases, a policyholder will be reimbursed for damage or theft of personal property, whether the loss occurs on the protected premises or elsewhere. Recalling each item in every room can be difficult, however, so policyholders are encouraged to make an inventory of their belongings - recording the serial numbers, as well as the dates and costs of purchases for possessions such as jewelry, artwork, furniture and appliances. Personal inventories should always be stored in a fireproof safe or away from the premises, such as on videotape or a computer that is not in the house.

• Coverage Amounts - Typically, the insurer sets the total value of possessions at half of what the home is insured for. But there are limits for certain items and the amount may not be sufficient to cover the replacement of property, so homeowners may want to purchase additional coverage for their possessions. Review of a homeowner's personal inventory is the best way to determine whether his coverage is sufficient.

3. Liability - Homeowners insurance also provides compensation for liability claims and medical expenses, as well as other claims that result from property damage and personal injury suffered by others. This coverage applies whether an accident occurs on the policyholder's property or while away from home.

• Coverage Amounts - The standard amount of liability coverage is $100,000 on a typical homeowners policy. If a homeowner feels that the standard amount may be insufficient, he should consult an insurance professional about the availability of a higher level of coverage.

After establishing a policy, homeowners should periodically review their existing coverage to make sure that it keeps pace with any major purchases or improvements they make to their homes. Securing the right insurance policy at the right price is an important step in the home buying process, so homebuyers should shop around for a policy that best suits their needs and protects their most valuable asset appropriately.

Will your homeowner's insurance go up if you buy a pit bull?

Homeowner insurance premiums probably will take a bigger bite out of your wallet if you own a pit bull or other breeds of dog that are known to be aggressive. That's the word from insurance experts such as Eric Goldberg, assistant general counsel for the American Insurance Association, in Washington, D.C., and Dr. Robert Hartwig, chief economist of the Insurance Information Institute (III), in New York.

Says Goldberg: "Insurers compile all kinds of data on potential loss, including statistics on the various breeds of dogs that cause bodily injury by biting people. Chances are you'll pay more for homeowners insurance if you own a pit bull or other type of dog that's widely recognized as aggressive and known to bite people."

Matter of fact, the insurer might decide to non-renew your policy if you own a pit bull, warns Goldberg. The bottom line from Goldberg's perspective? "If you are a dog lover and you are concerned about how much you pay for homeowners insurance, don't buy a dog that is known to bite," explains Goldberg.

To help keep down your homeowner insurance premium, a responsible dog owner should have his or her dog spayed/neutered and have the family pet undergo obedience training at, say, the local humane society. "The insurer might take these matters into consideration, depending on various factors such as the breed of dog and whether it has a history of aggressive behavior," explains Goldberg. "Check with your homeowner insurer about that."

III's Bob Hartwig notes that with certain dog breeds, "you might find homeowners insurance either difficult to get or more expensive. This will be particularly so if your particular dog, regardless of breed, has a history of vicious behavior such as biting a neighbor's child or a visitor to your home."

Dog bite statistics support Hartwig's position. Insurers pay out over $300 million in dog bite liability claims annually, says Hartwig. "Aside from trip and falls," Hartwig says, "dog bites are right up there at the top among homeowners liability claims." Hartwig advises dog owners "to make sure that their dogs are tame, obedient and well-trained, regardless of breed."

Hartwig warns that dogs should not be allowed to run loose around the neighborhood or kept in an unfenced yard, and he cited an example to drive home his point. "You're going to be held legally liable if a child, walking by your house, pets your dog and gets bitten," says Hartwig. "A dog would be considered an 'attractive nuisance,' for which you'll be unable to pin the blame on someone else such as by suggesting that the neighbor's child was teasing your dog."

Insurance trade group spokeswoman Lynn Knauf cites what she describes as "one of the saddest stories that show the potential for harm of certain breeds of dogs." The tragic set of circumstances Knauf was referring to took place in Northern California a few years back. The case centered on 33-year-old San Franciscan Diane Whipple. Whipple was mauled to death by two Presa Canarios, a breed of dog that is frequently bred for protecting property and fighting.

Each year, there are a disturbing number of fatal attacks and horrible injuries caused by certain breeds of dogs," says Knauf, director of personal lines for the Property Casualty Insurers Association of America, in Des Plaines, Ill.

Certain breeds can bite with a force averaging 1,000 pounds per square inch, says Knauf, "while others can bite with twice that force, enough to seriously injure a child or adult in seconds. These fierce and often unprovoked dog attacks are reason enough for some homeowners insurance companies to include such information in risk assessment decisions."

Not so many years ago, a fail-safe home security system consisted of a good lock on the door, a large family dog, and perhaps a baseball bat propped

Homeowner insurers get flooded with claims over property damage caused by rising waters, and underwriters usually turn them down. The Hurricane Katrina experience, among other things, served as a reminder to consumers that homeowner policies exclude flood exposures.

Worried about possible floods where you live? If so, buy flood insurance from the National Flood Insurance Program (NFIP), advises Lynn Knauf, director of personal lines for the Property Casualty Insurers Association of America (PCI), in Des Plaines, Ill., and Dr. Robert Hartwig, chief economist of the Insurance Information Institute (III) in New York.

"Consumers typically can buy flood coverage through their insurance agent," Knauf adds. "With few exceptions, virtually anybody can purchase the coverage." She warns consumers that they might be lulling themselves into a false sense of security if they see no need to buy flood coverage because they reside in locations that are not prone to floods, hurricanes and other natural disasters.

"Even if you don't live in an area prone to flooding, you may want to consider purchasing coverage," contends Knauf. "Floods can happen in inland areas and away from major rivers in any and all 50 states. If a hurricane hits your area, you'll certainly take comfort in knowing you have flood insurance. Consider buying a flood insurance policy if your house could be flooded by melting snow, an overflowing creek or pond."

One other piece of flood insurance advice from Knauf - "Don't wait for a flood season warning on the evening news to buy a policy-there is a 30-day waiting period before the coverage takes effect."

III's Bob Hartwig discusses why homeowners insurance doesn't cover flood exposures. "Flooding reflects water rising from below, and that exposure has always been excluded from your homeowners policy," emphasizes Hartwig.

As an alternative to NFIP, Hartwig says that there are a small number of private insurers such as Chubb that sell coverage to its customers, but not necessarily in every state. "So you need to check with your agent to see if that particular carrier sells coverage in your state," advises Hartwig

Standard homeowners policies typically cover all perils that are not specifically excluded, says Eric Goldberg, assistant general counsel for the American Insurance Association in Washington, D.C. Water damage is typically excluded, says Goldberg. He also points out that you can purchase flood coverage directly through your homeowners insurance agent. However, flood protection is provided by the National Flood Insurance Program. Call 1-800-427-4661 or visit FEMA's website.

Under NFIP, replacement cost coverage is available for the structure of your home, up to $250,000 in limits. However, through NFIP, only actual cash value coverage is available for your possessions. Replacement cost coverage can pay to rebuild your home as it was before the damage, up to NFIP policy limits. In terms of your possessions, NFIP provides actual cash value coverage, which is replacement cost coverage minus depreciation. That means that the older your possessions are, the less you will get if they are damaged. There may also be sublimits on coverage for furniture and other belongings stored in your basement. Sublimits for your possessions stored in your basement typically are less than the overall NFIP limits for your personal possessions.

The federal flood insurance program provides only limited coverage. If you need more coverage than the federal program provides, additional coverage known as "excess" flood insurance is available from specialized insurance companies. Depending on the amount of coverage purchased, an excess flood insurance policy will cover damage above the limits of the federal program on the same basis as the federal program-replacement cost for the structure and actual cash value for the contents, Goldberg says.

A final point from Goldberg: Flood insurance is available for renters as well as homeowners.

Should I Install a Home Security System?

Not so many years ago, a fail-safe home security system consisted of a good lock on the door, a large family dog, and perhaps a baseball bat propped up in the umbrella stand. Today, most locks can't keep experienced burglars out, fewer people can keep big dogs, and baseball bats provide little protection against well-armed intruders. More and more homeowners--and even apartment dwellers--are investing in home security systems to deter criminals, provide home protection, and give them peace of mind.

If you're wondering whether to install a home security system, then consider the following questions:

What are you trying to protect?

If you live alone with little more than a television and some furniture, and have little concern for your own personal safety (perhaps you have a black belt in karate), then your home security needs may be nil. If, however, you have children and/or other family to protect, you fear for your own personal well-being, and/or you own expensive antiques, art, jewelry, and other valuables, then your need for home security is probably much greater. The importance of what you are trying to protect should weigh heavily in your decision to install a home security system. You want to be able to sleep well at night knowing that both your loved ones and your valuable personal belongings are safe. If you can't do that now, then you may need some form of home security system.

Do you live in a high-crime area?

Another way to analyze your home security needs is to consider the likelihood that you will be the target of criminal activity. If you have lived in a neighborhood for a while, you probably already know whether it is safe to leave your doors unlocked at night, or whether you should barricade every window around the clock. If you live in a high-crime area, your need for home security is greater. If you are new in town, you might want to do a little research to find out about the level of crime where you live. The police station, local library, neighbors, and local real estate agents are all potential sources of information about the level of crime in your neighborhood. Use that information when making your decision.

Is your house a natural target for a burglar?

Even if you live in a low-crime area, be aware that there are certain types of homes that are more prone to burglary than others. For example, ground-level apartments are more likely to be targeted than apartments three or more stories up. Homes surrounded by thick bushes, plants, and trees are favored by prowlers because they offer plenty of places to hide. Old, weak, or cracked doors and windows are easier to break into. A house on a darkened street where the owners are seldom home is a very attractive target. In contrast, if your house has a wide-open lawn on a well-lit street that is posted with "Neighborhood Watch" signs, it is probably not the ideal spot for a burglar to ply his or her trade. Does your home invite or deter crime? The answer will help you make a decision about whether you need a home security system.

Does your homeowners insurance carrier offer discounts for home security systems?

Aside from safety, you may have a financial motive to beef up your home security. Most, if not all, insurers will give you a discount on your homeowners policy premium if you install a home security system. The available discount will vary from one insurer to another. It will also vary depending on what kind of security system you choose. Usually, insurers will give you a 5 percent discount merely for installing dead-bolt locks. A simple burglar alarm is likely to get you yet another 5 percent. If you decide to go with a more sophisticated home security system, complete with monitoring services, then you can expect a discount of up to 20 percent. (In addition to discounts for security devices, you can get discounts for installing safety devices such as smoke detectors or sprinkler systems.) Check with your insurance agent to make sure you're currently receiving any discounts you qualify for, and to see if you can save any more on premiums by installing additional security equipment.

Can you afford a system?

The price of a security system depends largely upon how sophisticated the system is. A typical higher tech solution is a full-perimeter system, which usually includes a series of sensors that, when armed, detect when a door or window is opened, broken, or tampered with. These systems typically operate on the principal that whenever one of the detectors is tripped, an alarm of some sort will sound. It may be a horn, bell, or beep and may be accompanied by flashing lights. If the system includes off-site monitoring, local police will be notified. Additionally, there are a host of other systems that can protect you if an intruder bypasses your perimeter system and succeeds in entering your home. Floor sensors can detect an intruder by the weight of his or her footsteps. Motion detectors sense any significant movements within their range.

The technology that goes into many modern systems is truly amazing, and if cost is not an object, very sophisticated systems are available. But don't let money discourage you until you have shopped around. There are many security systems to choose from, in a wide range of prices. Whatever you are trying to protect, you should be able to find something within your budget that will help you sleep better at night. Consult your local yellow pages, the Internet, or community newspapers for security system professionals and dealers.

Is there anything you can do to minimize the need for a home security system?

There may be steps you can take to minimize your need for a high-tech home security system. If you want to make your home safer and can settle for low tech, there are a number of things you can do.

• In addition to installing dead-bolt locks, replace old, cracked, or hollow doors with doors made of metal or solid hard wood.
• Don't rely on a slide chain to protect you if you are opening a door to see who's knocking. Install a wide-angle peephole device in the door.
• Make sure your sliding glass doors have keyed locks and cannot be lifted out of their frames from the outside. A pole or rod cut to the proper length and laid in the track of the door can prevent it from being slid open, even if the locks are compromised.
• Install removable pins, nails, and/or rods to prevent windows from being opened, and replace old or cracked windows and panes.
• Cut back bushes and trees that surround your house and windows.

Finally, try to create the illusion that you are well protected. Whether or not you have a home security system, purchase adhesive labels that say you do, and affix them to every door and window. Post a "Beware of Dog" sign, whether you have one or not. The illusion that you are well protected may deter a would-be burglar. If you are going to be away from your home, purchase an inexpensive timer that turns a lamp or two on at dusk, and off again at bedtime. It may create the illusion that someone is at home and deter a burglar who is waiting to make his or her move when the home is vacant.