Homeowners Insurance

No. Both are excluded from standard California homeowners policies and are written separately. Earthquake is bought as its own policy or endorsement, and the deductible is typically a percentage of the coverage limit rather than a flat amount, which makes it larger than people expect. Flood is written through the federal program or a private flood carrier, and new coverage normally has a waiting period before it takes effect. Both are worth deciding on deliberately rather than by default, since a standard policy will not respond to either.

There are a few things that help. The most useful is a comprehensive review of your policy and needs with your agent, because quotes for the same coverage on the same home can differ considerably, and comparing them only works if each is offering the same thing. Discounts are worth asking about, including placing your auto and home with the same carrier, and credits some carriers offer for security systems or protective devices. Raising your deductible is the other lever. A higher deductible lowers the premium, and the trade is that you carry more of a claim yourself. Ask us to show you the premium at each deductible the carrier offers so you can weigh the saving against what you would actually pay out of pocket at claim time.

Covered losses under a homeowners policy can be paid on either an actual cash value basis or on a replacement cost basis. When “actual cash value” is used, the policy owner is entitled to the depreciated value of the damaged property. Under the “replacement cost” coverage, the policy owner is reimbursed an amount necessary to replace the article with one of similar type and quality at current prices.

Here’s a checklist of things you should consider when you purchase homeowners insurance:

1. Determine the amount and type of insurance that you need. The coverage limit of your house should equal 100% of its replacement cost. Many policies contain a coinsurance condition, which means that if the dwelling limit is less than a stated percentage of replacement cost, commonly 80%, a claim payment can be reduced proportionally rather than paid in full. Whether that condition applies, and at what percentage, is set by your policy. You’ll have to pay the rest out of your own pocket. Also, decide if the personal property and personal liability limits are adequate for your needs.
2. Determine which, if any, additional endorsements you want to add to your policy. For example, do you want the personal property replacement cost endorsement, an earthquake endorsement, or a jewelry endorsement?
3. Once you’ve decided on the coverage you want in your homeowners insurance policy, consult us. We’ll be able to help you determine if there are any gaps in coverage you might not have been aware of and explain the details of the policy’s exclusions and limitations, as well as recommend an insurance company that will live up to your expectations.

Note: what follows describes the Insurance Services Office HO-3 form. Most carriers write their own version of a homeowners policy, so treat this as how the pieces relate rather than as the numbers on your policy. On the ISO HO-3 form, the dwelling and other structures are covered on an open perils basis, meaning damage is covered unless the policy specifically excludes the cause. Personal property is covered on a named perils basis, meaning it is covered only when the cause of loss is one the policy lists. That difference between how the structure and the contents are covered is one of the more useful things to understand about the form, and it is the main thing an HO-5 changes. The dwelling limit is set by the owner when the policy is written, and the rest of the policy is built around it. Other structures, personal property, and loss of use are commonly expressed as a percentage of the dwelling limit, which is why that single number drives so much of what a policy will pay. Personal liability and medical payments to others are chosen separately rather than derived from it. The percentages themselves are not standard across the market. They vary by carrier and by form, and loss of use varies the most: some policies express it as a percentage of the dwelling limit, some as a stated dollar amount, and some as actual costs incurred over a set number of months. Because these are carrier decisions rather than an industry constant, your declarations page is the only reliable source for your own limits. It lists each coverage and what yours is set at, and it is worth reading alongside a licensed agent if you want to know whether those limits fit your home.

The standard insurance policy does not pay for direct damages caused by earth movement. “Earth movement” is a much broader term than “earthquake”. It includes earthquakes, volcanic activity, and other types of earth movement. This coverage may be available by endorsement for an additional charge. If you live in an area that’s more likely to have an earthquake, you’ll pay more than if you live in an area that is unlikely to have one. We can help you weigh the costs and benefits of this coverage before you decide to purchase.