Alice Yao - AYAO Insurance
12700 NE 124th St #9, Kirkland, WA 98034
WAOIC #716776
Dependable Service
First, we would like to congratulate you on becoming a homeowner!
In this first time home buyer insurance guide, we will break down the many elements of homeowners insurance, from introduction of the standard coverages to the things that are not covered in a standard policy.
We will also go over additional insurance options outside of standard homeowners policy, such as earthquake and flood insurance.
Last but not least, we will go over some commonly asked questions.
Let's get started!
Your standard homeowners insurance policy consists of six main coverages:
Dwelling includes the main structure of your home and other structures that are attached to it. Common examples of structures attached to a home are:
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More than just covering exterior structures, dwelling coverage may also include things that are inside of your home:
Beyond your dwelling, there may be other buildings or structures within your property. Most common examples of these structures are:
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These structures are covered within the verbiage of your insurance documents, which includes how the insurance company estimates claim payout in the event of a covered claim.
Personal liability coverage protects you, the homeowner, in the event of an accident inside or outside of your home. The coverage provides financial protection for:
This coverage even extends to your pets and will cover costs of injuries or damages caused by your pets including dog bites.
Learn more about personal liability coverage.
Exactly like its name, personal property coverage provides financial protection for all of your personal belongings. Here is a list of the most common examples:
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Note: High value personal items such as jewelry, guns, cash, and business properties have coverage limits and may require additional endorsement to be adequately insured for their value.
Learn more about personal property coverage.
Also known as loss of use coverage, this coverage can help you and your family with temporary housing costs and extra meal expenses in a covered claim.
Here is a list of the most common applications for this coverage:
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The amount of coverage is typically between 20% to 30% of your homeowners dwelling coverage, and most insurance companies do not have deductible for this coverage.
Learn more about additional living expense coverage.
Simply known as "Med Pay," this coverage is designed specifically to cover the cost of medical expenses for any injuries your guests sustained while they are visiting your home.
Med pay offers some distinctive benefits that are different than other types of liability insurance:
Learn more about medical payment coverage.
Zip code - Insurance companies use data from various sources including their own claims record history to evaluate risk levels for each zip code. Areas with consistently higher number of claims are more likely to have higher insurance premium.
Wildfire zone - If your home is located in an area prone to wildfires, your insurance premium may increase to reflect that level of exposure.
Fire protection - Your home’s access and proximity to nearby fire stations will also have an impact to your homeowners insurance premium. Being closer to a fully staffed and adequately equipped fire station allows a higher chance of mitigating further damages to your home in case of fire, and it also lowers the potential cost to repair or even rebuild your home.
Marital status - In general, a married couple has a lower rate than non-married individuals.
Insurance score - It is a metric that insurance companies use to assess individual insurance risk based on the consumer report of a customer and the spouse. Each insurance company uses its own formulas to evaluate a consumer report and generate an insurance score. You may request a copy of the consumer report from your insurance agent.
Credit history - Credit history is one of the metrics used by insurance companies to assess your insurance risk. However, most insurance companies do not consider credit score as a rating factor.
Claim history - Insurance companies will always evaluate your history of claim records to assess the probability of future claims. If there has been a high frequency of claims in your past, the insurance premium will likely be higher to reflect a greater chance of future claims.
Prior insurance history - The presence of prior property insurance will always result in a more favorable rating on a homeowners policy. Certain insurance companies may even require their new customers to have a minimum length of continuous prior insurance to qualify.
Replacement cost - It is the estimated cost to repair or rebuild your home based on several characteristics of your home, such as roof composition, floor covering, etc.
In-depth article: Home Replacement Cost .
Home system upgrades - If you have upgrades such as a monitoring security system and fire sprinklers installed on your property, you may qualify for savings with your insurance company.
Coverages - Depending on your choice of coverage limits on your dwelling, other structures, and other available coverage options such as liability coverage, your insurance premium will adjust accordingly. The higher the coverage, the higher your insurance premium will be, and vice-versa.
Deductibles - The amount you choose as your deductible, which is your out-of-pocket expense after a claim, will reflect in the cost of your premium. Your insurance policy may have different deductible options for different coverages. Rule of thumb: the higher the deductible you choose, the lower your premium will be, and vice-versa.
Dwelling coverage is the main coverage that determines your homeowners insurance coverage limits. It is also the baseline that is used to determine coverage limits of other coverages such as personal property and loss of use.
Here is an example where the dwelling coverage is set at $500,000:
$500,000
$250,000
50% of dwelling coverage
$125,000
25% of dwelling coverage
The main factor that determines your dwelling coverage is your home replacement cost.
Home replacement cost is the total estimated cost including labor and material to rebuild your home back to its original condition prior to a claim.
There are several main factors used to determine home replacement cost:
Home sales price is the market price of your property including both value of the land and value of any improvements on the land, such as your home, landscaping, or other features.
Home replacement cost on your insurance policy is the estimated cost including labor and material to rebuild your home back to its original condition prior to an insurance claim.
A deductible is your out-of-pocket expense before a claim payout is made by your insurance company. Most insurance companies offer fixed deductible options ranging from $500 to $10,000 for homeowners policies.
Some companies may even offer a percentage deductible from 0.5% to 3%. A percentage deductible is calculated using the percentage of the dwelling coverage amount listed on the policy at the time of a loss.
A quick example:
$500,000 dwelling coverage with 1% deductible:
In this example, the homeowners will have to pay $5,000 out-of-pocket expense before a claim payout is made by their insurance company.
In our experience, the most common deductibles chosen are between $1,000 and $5,000.
As a general rule of thumb, you will see a lower premium for a percentage deductible compared to a fixed deductible option.
Keep in mind, because the deductible is calculated based on the percentage of dwelling coverage, any change or adjustment to the dwelling coverage will result in a shift in your deductible amount.
With the inflation adjustment built into your policy, the dwelling coverage will automatically adjust upwards annually at renewal. As a result, you will see your deductible vary from year to year.
On the other hand, a fixed deductible will remain the same regardless of any changes made to the policy.
Property that is mainly used for the purpose of conducting business. Coverage could include computer equipment such as a work laptop or any business inventory you store at home.
This coverage provides reimbursement to expenses incurred as a direct result of identity theft.
Examples of services and coverage limits under this policy:
High value golf set, ski, treadmill, scuba diving gear, climbing gear, etc.
Most standard homeowners insurance will include coverage of these equipment, but may have limitations when it comes to theft. There may also be coverage limits to high-value equipment and may require additional scheduled personal property coverage to properly insure them.
Green improvement coverage will provide replacement cost of covered property that performs a similar function and is more energy efficient as identified by the Energy Star* label.
Qualified items are Energy Star labeled products from one of these home categories:
*Energy Star is the government-backed symbol for energy efficiency.
Yard and garden coverage provides financial protection up to a predetermined amount for any single tree, shrub, or plant, and it includes cost to remove debris after a covered loss.
Typically the coverage amount is $1,000 per item.
This coverage only applies to sudden and accidental direct physical loss caused by covered perils such as fire, vandalism or theft.
Electronic data recovery coverage will cover expenses incurred for hiring of a recovery firm for lost electronic data.
This coverage will only apply if the loss is resulted from:
Guitar, violin, clarinet, saxophone, cello, etc.
Note: piano may be considered a furniture piece due to its lack of mobility, check with your insurance agent for more information.
Most standard homeowners insurance will include coverage of these instruments, but may have limitations when it comes to theft. There may also be coverage limits to high-value instruments and may require additional scheduled personal property coverage to adequately cover them.
Just like its name, water backup coverage protects your home in the event that water backs up from your sewer line, such as overflowing of toilet due to a clogged sewer line. In addition to sewer line backup, it provides coverage for water damage as result of sump pump overflow or failure.
What benefits are included in the coverage?
First and foremost, this coverage will pay for emergency and temporary repair to mitigate further damage to your home. After mitigating the damage, the coverage will reimburse you for:
Keep in mind that the amount of benefits must fall within the coverage limit and that there is typically a deductible for this coverage.
In-depth article: Water Backup Coverage .
Standard homeowners insurance includes coverage for your personal property, but there are specific coverage limits for high-value items such as jewelries and antiques.
In order to adequately cover these valuables, you can add a scheduled personal property endorsement onto your homeowners policy. A scheduled personal property endorsement allows itemization of your valuables at their recent appraised value, so you are not limited to the standard limits of homeowners insurance.
In-depth article: Scheduled Personal Property .
After a covered loss, the Building Codes coverage will cover any increased cost incurred due to compliance with local building codes during a repair or rebuild of your home.
Additional demolition cost to meet local guidelines and regulations is also included in this coverage.
Most of the risks that are not covered by insurance companies fall into the following categories of reasons:
In the next sections, we will go over some common examples of insurance exclusions as well as specific scenarios that are likely excluded in your homeowners insurance coverages.
As always, we strongly recommend discussing your insurance coverages with a dependable agent to make sure you are properly and adequately protected.
List of the common insurance exclusions:
Note: Earthquake and flood can be covered by supplementing homeowners insurance with additional insurance. For more information, we will be going over them in the next chapter.
Construction defects are the result of poor workmanship by builders or contractors who were hired as part of the initial construction of the home or subsequent remodeling.
In many instances, construction defects are discovered by a licensed home inspector during the process of a real estate transaction. An inspector has thorough professional knowledge and experience to properly identify construction defects or poor workmanship.
In other instances, construction defects are revealed after the homeowner reports damage and it has been assessed by a professional like a plumber or another contractor.
The best way to avoid finding yourself in this situation is to only select reputable contractors with a long working history of successful home projects. It is vital to do the proper research on your contractors and verify they are properly licensed and bonded for your projects.
In-depth article: Construction Defects .
Water mains are large underground service lines that transport water from municipal water supply systems to residential homes and businesses. A single water main can transport enough water for an entire city block.
Due to the enormous amount of water it carries, a water main break can wreak havoc to an area similar to what a flood could.
According to the United States Environmental Protection Agency, there are approximately 240,000 water main breaks every year in the United States.
Many of the water mains in older neighborhoods were installed more than 50 years ago, and some were more than a century ago. In most of these water mains, materials used in the construction are likely near the end of their effective life and highly susceptible to breakage.
When it comes to water-related damages in your home, the cause of the damages is essential in determining insurance coverage.
Most standard homeowners insurance provides coverage for sudden and accidental damages for water that originated from within your dwelling, such as pipe bursts in the kitchen or toilet overflows.
In the case of a water main break, the source originates from the municipal water supply system that is on public land and shared by everyone in your neighborhood. Water main is considered an external source to homeowners property, and therefore homeowners insurance will not cover water damage as result of a water main break.
Flood insurance covers water damage originated from external sources to homeowners’ properties, such as Mother Nature, neighbor's above-ground swimming pool, and in this case, water main breaks.
If you live in an older neighborhood that could possibly have an aging water main, it may be a good idea to look into adding flood insurance to your insurance portfolio.
In-depth article: Water Main Break .
There are two natural disasters that are commonly excluded in your standard homeowners insurance policy:
Earthquakes are very common in many parts of the United States, especially along the West Coast. Here in the Pacific Northwest, we are vulnerable to potential major earthquakes as we are right next to an area known as the Cascadia subduction zone.
Flooding can be a frequent occurrence as part of the natural phenomenon of seasonal changes for many people living near a river, lake, or coastal front. However, risk of flood exists for those who live further inland as well, especially in developed residential areas where large amounts of water has nowhere to recede.
In this chapter, we will go over coverages of both earthquake insurance and flood insurance.
Similar to homeowners insurance, earthquake insurance provides financial protection for all of the major elements of your home and property with these coverages:
Most earthquake insurance companies allow you to choose your dwelling protection limit from a coverage range determined from your home replacement cost estimate. The same companies may also allow you to choose a specified limit to other structures or personal property coverage. Other companies have a fixed limit for all the above stated coverages with no options.
In addition to the main coverages listed above, earthquake insurance policies also include the following features:
The primary cost of your earthquake insurance will be determined by these major factors:
Some homeowners insurance companies offer earthquake coverage as an endorsement, and homeowners can elect to add this endorsement on to their policy for an additional premium.
If your home is older than a specified age requirement, you may need to meet additional requirements before you are able to add the endorsement even if your home is already insured under an existing homeowners policy. These requirements may include retrofitting your home such as bolting down the frame of your house into the foundation and securing other structural elements within your home.
In most cases, homeowners purchase separate earthquake insurance policy from a specialized earthquake insurance company.
According to the National Flood Insurance Program (NFIP), flood is an excess of water on land that is normally dry, affecting two or more acres of land or two or more properties.
For many people living near a river, lake, or coastal front, flooding can be a frequent occurrence as part of the natural phenomenon of seasonal changes.
However, risk of flood exists for those who live further inland as well, especially in developed residential areas where large amounts of water have nowhere to recede.
Below are some common causes for flooding that are not exclusive to flood zones:
FEMA has developed an official map called Flood Insurance Rate Map (FIRM) that displays different flood risk zones and high risk flood areas known as Special Flood Hazard Areas (SFHA).
To find out if your home is in SFHA or other flood risk zones, you may enter your address in the FEMA website: https://msc.fema.gov/portal/search .
Note that more information will only show under the displayed map if your home is located in a flood risk zone.
Zones that are designed in letters starting with A or V are SFHA .
If your home is located in SFHA, your mortgage lender will require you to have flood insurance. In the process of obtaining flood insurance, you will be asked to provide a document called Elevation Certificate.
Elevation Certificate is an official standardized NFIP form that documents important details of your home including various measurements of your house. This document can only be completed by a licensed professional land surveyor or engineer.
Before spending money to complete the certificate, there are a few ways to check if an existing certificate is already available:
Zones that are designated in letters starting with B, C, and X are moderate to minimal flood risk areas .
Homes that are located in these areas typically are not required to carry flood insurance by mortgage lenders.
Flood insurance policies are regulated by NFIP and the coverage options on these policies do not vary with different insurance companies. There are two types of coverage in flood insurance:
According to the NFIP website , these items are not covered by building or contents coverage:
There are more than 50 insurance companies across the country that are approved providers in the NFIP flood insurance program. It is highly likely that your current insurance agent belongs to one of those insurance companies.
If you prefer, you may also use this search tool provided by NFIP to find a flood insurance provider: https://www.floodsmart.gov/index.php/flood-insurance/providers .
In many cases, to cover your own personal items and insure the structures inside of your unit, the answer is yes.
A condo insurance policy, also commonly known as HO6 insurance, is the property and liability insurance that supplements the condo association insurance and focuses solely to protect you, the unit owner.
Here is an example: Your upstairs neighbors went on vacation and the water pipes connected to their washer had burst. Water flooded their unit, the public hallway areas, and your unit right below it.
In this scenario, your condo association insurance will only cover the repair to the public hallway areas, and you will need to make a claim with your personal condo insurance to cover the damages to your unit.
Condo association insurance, or more commonly known as condo master insurance, is the policy that your condo association has in place to cover the building, all of the common areas, and other shared spaces.
Most condo master insurance policies break down into two types:
There is also a much less common type of condo master policy that does not include coverage for structure of the building. This policy only includes coverage for the common areas such as walkways, parking lots, and other shared spaces.
If you found out that your condo association carries this type of master policy, you would actually need to talk to your insurance agent about getting a homeowners policy to cover the entire structure of your home.
Unit interior coverage encompasses the flooring, electrical fixtures, built-in cabinets, appliances, and any part of your unit that is attached to the wall. This coverage along with the condo master insurance will essentially cover everything you see that first day before you move in.
Exactly like its name, personal property coverage provides financial protection for all of your personal belongings. Here is a list of the most common examples:
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Note: High value personal items such as jewelry, guns, cash, and business properties have coverage limits and may require additional endorsement to be adequately insured for their value.
In-depth article: Personal Property Coverage .
Personal liability coverage protects you, the homeowner, in the event of an accident inside or outside of your home. The coverage provides financial protection for:
This coverage even extends to your pets and will cover costs of injuries or damages caused by your pets including dog bites.
In-depth article: Personal Liability Coverage .
Simply known as "Med Pay," this coverage is designed specifically to cover the cost of medical expenses for any injuries your guests sustained while they are visiting your home.
Med pay offers some distinctive benefits that are different than other types of liability insurance:
In-depth article: Medical Payment Coverage .
Also known as additional living expense coverage, this coverage can help you and your family with temporary housing costs and extra meal expenses in a covered claim.
Here is a list of the most common applications for loss of use coverage:
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The amount of coverage is typically between 20% to 30% of your homeowners dwelling coverage, and most insurance companies do not have deductible for this coverage.
In-depth article: Additional Living Expense Coverage .
Loss assessment coverage most commonly applies to situations where the damages to public space within your condo community are not covered by the condo master policy or if the coverage has been exhausted.
This coverage will pay for the rebuild or repair costs that are assessed to you as an individual unit condo owner.
One of the main coverages included in your homeowners policy is personal liability coverage . This coverage is designed to protect you in the event that you are found liable for bodily harm or property damage to a third party.
Personal liability coverage extends to your immediate family and your pet, especially your dog. According to the Insurance Information Institute , there were nearly 18,000 dog bite claims in 2019 and the average payout for a dog bite claim was $44,760. Dog bite claims remain as one of the top personal liability insurance claims year after year in the United States.
If your dog bites another person or dog, the personal liability coverage in your homeowners insurance policy will be the coverage used to pay for any related medical expenses.
Given the statistical risk of dog bites, many insurance companies have specific guidelines regarding the breed of dogs in homeowners insurance policy. The most common breed restrictions are:
Depending on the insurance company, there may be an increase in homeowners insurance premium if an insured household has a dog from any of the breeds listed above.
In some extreme cases, insurance companies may even decline an application for homeowners insurance because of the dog breed.
If you are looking to add a new furry friend to your family, we strongly recommend speaking to your insurance agent beforehand to find out if your homeowners policy has any dog breed restriction.
The premium for a condo insurance policy is relatively inexpensive compared to a homeowners policy. According to the Insurance Information Institute, in 2016, the average premium for homeowners insurance was $1,192, whereas the average premium for condo insurance was significantly lower at $471.
The major difference in premium is in the coverage for the building structure versus the building interior structures. Under a homeowners policy, the dwelling coverage covers the entire structure of the home including any interior structures attached to the wall. In comparison, under a condo policy, only the interior structures are covered, and the structure of the condo building is insured under the condo master policy.
In our experience, the annual premium for a condo policy in Washington State generally ranges from $300 to $500 depending on the coverage limits and endorsements selected for the policy.
Renters insurance is a type of property insurance policy you purchase when you are renting an apartment unit or a house. This insurance is often required by the landlord when signing a lease agreement.
Homeowners insurance, on the other hand, is the policy you purchase when you own your own home. This policy is always required by a mortgage lender during the home purchase process.
There are actually several coverages that are mirrored in both renters and homeowners policies: liability, additional living expense, personal property protection, and guest medical payment.
The major difference in coverages is that a renters policy does not need to carry coverage for dwelling or anything related to the building structure.
Another difference is in the deductible - most renters policies carry deductibles ranging between $250 to $500, whereas most homeowners policies carry deductibles in the range between $1,000 to $5,000.
The main component that determines the cost of homeowners insurance is its dwelling coverage. In comparison to renters insurance without any dwelling coverage, premium for homeowners insurance will be significantly higher.
According to the data listed on Insurance Information Institute , the average renters insurance premium nationwide in 2017 was $180 v.s. the average homeowners insurance premium of $1,211 during the same year.
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