What is Covered by Standard Homeowners Insurance?

by Kelly R. Smith

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Home damage from Hurricane Harvey in Seabrook, Texas
Home damage from Hurricane Harvey in Seabrook, Texas

Homeowners insurance is essential for all homeowners. It doesn’t matter if you own outright or still hold a mortgage. Dictionary.com gives the origen of the word mortgage as, “Old French mortgage, equivalent to mort ‘dead’ (from Latin mortuus ) + gage ‘pledge.’” That’s about as morbid as it gets. It’s certainly not a witty phrase, is it? But I digress; what is covered by standard homeowners insurance?

Coverage for Your Personal Belongings

Your personal belongings include things such as sports equipment, clothing, furniture, appliances, ect. You get the idea. They are covered in the event that they are stolen or destroyed by insured disasters such as fire, hurricane, and others. Generally, the coverage is going to be 50% to 70% of the insurance you carry on the structure of your home, depending on the company that carries your policy.

The preferred way to determine if this is enough coverage is to conduct a home inventory. Take pictures, make entries in a database, etc. The more detailed, the better. Your belongings coverage includes items that you store away from your residence; this means that you have coverage anywhere in the world. There are some companies that limit the amount to 10% of the amount of insurance you have for your possessions. You may also have up coverage for unauthorized use of any credit cards.

Items on the higher end such as jewelry, furs, art, collectibles, and silverware are covered, but usually there is a monetary limit if they are stolen. There is a way to insure these items for their full value; buy a special personal property endorsement (or floater) and insure the items for their officially-appraised value.

Coverage for Your Home’s Structure

Your homeowners policy will pay to renovate or rebuild your home in the case that it is damaged or destroyed by incidences of fire, hurricane, hail, lightning, or other disasters that are enumerated in your policy. Most policies cover detached structures as well, such as your tool shed, garage, or a gazebo. In most cases, for about 10% of the amount of insurance you have on the structure of your home. A good rule of thumb is this–buy enough coverage to rebuild your home. Revise this yearly.

Liability protection

What does liability cover? It protects you from lawsuits citing bodily injury or property damage that you or family members cause to others. Additionally, it covers damage caused by your pets.

In many cases, limits begin at around $100,000. That being said, it’s prudent to palaver with your agent whether you should purchase a higher level of protection. You may have significant assets and therefore need more coverage than is available under your policy. If this is the case, consider purchasing an umbrella or excess liability policy, which provides broader coverage and higher liability limits.

Your policy also provides no-fault medical coverage. If one of your friends or a neighbor is injured in your home, he or she can submit the medical bills to your insurance company. So, expenses can be paid bypassing a liability claim being filed against you. Note that it doesn’t pay any of these bills for you or your family.

Additional living expenses (ALE)

This is for the the additional expenses of residing away from your home if you can’t live there because of the damage from a disaster that is insured. It covers restaurant meals, hotel tabs, and other miscellaneous costs that are over and above your normal living expenses. These are paid while your house is being restored. ALE is not open-ended; it has time and cost limits.

Other Circumstances

Your standard homeowners insurance policy will not pay for damage caused by an earthquake, flood, or routine wear and tear. These all require separate policies. Let me use myself as an example. During Hurricane Harvey, we flooded due to the city mismanaging drainage issues. We got about 2 feet of water inside the house.

Flood water rising in the street
Flood water rising in the street

Luckily, we have always carried flood insurance ever though the mortgage company did not require it since we are not in the flood plain (or zone if you will). But, as I tell my wife, “God doesn’t care about those maps.” So we ended up getting 100% on personal belongings and what the insurance adjuster estimated for structure. That only paid for material, not labor. That’s like getting 50 cents on the dollar. So, the majority of the reconstruction became a DIY project for me.

Neighbors without flood insurance just got the bare minimum from FEMA, and let me tell you, that ain’t much. Let that be a lesson–invest in appropriate insurance policies.

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About the Author:

Photo of Kelly R. SmithKelly R. Smith is an Air Force veteran and was a commercial carpenter for 20 years before returning to night school at the University of Houston where he earned a Bachelor’s Degree in Computer Science. After working at NASA for a few years, he went on to develop software for the transportation, financial, and energy-trading industries. He has been writing, in one capacity or another, since he could hold a pencil. As a freelance writer now, he specializes in producing articles and blog content for a variety of clients. His personal blog is at I Can Fix Up My Home Blog where he muses on many different topics.

A History of American Medical Insurance

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Medicare health insurance card and benefits
Medicare health insurance card and benefits

Today we are surrounded by so much high-tech medical apparatuses and procedures that we take them for granted. For example I recently had laparoscopic inguinal (groin) hernia surgery. No scalpel slashing, just 3 punctures. All the work was done microscopically and I was on my feet withing 3 hours.

But it wasn’t always that way. More than 90% of commonly-accepted medicine did not even exist in the 1950s. One of the consequences is that people, average people, not just the monied upper-crust, are living longer. A greater understanding about things like controlling high blood pressure adds years and quality of life.

The Cost of Modern Medicine

It should come as no surprise that all this progress comes with a cost. In fact, it has been rising faster than any other expenditure when looked at on a national level. Flash back if you will to 1930–we spent $2.8 billion on health care. That equates to 3.5% of the gross domestic product (GDP) or only $23 per person.

In 2015 that rose to $3 trillion. That’s $9,536 per person or 15% of GDP. During the 1980s medical expenditures rose by 117%. Of that, 43% can be attributed to inflation. 10% can be attributed to the rise in population and longer life expectancy. 23% was due to new technology, medicines, and treatment innovations. The remaining 24% is due to another instance of inflation that resides totally within the medical community. This last number tells us that there is a lack of oversight and cost transparency. There is no financial propping up as with the banking, agricultural, and auto-building industries.

The Transformation of Hospitals

It was only in the 1850s that the medical community realized that diseases were caused by microorganisms. This became known as the germ theory of disease and it was indeed revolutionary. It led to research that was to begin to focus on preventative rather than just curative treatment. Rabies was banished from human population in 1885. Diphtheria and whooping cough were brought under control. When milk began to be pasteurized the death rate of children went from 125.1/thousand to 15.8/thousand in 1925.

In 1873 hospitals, of which there were only 149 in the country, were more like hospices; the poor and and deathly-ill went there to die; those institutions were little more than petri dishes, not at all sanitary. But that changed because of the changes brought about by germ theory.

By 100 years later the number of hospitals had increased to over 7,000 and their role had morphed into medical research and clinical medicine. Exciting times. But… they cost a lot to operate and the number of patients could not be reliably estimated. The solution? Late in the 1920s hospital insurance was introduced in Dallas, Texas to stabilize cash flow. For a premium of $6 per year Baylor University Hospital would provide 21 days of care to subscribers.

Soon other hospitals adopted this model and formed confederations so that patients could choose a treatment facility. This was the business model for Blue Cross which launched in California in 1932. These were rudimentary insurance plans; they did not include co-pays or deductions, just fixed premiums meant to stabilize cash flow. One consequence is that patients gravitated toward hospital stays (expensive) rather than outpatient treatments (cheaper).

This insurance was paid directly to the hospital and not to the individual. This eliminated any opportunity to “shop around.” Since the money was not coming itemized out of the patient’s pocket, why should he or she care what the price tag was?

The Government Fails to Regulate Medical Insurance

During the mid to late 30s Blue Cross was spreading rapidly. The states moved to try to regulate them to the same standards as other types of “insurance.” But the American Medical Association and the American Hospital Association lobbied to be exempt, claiming an exception due to operating on a non-profit basis. The IRS agreed and ruled that they were also exempt from federal taxation. Blue Cross and other insurance companies emerging in the field operated on a cost-plus basis. Now there was zero incentive to control costs an strive for efficiency.

Hospitals began to compete not on price but by wooing doctor referrals. Doctors were being paid “reasonable and customary” charges. If Dr. C began charging a bit more, Dr. A and Dr. B would follow suit and the standard of “reasonable and customary” inched up. No oversight.

The Modern Medical Insurance Paradigm

When World War II drew us in, two things happened. One, the labor market got tighter since more workers enlisted in the military. Two, price and wage controls were implemented. In order to attract the best employees, companies began offering employer-paid health insurance as a fringe benefit which the IRS recognized as a business expense.

The National Labor Relations Board imposed collective bargaining on health insurance plans so unions began to demand more and more, driving prices up. But a consequence was that the patient became further distanced from the medical system and they lost many choices; one must take what is offered.

In 1965 the government waded into the medical market with Medicaid and Medicare. Initially, hospitals and doctors resisted but when they began to reap the dividends they quickly changed their tune. Now state governments largely controlled the purse strings of most major hospitals and thus could influence policy.

More recently a major factor in driving up medical costs is litigation. Medical malpractice suits have exploded. Cases have increased by a 1:300 ratio in the years from 1969 to 1990 alone. A special class of lawyers have even emerged to take advantage of this low-hanging fruit; these are your ambulance-chasers and your class-action law firms where actual plaintiffs make pennies while the lawyers walk away with the bulk of the settlements.

This short history of American medical insurance should serve to put things into perspective as we have a national debate over how it really should be handled. Should we stay on our present course or model our system on Britain or Canada? Should we believe in a socialist “free for all” system as Bernie Sanders advocates? (Hint: there’s no such thing as free.) Should we adopt an Obamacare model complete with a Jacobin death panel? This will continue to be an evolving national debate.

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About the Author:

Photo of Kelly R. SmithKelly R. Smith is an Air Force veteran and was a commercial carpenter for 20 years before returning to night school at the University of Houston where he earned a Bachelor’s Degree in Computer Science. After working at NASA for a few years, he went on to develop software for the transportation, financial, and energy-trading industries. He has been writing, in one capacity or another, since he could hold a pencil. As a freelance writer now, he specializes in producing articles and blog content for a variety of clients. His personal blog is at I Can Fix Up My Home Blog where he muses on many different topics.