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Types of Insurance Policies – What’s Right For You?

Several lines of insurance are available to cover various perils. The most appropriate insurance product for your needs depends primarily on your type of dwelling.

1. Owning a Home – If you own a home, there are two available policy forms: homeowners and dwelling forms. The main difference between these two types of forms is that the homeowners form combines property coverage with liability coverage, while the dwelling form only covers property losses. In addition, a dwelling form is more typically used for a dwelling that an insured person owns but does not live in, or only lives in during part of the year. Both types of policy forms have the various peril coverage available for both the dwelling and its contents.

2. Owning a Manufactured Home – There are policy forms specifically designed to insure manufactured homes. This type of policy covers both the dwelling and contents and provides liability protection.

3. Owning a Condominium – There are policy forms specifically designed to cover condominiums, which typically cover contents (i.e. your personal property) and liability. A small amount of dwelling coverage is provided to cover the portions that you are responsible for, as defined by the governing rules of the condominium association. This may include condominium common areas, and you can purchase additional dwelling coverage if the protection included in the package is insufficient.

4. Renting a Residence – There are renter’s insurance policy forms specifically designed for you if you are renting and do not own your residence. These forms provide coverage for your contents and liability.

5. Owning a Home on a Farm – Farm owner’s policy forms are specifically designed to cover farms or ranches which may not qualify for standard homeowners insurance. This policy may be the most appropriate form to cover property losses to your home, and other structures such as barns and silos, from the damage of tornadoes, hail, and other perils. Farm owner’s policies also cover both the personal and commercial exposure of farms, along with liability coverage.

Buying Insurance in the Voluntary Markets

Generally, insurance may be purchased from property casualty insurance companies through the voluntary market, meaning that the insurance companies voluntarily provide coverage to customers who meet the underwriting requirements. Availability and types of coverage can vary across different states and companies, so consumers should research property coverage for specific perils in their particular area just as they research different automobile insurance buying options.

There are four main distribution systems employed by property casualty insurance companies in the U.S., including:

1. Independent Agency System – Independent contractors who typically represent multiple insurance companies.

2. Exclusive Agency System – Independent contractors who may only represent a single insurance company.

3. Direct Writer System – Sales agents who are employees of the insurance companies.

4. Direct Response System – No agents are used and insurance is sold through direct mail, telephone, or the Internet.

Buying Insurance in the Shared Market

Involuntary market mechanisms (sometimes referred to as “shared markets”) have been developed to provide coverage for entities that do not qualify for coverage in the voluntary market. There are many reasons why coverage may not be available through the voluntary market in a particular place. For example, living in a high-risk area, such as a designated wildfire zone, near a coastline, or in the area affected by a recent catastrophic event, may lead to reduced availability of coverage.

The following kinds of property insurance market mechanisms exist in certain areas:

1. Fair Access to Insurance Requirements (FAIR Plans) – Insurance pools that sell property insurance to people who cannot buy it in the voluntary market because of high risk over which they may have no control. Plans vary by state, but all require property insurers licensed in a state to participate in the pool and share in the profits and losses.

2. Joint Underwriting Associations (JUA) – Insurers that join together to provide coverage for a particular type of risk or size of exposure when there are difficulties in obtaining coverage in the regular market may share in the profits and losses associated with the program.

3. Beach and Windstorm Plans – These plans exist in the coastal states, in the hurricane zones of the Gulf, and along the South Atlantic coasts. Windstorm Plans provide the coverage that is often excluded from voluntary insurer policies. Each coastal state from Texas to North Carolina has a beach and windstorm pool to provide windstorm coverage in the coastal areas. The way these plans are funded and coverage provided varies from state to state.

Although there is no truly involuntary market mechanism for earthquake coverage, the California Legislature established the California Earthquake Authority (CEA) as a privately-financed, publicly-managed risk bearer to help California residents obtain earthquake insurance. The CEA is California’s largest residential earthquake insurer.

Market conditions in some states have made it difficult for voluntary insurers to provide affordable coverage. Under those circumstances, coverage may be available through a FAIR plan. If you find that you are unable to obtain insurance through the voluntary market, your insurance agent may help you find coverage through the involuntary market, or you may be able to contact the plans directly. Because these entities vary greatly by locality, your state insurance department is likely the best source of information on how to obtain coverage through the involuntary market in your state.

Visit to find your state’s insurance department.

The Actuarial Foundation, a 501(c)(3) organization, was established in 1994 to help facilitate and broaden the profession’s contribution to society. The Foundation explores innovative ways to apply actuarial skills in the public interest and brings together broad partnerships of individuals and organizations to address social problems in creative ways.

The nonprofit Federal Alliance for Safe Homes, Inc. (FLASH®) is an award-winning coalition of government agencies, professional associations, and private industry committed to strengthening homes, safeguarding families, and protecting economic well-being by promoting disaster preparedness.

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