Most homeowners are probably already familiar with typical homeowners insurance, designed to pay out of the physical structure of a house is damaged or destroyed, replace contents in the event of a burglary or disaster, and protect people (financially) from fire and other hazards.
Now, Oklahoma is about to become the second state where another kind of homeowners insurance is being offered. This insurance, called “Home Value Protection,” is meant to insure people against the decline in home prices that is continuing to trouble the real estate market across the country.
The company selling this insurance is the Ohio-based Home Value Insurance Co., and it’s been licensed to sell insurance in Oklahoma since December, 2011. It’s actually only been licensed in its home state of Ohio since September of 2011, but according to CEO Scott Ryles, it had been working toward that point since 2009.
While conventional homeowners policies are available for both primary residences and rental properties, and may even be purchased by builders and investors, Home Value Protection policies have much stronger limitations. They can only cover owner-occupied homes that are primary residences. It seems a bit extravagant, but, Ryles assures, the premiums are fairly affordable, and there’s no risk to the homeowner. Instead these policies ease the concern that owners might lose equity in their homes.
Home Value Insurance Company began selling Home Value Protection policies in its home state last fall, and, according to The Oklahoman, in Oklahoma last week. The next state where such insurance will be offered is Georgia. Why these states? Ohio was chosen because it represents a sort of housing crash middle ground, with price declines averaging about $1,600 during the third quarter of last year. Oklahoma, on the other hand, has seen only light depreciation, and Georgia, particularly in and around Atlanta, is a high-depreciation state. These three states, then, will provide an excellent proving ground for both product and company.
So how do these policies actually work? Homeowners can insure their house with a specific stated value for up to ten years, and coverage is limited to 25% of the insured value. If the real estate market declines and someone with this coverage sells their home for less than the insured value, the policy will pay out, though there are deductibles of 10% of the insured value in the first year of coverage, and 5% in the second year. Claims made during the first two years of the policy will pay out less the deductibles. If the market improves and housing prices increase, homeowners can buy new policies with higher insured values.
While Home Value Protection seems like a good idea on the surface, realtors in both Ohio and Oklahoma are a bit dubious about the necessity of the product. After all, they point out, the deductibles in the first two years are fairly hefty, and beyond that, forecasts are generally calling for favorable changes to the market.