Understanding Your Home Owners Insurance Policy

Part I: Home Owners Insurance Property Protection

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When shopping for insurance, it is important to understand what you are getting when you purchase a homeowner insurance policy. Some people decide to buy insurance online by using popular online insurance quote websites and some stay with a local agent. Whatever choice you make, knowing and understanding your home insurance policy coverages is important.

A Home Owners Insurance Policy is designed to protect homeowners against certain perils. There is usually a deductible when filing a home insurance claim.

Whether you buy your homeowners insurance policy online or with a local agent, the typical homeowners insurance policy is divided into 2 parts:

When you look at a home insurance declaration page, which is usually the first page in a homeowners insurance policy, you see Part I: Property Protection. This protection is usually broken down into four additional sections:

  • A. Dwelling
  • B. Other Structures
  • C. Personal Property
  • D. Loss of Use

Homeowner Coverages for Property

Coverage A typically covers your house, attached structures, fixtures in the house such as built-in appliances, plumbing, heating, permanently installed air conditioning systems, and electrical wiring. Many people underinsure their dwelling because they don't understand how to determine the right value for the dwelling amount. The dwelling insured value should cover reconstruction cost and not real estate value.

Coverage B. Other Structures typically covers detached structures such as garages, storage sheds, and fixtures attached to the land including fences, driveways, sidewalks, patios, and retaining walls. Detached structures used for business purposes are not covered under a personal homeowners insurance policy.

Coverage C. Personal Property typically covers personal property including the contents of your home and other personal items owned by you or family members who live with you.

This protection can be based on actual cash value (ACV) or replacement cost.

Home insurance policies may provide limited coverage on certain items, for example, small boats, however, most home insurance policies do not cover motorized vehicles unless they are unlicensed and used only at your home. Some items may have coverage limits such as firearms, artwork, business property, electronic data, jewelry, and money. Extra coverage is usually available by adding endorsements to your policy.

Coverage D. Loss of Use typically covers living expenses over and above your normal living expenses if you cannot live in your home while repairs are being made or if you are denied access by government order. Additional living expenses are an important coverage and you can learn more about how they work in this article: How to Get (and Why You Need) Additional Living Expenses Coverage

There are also Additional Property Coverages homeowners insurance polices may provide such as the removal of debris along with damaged trees and shrubs, fire-department service charges, property removal, theft or illegal use of credit or transfer cards, collapse of buildings, and glass breakage if caused by a covered perils.

Endorsements can also be added to your homeowner insurance policy at an additional cost to provide extra protection. Examples of endorsements include:

  • Guaranteed replacement cost coverage will pay the cost to rebuild your home as long as you have met the requirements of your home insurance policy.
  • Extended replacement cost coverage insures your home for a specific value and usually adds a 20-25% extended limit if reconstruction costs run over.
  • Inflation Guard increases the amount of your homeowner insurance to keep up with inflation so that you can maintain adequate coverage to replace your home in the event of a loss.
  • Scheduled personal property protects articles such as jewelry, furs, stamps, coins, guns, computers, antiques, and other items that often exceed normal policy limits in your regular homeowner's insurance policy. It often provides coverage that is broader than the coverage in the home insurance policy. There normally is not a deductible for this coverage. Increased limits on money and securities provide additional coverage for money, bank notes, securities, and deeds.
  • Secondary residence provides protection for a second home such as a summer residence.
  • Theft coverage protection broadens the theft coverage to include personal contents in your motor vehicle, trailer or watercraft to be covered without proof of forcible entry.
  • Credit card forgery and depositor's forgery coverage provides protection against loss, theft or unauthorized use of credit cards. It also covers forgery of any check, draft, or promissory note. No deductible applies to this endorsement.

Home Insurance Liability Coverages

Home Insurance Liability Coverages section is broken down into two parts:

The Personal Liability section provides personal liability coverage against a claim or lawsuit resulting from bodily injury or property damage to others caused by an accident on your property or as a result of your ownership of the home or personal activities anywhere. This homeowner insurance coverage does not provide protection for auto and business-related incidents.

The Medical Payments section includes coverage to pay medical expenses for persons accidentally injured on your property regardless of fault. Medical expense payments do not apply to your own injuries or those of family members living with you or to activities involving your at home business.

As with every homeowner's insurance policy, there are exclusions. Homeowner insurance does not provide general free legal advice under the liability portion of the policy, however, low-cost legal insurance may be an interesting option to compliment your coverage.

All homeowners insurance policies have different covered perils and exclusions so always make sure to check with your home insurance company to verify all coverages and basis of claims settlement for your policy, the information here is only a guide to help you understand the basics, but in any case the wordings and conditions of your own policy may be different and will be what applies in a claim.