Understanding Your Homeowners Insurance Policy
Homeowners Insurance Property and Liability Protection Explained
When shopping for insurance, it is important to understand what you are getting when you purchase a homeowners 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.
Whether you buy your homeowners insurance policy online or with a local agent, the typical homeowners insurance policy is divided into two parts:
- Property Protection
- Liability Protection
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
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.
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.
There are also Additional Property Coverages homeowners insurance policies 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, the collapse of buildings, and glass breakage, if caused by a covered peril.
Homeowners Insurance Endorsements
Endorsements can also be added to your homeowners insurance policy at an additional cost to provide extra protection.
- Guaranteed replacement cost coverage: This pays the cost to rebuild your home as long as you have met the requirements of your home insurance policy.
- Extended replacement cost coverage: This insures your home for a specific value and usually adds around 25% to the extended limit if reconstruction costs run over.
- Inflation guard: This increases the amount of your homeowners 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: This 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: This provides protection for a second home such as a summer residence.
- Theft coverage protection: This 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: This 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.
Your home insurance policy's Liability Coverages section is broken down into two parts:
- Personal Liability
- Medical Payments
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 such as if you have a home-based business.
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 home 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 complement your coverage.
The Bottom Line
All homeowners insurance policies have different covered perils and exclusions so 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.