What Coverage is Provided by Your Homeowners Insurance Policy?
Smart owners of their own homes have bought a Homeowner policy to protect against losses to, or on, their property. It is wise to have this coverage as the home is usually the largest and most important investment of any person or family, and needs this kind of protection.
Until recently, to adequately cover all the misfortunes that might befall a homeowner, the owner had to buy separate policies – sometimes 3 or 4 different ones addressing losses by fire and other causes to the home, and perhaps another on for the contents of the home, a theft policy and a liability policy. Some years ago, however, the Homeowners policy, which is a ‘package’ of all the needed coverage, was devised and is now sold throughout the US. This policy is widely available, and usually provides all the protection a homeowner might need for a very affordable price.
The Coverage Sections
Most insurers who sell this package policy follow the same format – there is one section covering the direct, and indirect, losses to property, and a second section with liability protection. The first section contains 4 subsections – one for the dwelling structure, a second for ‘other structures’, a third covering personal or contents property, and a forth which provides reimbursement if losses from the first three mean that the property is not habitable, and the homeowner and family need to live temporarily off the premises. The first of these, the subsection covering the house, generally governs the limits of the other three, which are typically percentages of the amount on the home itself.
Although some insurers offer coverage on an ‘actual cash value’ (ACV) basis, this means depreciation will be applied to property that is damaged and it will not be replaced with new property. Virtually all modern homes should have the replacement cost feature, which gives the homeowner ‘new for old’ in the claim process. It costs very little more than the ACV basis, and it makes little sense to replace damaged property with older, used, materials. To adequately replace the damaged property the homeowner would have to pay the difference between the cost of new and old, depreciated property. And remember, the basic Homeowner policy does not cover either earthquake or flood damage – those coverages, if they are required, need to be purchased in addition to the HO policy.
In determining how much insurance to buy on the house, the homeowner should take care not to include the value of the land, often a large percentage of the property’s ‘market value’. Homeowner policies do not cover the land upon which the home is built, so it would mean paying for limits one cannot use to include the value of the land.
‘Other Structures, the second subsection, addresses items such as fences, outbuildings, guest or pool houses. The limit for these properties is typically 10% of the amount on the dwelling, but if the value of such other buildings is more than the 10% amount, this limit can be increased at very little extra premium. The insurance company underwriter may wish to know what the outbuilding is used for before issuing the policy.
The third subsection covers contents of the home – such things as furniture, clothing, appliances (except those that are built in to the home, which are covered in the limit for the house). With most policies, there are limitations on certain high value contents such as artwork, antiques, jewelry and gold or silverware. These items can be covered for their full value by scheduling them and paying a small extra premium. The amount the policy provides for this subsection is usually 50% of the amount on the house, but recently it has become common that this amount is automatically 70% of the house value. The homeowner cannot get a premium credit for reducing this limit, nor for reducing the Other Structure limit…they are set percentages of the house limit.
The forth subsection is for Loss of Use or Extra Expense, meaning the insurer will reimburse the homeowner for the added living cost of a hotel or motel, meals away from the home and other incidental extra costs when the home is temporarily not habitable. This limit is usually 40% of the amount of insurance on the house. You will be asked by the insurer to keep track of these expenditures to support your claim, if this subsection is needed.
Liability Coverage
There are two subsections of the second part of the policy – the first is liability coverage for bodily injury or property damage caused by you on your property and the affected person or persons decide to sue you. Your dog bites a visitor, or a neighbor’s child falls and is hurt as a result of your alleged negligence. This is where the policy comes into play. The usual limit for these kinds of issues is a minimum of $50,000 per event, or occurrence, but higher limits – much higher – are readily available, not very expensive and are certainly recommended.
The second subsection in this part of the policy is for Medical Payments. This coverage, simply pays for the cost of first aid and minor medical costs for someone on your property (but NOT for you or family members). There does not have to be a lawsuit to invoke this kind of payment, and its purpose is to hopefully preclude the need for a suit against the homeowner.
In most policies these days, the insurer will include a small limit, say $250 or $500 for what is termed ‘voluntary property damage’. This, like the medical payment coverage, is responsive to relatively minor damages to property of others the homeowner may cause or that may happen on the premises – a camera of a visitor is dropped and damaged by the homeowner or a family member. The amount is paid by the insurer without the need for a lawsuit.
Deductibles
All of the property losses (except for Extra Expense) have a deductible requirement – the homeowner must incur the first $250 or $500 per loss (or, more recently $1000 per loss) before the insurance company begins to pay. There are no deductibles for the liability section.
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