Typical Homeowner coverages and what they mean
Coverage A: Dwelling -This is the amount of coverage on the physical structure itself. This is the amount you would receive
to rebuild your home in the event of a total loss. With most companies you want to make sure this amount is equal to the estimated replacement cost
(see below) for the home. This often provides a guarantee that your home will be completely rebuilt, as is, after a loss. Also in the
event of a partial loss, the home can be fixed without regard to actual cash value of the loss.
Coverage B: Other Structures -Typically 10% of the coverage A amount of a policy. This amount is to cover damages to other structures
on your property which are not directly connected to the home. This includes sheds, outbuildings, detached garages, etc.
Coverage C: Personal Property -This amount is also typically a percentage of the coverage A amount. It can range from 50% all the way up
to 100% of the coverage A amount, depending on the carrier. A typical policy will have 70-75% of the coverage A available for personal property.
This is the amount used to replace any personal effects destroyed by a covered peril. As with coverage A, you want to make sure your personal property
is covered for replacement cost. This insures your property will be replaced without regard for applicable depreciation. For example, if you own a
2 year old 48" TV that cost you $2000, you may only receive $1000 for it (there is a book that lists depreciation factors for most common items). With
replacement cost, you will get a new 48" TV, either a direct replacement, or one of "like kind and quality" if the same model is no longer available.
Coverage D: Loss of Use -Typically 10-20% of the coverage A amount. Some carriers and/or policies even provide 100% of coverage A, and others
provide for "actual loss sustained". This amount provides for additional living expenses to maintain your typical standard of living in the event you
are unable to live in your home if it's damaged by a covered peril. These costs can include rent, food expenses, etc.
Coverage E: Personal Liability -Provides coverage for damages to other's which the insured is liable for. This can include injuries to others
due to negligence. For example, if you neglect to maintain a clean porch and someone trips and falls, or if your dog bites your neighboor. This coverage
will also pay to defend you if you are sued by someone. Although the cost is minimal to carry $500,000 or more in personal liability protection, many people
overlook this important coverage.
Coverage F: Medical Payments -This coverage specifies an amount which can be paid out to other individuals who may be injured on your
property, without regard to negligence or liability. It is sometimes referred to as the "good neighboor" coverage. For example, you neighboor comes over
to help you cut some firewood and accidentally injures himself. Even if you did nothing to cause the injury, and took every precaution to prevent it, you
can offer him money from this coverage. It is often useful for helping people cover their health insurance deductibles and being a good neighboor without
admiting any liability.
Common homeowner's insurance terms
Covered Peril -A term used in insurance to describe an act or incident which is covered by insurance. Some policies are written on a
"named peril" basis, meaning there is a specific list of perils which are covered (i.e. fire, wind, lightning, etc). Most policies today, however,
are written with a broader coverage. Rather than listing "covered perils" they list perils which are not covered. This means, unless the policy specifically
says a loss isn't covered, coverage will be provided. However, most personal property (coverage C) is still insured on a "named peril" basis. Not all policies
cover damage from earthquakes, and no homeowners policy will cover flood or surface water damage.
Deductible -The amount you have to pay out of pocket for a covered loss before your insurance coverage will pick up the tab. As with auto
insurance, higher deductibles mean lower premiums but more money out of your own pocket. With today's insurance market, companies are non-renewing
policies for having 2 or 3 claims in a 3 year period. With insurance, it's the frequency of claims that matters more than the dollar amount. As such, it's
generally wise to carry the highest deductible you can, as you'll want to cover most of the small "claims" yourself to maintain your rates and/or
coverage. This, coupled with rising homeowners premiums, have pushed the once common deductibles of $100 or $250 out the window, with most current
policy holders raising their deductibles to $500 or even $1000.
Flood Insurance -A seperate insurance policy that is required by lenders on properties which are located in flood plains. There are different
catagories of flood zones. Check with your agent if you're unsure whether your home is protected by a flood policy, or if it should be.
Replacement Cost -An amount, calculated by insurers, to cover replacing your home. This takes into account such things as year/type of
construction, materials used on the interior and exterior walls, fixtures that are part of the house, etc. Insuring your home to it's replacement cost is
generally the best way to go. It eliminates alot of problems when dealing with repairing or rebuilding after a loss, whether partial or complete.
|
