When you look at your homeowners insurance policy, you may see lots of words and numbers that seem very confusing. What do these coverages mean? What do the numbers represent? A standard homeowners insurance policy includes several main coverages, several optional coverages, and 2-3 deductibles. In addition, the coverages will typically have a number accompanying them, which represent that coverage’s limit amount (amount that the insurance company will pay out.)
Being able to navigate your insurance policy and knowing what coverages you have can be very important. If you do not know what to look for, it’s possible that you could be missing coverages that you need to protect you, your family, and your assets. This article will cover the standard coverages that should be on your insurance policy, some optional coverages that you may or may not need, as well as the coverage limits, with an explanation of how much coverage you should have.
Coverage A Dwelling
The dwelling coverage of a home provides coverage for the building, including all structures attached to the main building. This includes the roof, the exterior construction material (i.e. brick, vinyl siding, etc.) the foundation, the studs, walls and anything permanently attached to the structure. It is very important that you have a sufficient amount of dwelling coverage to completely rebuild your home in the event of a covered total loss. Often times, homes are bought for a lower price than it would cost to rebuild that home brand new. It is a common misconception that you only need coverage in the amount that you purchased your home for, which could be a costly mistake. You will want to insure your dwelling for the amount that it would cost to rebuild the home exactly as it were with all new materials, in the event of a total loss. It is important to review your policy for perils that are insured against, and be aware of losses that may not be covered.
Replacement Cost vs Actual Cash Value:
An insurance policy will often have an option between replacement cost coverage (RC) and actual cash value coverage (ACV.) Knowing the difference between the two is very important because the amount of money that the insurance company will reimburse you for in the event of a loss can be substantially different. RC coverage will replace the loss in full, restoring your item(s) or even your entire home to its original value. ACV coverage will replace the value of the loss minus depreciation, restoring your item(s) or your entire home to its value at the time of the loss. For example, if a tree falls on your ten year old roof, causing total loss damage, and a new roof is required, replacement cost coverage would pay for a brand new roof in full, where actual cash value coverage would take into account that the roof is ten years old, and the insurance company would only pay out the cost of the new roof, minus the depreciation of the ten year old roof.
Coverage B Other Structures
The Other Structures coverage on your insurance policy provides coverage for structures on your property that are not attached to the main dwelling. This includes sheds, fences, driveways, detached garage, and sometimes even swimming pools. This coverage will reimburse you for losses to other structures on your property at either replacement cost value or actual cash value, depending on which you selected. Other Structures coverage is typically built into the policy and cannot be removed, but the amount of coverage can usually be increased. This coverage works off of a percentage of Coverage A Dwelling.
Coverage C Personal Property
Personal Property coverage on your insurance policy provides coverage for your personal belongings in the event of a covered loss. Your personal belongings may include your furniture, clothing, some appliances, rugs, drapes, blinds, etc. It is important to understand what a losses are covered on your policy. For example, if your items are damaged due to a fire, chances are, it will be covered. However, if an appliance simply stops working, your standard home insurance policy probably will not cover that. Be sure to keep a log of all of your personal belongings and their value. A good way to determine what is considered personal property is, if you were to turn your house upside down and shake it, everything that falls out would be considered personal property. This coverage can also be replacement cost or actual cash value, and also works off of a percentage of Coverage A Dwelling (ex. If your home is insured for $200,000 for Cov. A, 50% Cov. C would be $100,000.)
Coverage D Loss of Use
Loss of use coverage, also known as additional living expenses, can help to pay for the additional costs you might incur for reasonable housing and other living expenses if a covered event makes your house temporarily uninhabitable while it’s being repaired or rebuilt. For example, if your house sustains smoke damage due to a fire, making in uninhabitable, your insurance company would cover the expenses that you incur due to not being able to stay in your home, such as the cost for a hotel room and dining expenses. It is important to keep all of your receipts for any additional expenses that are due to this loss. This coverage works off of a percentage of Coverage A Dwelling.
Coverage E Personal Liability
Personal liability coverage protects you from paying out of pocket if you or a member of your household are held legally responsible for injury or property damage to a third party. This coverage is designed to cover the medical expenses, legal fees, settlements, or lost wages for others whose injury or damaged property resulted from your negligence. For example, if you had a guest at your house who slipped and fell on your ice covered porch, you would be held responsible for not clearing your porch of ice. In the event that the guest suffered injuries from the fall, your insurance would pay up to your limit of liability to cover the necessary expenses.
Coverage F Medical Payments to Others
Medical payments to others coverage protects you if a guest at your home is injured, whether or not you are at fault. This coverage is designed to cover small claims resulting from injuries that happen on your property. Unlike personal liability coverage, which covers a range of expenses due to injury or property damage, medical payment to others coverage limit usually ranges from $1,000 to $5,000 in coverage. For example, if a guest is helping you prepare a meal in your kitchen and they accidentally cut their finger and needed stitches, your insurance would pay up to your limit of coverage for their emergency room visit.
Wind/Hail Deductible
The wind/hail deductible, sometimes referred to as Hurricane deductible or Named Storm deductible, is the amount that you are responsible for in the event you sustain a loss due to wind or hail damage to your home. The options that you may choose for this deductible on a standard policy can be a flat number ($1,000, $2,500, $5,000) or a percentage of Coverage A Dwelling (1%, 2%, 5%.) In some areas, especially coastal areas, insurance companies may require a minimum deductible of 2% of Coverage A Dwelling.
All Other Perils Deductible (AOP)
The all other perils deductible, sometimes referred to as all perils deductible, is the amount that you are responsible for in the event you sustain a loss to your home due to any covered peril other than wind or hail. The options that you may choose for this deductible on a standard policy can be a flat number ($1,000, $2,500, $5,000) or a percentage of Coverage A Dwelling (1%, 2%, 5%.)
Other Coverages and Endorsements
The coverages listed above are the standard coverages that come with most standard homeowners insurance policies. However, there are plenty of other coverage options and endorsements that can be added to a policy. Since the above coverages do not always cover all circumstances, insurance companies offer a variety of other coverages to help protect you and your property from perils. Most other coverage and endorsement options can be added for an additional charge. Some of the most common other coverage and endorsements are listed below, with a brief description of how they work.
Water Back-Up – Water backup insurance provides coverage for damage to your property caused by a clogged sewer line, failed sump pump and backed up drains. It also covers mold damage to your home caused by water or sewer backup.
Mold Section I – Also referred to as Limited Fungi, Wet or Dry Rot or Bacteria Coverage, provides coverage to remediate mold if caused by a covered peril.
Mold Section II – Also referred to as Limited Fungi, Wet or Dry Rot or Bacteria Coverage, provides coverage for liability claims arising from mold caused by a covered peril.
Extended Dwelling Replacement Cost – Provides additional coverage to your Coverage A Dwelling, usually in the amounts of 25% or 50% (sometimes read as 125% or 150%.)
Personal Injury – Coverage for personal injury caused to others (not physical injury.) This includes injury resulting from libel, slander, malicious prosecution, false imprisonment, etc.
Increased Limit for Jewelry, Watches, and Furs – Most policies cover jewelry, watches, and furs up to a certain limit (usually around $2,000.) This allows you to increase that limit.
Scheduled Property – If you have items that would not be covered under your coverage C personal contents coverage, you can schedule the item(s) on your home insurance policy. This typically includes expensive items such as artwork, firearms, jewelry, electronics, etc.
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