Learn how to decode the details that appear on your homeowners policy documents.
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Your home is likely among the priciest purchases you'll make, so protecting it with the right insurance policy is crucial. Though each insurance company formats its homeowners policy documents differently, each policy document has some features in common. We’ll help you navigate your homeowners insurance policy to ensure your home and personal belongings are properly covered.
Each section of your homeowners policy is important, but the declaration page is likely your go-to source for most information. Here you’ll find important info about your coverage amounts, coverage limits, and insurance premiums. Have a look at the example below to learn more about standard features of a homeowners declaration page.
There can be many different coverage types within a single homeowners policy. The following list provides a brief rundown of each and how they work to protect you and your property.
Dwelling coverage pertains to the primary dwelling and attached structures such as fences or garages.
This includes detached structures such as sheds or detached garages. The limit of this coverage is 10% of your Coverage A limit.
This covers your home’s contents or other personal property. This also covers personal belongings you carry while traveling. The limit of this coverage is 50% of your Coverage A limit. Another important thing to consider is the amount at which your belongings will be replaced. Actual cash value is standard amongst many policies, though full replacement cost coverage can typically be added at an additional cost.
Loss of use provides coverage in the event your home is rendered unfit to live in. It covers additional living expenses and will pay for temporary living arrangements up to the policy limit.
Liability coverage is a vital component of a homeowners insurance policy. It protects you against damages or injuries caused by you or occurring on your property. Liability insurance follows you around the world as well, meaning you would be covered— in most cases — if you were to accidentally injure someone else while on vacation. In some cases, an umbrella policy can be added to provide increased personal liability protection.
This coverage covers some of the medical expenses of others who may have suffered bodily injury or property damage at your home. Sometimes known as guest medical coverage, it usually provides a baseline of $1,000 in coverage that can often be increased for an additional premium.
Many basic policies cover a home and the personal property therein at actual cash value. Actual cash value factors in depreciation when considering how much to pay out for a covered loss. On the other hand, replacement cost value covers the actual cost to replace your dwelling or personal property without factoring in depreciation. This can be added for an additional premium.
Endorsements to a home insurance policy allow you to customize your coverage to fit your individual needs. These add-ons can provide additional coverage to allow for unique needs to your lifestyle or geographic location. Common endorsements can include coverage for windstorms, identity theft, and home daycare coverage, to name a few.
You can also add personal property endorsements—known as scheduled endorsements—that can increase the limits of coverage for high-value items such as antiques or jewelry. This often requires an appraisal of the items and an agreement from the insurance company on the payout amount.
Also listed on your insurance policy will be the name of your mortgage lender. Mortgage lenders often have their own insurance requirements to protect their investment in the event of a loss. The types of coverage required may vary depending on your lender and are likely to be based on the type of home you have as well as its location. For instance, lenders are likely to require special coverages in areas prone to natural disasters such as hurricanes, earthquakes, or wildfires.
Sometimes dwelling and personal property coverage differ in the perils they cover. For instance, an HO-3 policy — the most common home insurance policy type— covers personal belongings on a named peril basis.
Common perils named on most HO-3 policies include:
Pay close attention to which perils are covered by your policy: this can have consequences down the line.
Every home insurance policy has exclusions. While an HO-3 policy covers your personal belongings against named perils, it covers your primary dwelling on an open peril basis. This means that it will cover damage caused by all perils except those explicitly listed in this section of the policy.
An HO-3 policy specifically excludes damages caused by the following perils:
Flood insurance: This covers damage resulting from flooding. Flood coverage is generally an excluded peril, as most standard homeowners policies do not include it. While it is offered by some specialty insurers, it is most often purchased through the National Flood Insurance Program (NFIP).
Many homeowners insurance companies offer discounts that can save you money on your insurance premiums. Installing deadbolt locks or a security system to deter burglars can lead to lower insurance rates. Bundling your home insurance with your auto insurance can likewise lead to savings. Below is a list of common discounts offered by most home insurers. Speak to your insurance company or agent to see which discounts you are eligible for.
Understanding your homeowners insurance policy is a crucial step toward protecting your investment. While the homeowners declaration page is can give you a good sense of what’s covered, it’s always a good idea to read through each part of the policy to make sure there are no holes in your coverage. Keep this in mind while you’re shopping for a homeowners policy, and make sure to compare rates and coverage options before settling on an insurance company.