Insurance explained: What’s in your homeowners policy?
When it comes to insuring your home and belongings, all you really want to know is that you’ll be protected if the worst happens. That’s true whether it’s a fire, windstorm, burglary, or even an injury suffered on your property for which you’re legally responsible.
Sounds simple enough, right?
But as with any legal contract* (and that’s technically what an insurance policy is), language and limits matter. Not all homeowners policies are the same, especially if you bought yours years ago.
Over the next few issues of Perspective, we’ll ask our experts for help in better understanding common insurance terms. Here are five important ones to know about homeowners insurance:
“Coverages” that make up a homeowners policy
Your homeowners insurance isn’t like a giant cozy blanket that covers everything. It’s more like a set of puzzle pieces. Each piece or “coverage” is designated by a letter and has its own purpose and limits of how much it will pay. Homeowners policies sold in the United States typically include these coverages:
A, Dwelling – protects the house itself from direct damage caused by things like fires, windstorms or burst appliance hoses.
B, Other Structures – pays to repair structures that aren’t attached to your house like fences, sheds, and gazebos if, for example, a tree falls and smashes them.
C, Personal Property – protects belongings like your clothes, kitchenware and furniture whether they’re in your house, traveling with you or even stolen out of your car. Certain items have limited coverage. More on that below.
D, Loss of Use – pays your added living expenses (like the extra cost of takeout meals) if you can’t live in or use parts of your home because of a covered loss like a kitchen fire.
E, Personal Liability – pays if you’re found legally responsible for injuries or damage on or off your property if, for example, your dog bites a neighbor. It also covers legal defense costs.
F, Medical – no-fault coverage for medical treatment of guests injured on your property even if you’re not legally responsible. It also can pay for accidental injuries you cause away from home.
Besides those six main coverages, many people find they need to add on to their policies with “endorsements” or “riders” for extra protection.
“Endorsements” expand what’s covered by homeowners insurance
To keep costs lower for the majority of customers, homeowners policies limit what they’ll pay for certain high-value or theft-prone property like jewelry, artwork, silverware, antiques, firearms and coin collections (among other things). Under all but a handful of rare circumstances, they also can’t cover damage following earthquakes, seasonal flooding, mudslides and broken sewer lines between your home and the street.
For those things, you can buy extra coverage for an added price. In insurance-ese, it’s called an “endorsement” or “rider.” Sometimes, you hear people talking about “scheduling” a specific high-value item like an engagement ring.
The most common added endorsement PEMCO sells is for jewelry. You can decide if you want to insure your jewelry against losses like theft or fire or against anything, including simply losing it. Price is based on each item’s appraised value and, if you need to make a claim, there’s no deductible (that is, an amount you pay out of pocket before coverage kicks in).
For risks like earthquakes, flooding, sewer lines and others that we can’t insure ourselves, your PEMCO agent or our affiliate company, PEMCO Insurance Agency, can help you find coverage through a company that does.
“Replacement cost” vs. “actual-cash value”
Let’s say your 10-year-old couch is ruined as part of a covered claim. If you have replacement-cost coverage, you’d be reimbursed the amount you pay to buy a new one of similar kind and quality. If you have actual-cash value coverage, you’ll receive the depreciated (used) value of the 10-year-old couch right before it was destroyed. Both types of coverage require you to pay your deductible first.
Quality homeowners policies like PEMCO’s provide replacement cost coverage.
For even greater peace of mind, you can request “extended replacement coverage” (many PEMCO policies automatically include it, and your PEMCO agent call tell you more). That pays an added percentage beyond the coverage limits shown on the policy. It’s important if, after a natural disaster, materials and labor become scarce and more expensive in your area and your home suddenly costs more to rebuild.
“Open peril" or "all-risk” vs. “named peril”
Would you rather have a policy that covers you only for risks spelled out in the policy or for any risk as long as it’s not specifically excluded in the contract?
You’d probably want any, right? And that’s the difference between “open peril or all-risk” (meaning anything that’s not specifically excluded) and “named peril” that’s narrower.
While open-peril home and condo policies like PEMCO’s can’t cover everything (for example, maintenance issues like termite damage and rotted decks), they’ll cover some pretty weird and wild stuff – including a bear bursting into your vacation cabin and helping himself to whatever’s in the pantry! A named-peril policy may leave you on your own for the bear’s expensive snack attack.
“Declarations pages” show a summary of your homeowners insurance
When you buy a new insurance policy or renew one, you’ll receive what’s called a “declarations” or “dec page.” You’ll want to review it every time to check for important information like your policy effective dates, the people named as policyholders, your limits for coverages A-F, and endorsements on your policy. It also will show the premium you’re paying and which discounts you’re receiving.
If your policy seems outdated (hasn’t kept up with your remodeling or pricey purchases) or you’re not sure whether you have replacement and open-peril coverage, check your policy online or talk with an agent or representative.
Have an insurance term or coverage question? Let us know in Comments or, for an immediate answer call your local PEMCO agent or 1-800-GO-PEMCO.
*IMPORTANT: Terms defined here are for general educational purposes only. They do not replace or change your policy contract. If you have questions about your coverage, please refer to your policy’s language and talk with your PEMCO agent or a PEMCO representative.
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