MONDAY, APRIL 16, 2012
When looking for homeowner's insurance, you should be aware of the six primary coverages included in the policy:
- DWELLING. Dwelling coverage is the coverage that applies to the home itself; the building. It pays for the repair or replacement of your home in the event damage occurs from a covered cause of loss. It is important to know that there are several forms of standard home insurance. Some are referred to as "Named Peril" forms and others are "Open Perils". The differences are huge. A "Named Peril" policy will list the various causes of loss that the policy covers such as fire, lightning, wind, hail, etc. If the cause of loss isn't listed, it isn't covered. In contrast, an "Open Perils" coverage form is much broader. In essence, it states that any form of direct physical loss is covered with the exception of what is specifically excluded. Flood and earthquake are always excluded from the standard homeowner insurance policy. Flood insurance must always be purchased on a separate policy; earthquake can often be added to the homeowner policy for an additional premium. The homeowner policy values a loss based on the cost to repair or replace. Therefore, the dwelling limit on a homeowner policy must reflect the home's replacement cost - not market value. Homeowner policies contain a built-in penalty in the event a home is underinsured at the time of loss!
- OTHER STRUCTURES. This part of the policy pays for damage to a detached structure that sits on your home premises, such as a garage, shed, pole barn, etc. The coverage form that applies to the dwelling also applies to other structures.
- PERSONAL PROPERTY. Sometimes referred to as contents coverage, this is the part of the policy that pays for personal items, or your "stuff". The amount of coverage included is typically 50% or 70% of the dwelling amount, but it can be increased if this automatic amount is not sufficient. Contents coverage is "Named Peril" on the standard policy, but it can most often be changed to "Open Perils" for an additional premium. The standard policy also values home contents on an Actual Cash Value basis but can be changed to pay replacement cost.
- LOSS OF USE. Not only will a standard homeowner's policy pay to rebuild your home and other structures, and pay for its contents if damaged by a covered cause of loss, it will pay for you to temporarily stay somewhere else while repairs are being made if the damaged home can not be lived in.
- PERSONAL LIABILITY. The homeowner's insurance package includes liability insurance to protect you in the event you or a resident family member (or a pet!) cause injury or damage to another person. Standard coverage amounts typically start at $100,000 but most insurance companies are able to increase the coverage to $1,000,000 for as little as $30-$40 per year. This coverage includes the cost of hiring legal counsel to defend you!
- MEDICAL PAYMENTS. Medical payments will pay if a visitor is injured on your home premises. Your policy will pay even if you were not negligent in causing the person's injury. Often, paying for an injury can help to fend off a potential law suit.
When shopping for homeowner's insurance, it is also important to realize that while these six coverage areas are fairly consistent from one insurance company to the next, there are often differences that lurk behind the scenes - buried in the "fine print". These can include differences in the way policies will respond to business property, or limitations on theft of jewelry or other collectible items.
The professionals at Insurance Planning Service can help you determine how your policy functions in these various areas. Call us at 800-220-5582 or contact us via the web.
By Richard D. Bernard, AAI, CIC
Image source: americanpropertyloss.com
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