When buying homeowner’s insurance, you are buying a package. You cannot break this package. You either take all of it or none of it at all. There are six parts to the insurance package. Typically, they are identified as Coverages A,B,C,D,E, and F. This can be intimidating when buying homeowner’s insurance to understand what all of these coverages do and how they protect your home and possessions. I am going to break down each coverage to let you know what it covers and how it helps you. Also, I will give a tip for what it DOES NOT cover and what important endorsement I recommend. Let me remind you that I am not a professional when it comes to personal finances, however, I am a licensed practicing claims adjuster. Property insurance is my life right now, so bookmark this post and keep it as a reference for the next time you need to purchase a homeowner’s policy. Also, recognize that every insurance policy is a little different, but most of them follow a similar format and possess similar endorsements that may be filed under different names.
This is usually your highest and most important coverage. Coverage A covers anything involving your dwelling or the physical structure of your home. It includes the core structure of the home, flooring, roofing, doors, cabinets, appliances, light fixtures, and much more. Think of flipping your house upside down, and anything that stays in place and does not move is considerd to be part of your Coverage A. Kitchen appliances and washers/dryers are debatable, but they are generally covered under Coverage A. Make sure your have a “broad” form coverage A or “all perils” Coverage A policy. Remember, “all perils” does not mean that you are covered for everything. It means that you are covered for everything EXCEPT that which is excluded in the policy. There are numerous exclusions in a homeowner’s policy that many people do not know about. The most common exclusion is wear & tear and deterioration. The policy does not act like a home warranty. If the roof leaks due to old age or an old plumbing pipe breaks, the policy will not pay to repair the roof or fix the pipe. However, it generally will pay for the resulting water damage due to the incident. Again, there may be some policies that deny this coverage all together, but many will pay for the resulting water damage from a wear & tear incident.
Note:homeowner’s policies do not pay for mold damage by default. It is excluded, but many policies will add a limited amount of coverage back in through endorsement. The policy that I work with most allows $10,000 for coverage due to any damage that is SOLELY damaged by mold. Don’t let an adjuster tell you it’s not covered or it has a limit because there is mold. If the damage is already from water, then it will be covered under the general Coverage A limit and not under the mold limit. Also, remember that frame houses are NEVER covered by termites. There may be endorsements out there that give back coverage for insects, but I have never heard of it.
This is one of the less important coverages, but still carries a heavy responsibility. It is often the coverage where most people are underinsured. Coverage B covers all “other structures” other than your home that is unattached from the home. This includes sheds, fences, a separate garage, a mother-in-law suite that is not attached to the same foundation as the home, and any other structure on your property unattached from the main foundation. If you install an expensive new fence or a new work garage on your property, make sure that you increase your Coverage B on your homeowner’s insurance. While adjusting thousands of Florida hurricane claims, I have found that many people meet and exceed their Coverage B limit more often than not.
Coverage C covers all of your personal property. Basically, think of anything that you would pack up to take with you when you move. That is considered to be your personal property in the world of insurance. Unfortunately, this is often the coverage where many people get screwed by their policy. Large accidents such as water losses, fires, hurricanes, and other big losses cover your personal property well. However, a homeowner’s policy often limits certain categories of personal property and many times it limits certain items for the peril of theft. If you own a large amount of jewelry, you must have it appraised separately and scheduled individually on your policy. Once you do this, you will have full coverage up to the appraised amount, no deductible, and virtually anything can happen to it and you’ll be reimbursed. However, without scheduling your jewelry, you run the risk of being subject to a $1,000 limit if it is stolen. Also, a default homeowner’s policy with no extra endorsements will not extend coverage for losing an expensive piece of personal property. I have spoken with so many angry customers that lost their wedding ring, and I have to tell them that their claim is not covered. GET YOUR JEWELRY SCHEDULED!!!! Also, the homeowner’s policy will always limit paying for watercraft and trailers. It also limits the amount you receive for china, guns, and cash when stolen.
NOTE:Always pay for the personal property replacement cost endorsement. Basically, when the insurance company comes up with a value to reimburse you for your personal property, they have to pay you based on what it would cost TODAY to replace that item. Actual cash value pays you the replacement cost minus depreciation. Therefore, if you have a 10 year old computer, then they would say that the average computer to replace today would cost $1,000 minus $600 worth of depreciation, so you only receive $400 for a new computer!
Coverage D is your additional living expense coverage. It helps you pay for the expenses incurred when having to temporarily live somewhere else when your home is damaged beyond normal living conditions or the repairs being made force you to live in temporarily housing while construction is going on. The main thing to remember with this coverage is that the insurance company pays YOUR REASONABLE EXPENSE for temporary housing and additional living expense. That means they will evaluate how much your home is insured for and base a rent payment on that. So, if you have a home insured for $500,000, they will try to put you up in a home of similar size with comparable amenities in the $3500 to $4500 range. If you live in a house insured for $150,000, they will try to put you up in a smaller home or townhouse and pay $1500 – $2000 for rent. Also, the policy will only pay expensed above and beyond your normal expenses. So, if you are in a hotel and spend $300 a week on food, because you do not have a kitchen to cook and you normally spend $150 a week for food, then the insurance company will reimburse you $150, not $300.
So, did that all make sense? Yeah, I didn’t think so. If you ever have any questions about homeowner’s or auto insurance, post a comment and I will answer it for you. The biggest thing to remember is that you need to READ YOUR POLICY. Even if you don’t understand the language, you’ll get a full summary of what you are covered for. The worst feeling in the world is getting a letter in the mail that your claim is being denied. Most people make claims ignorant of the fact that they claimed something that is excluded in the policy. Insurance policies are ruthless, but there are usually endorsements you can buy to customize your coverage to tailor to your needs.
Tomorrow, I will go over Coverages E and F which deal with the liability portion of the homeowner’s policy.