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HomeOwner Insurance Coverage - General

Coverages Explained / Premium Surveys / Complaint Records
By J. D. Howard

Insurance Consumer Advocate Network, LLC, Schools - Business & Vocational, Springfield, MO

Glossary of Terms  •  Coverage Explanations  •  D.O.I. Surveys / Records  •  More Info

Chances are, the first time you purchased HomeOwner's Insurance was when you purchased your first home. The realtor may have called upon an agent with whom they had a relationship and that insurance agent provided the title company with a policy that met the criteria of the mortgage company. A portion of the closing costs you paid covered the first year insurance premium, as well as a two-month head start on the next year's premium. Since then, you have probably been paying 1/12th of your annual HomeOwner's Insurance premium with each monthly mortgage payment. If your HomeOwner's Insurance premium is higher than it needs to be . . . your mortgage payment is higher than it needs to be. Too many people are paying too much money to the wrong insurance company for the wrong coverage. That will only disappoint them when they eventually have a significant claim. It is our hope that you will be able to take what you have learned here and reduce your annual premium (and your mortgage payment), as well as acquire the proper coverages that meet your specific needs from an insurance company that can be relied upon for good service.

This chapter of the I-Can Web site is going to give an overview of some typical HomeOwner's Insurance coverages, as well as some exclusions and limitations that can impact your recovery when you have a claim. This should help you identify what changes you may wish to make in your present HomeOwner's policy.

At the end of the Coverage Explanation section there will be a link to the Web site for the Department of Insurance for all 50 states. Most State Departments of Insurance conduct HomeOwner's Insurance Premium Surveys and make the results of those surveys public, along with their departmental records showing the rate of consumer complaints filed against which insurance companies within their state. This should help you identify some insurance companies you may wish to do business with (and some you will want to avoid).
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Glossary of Terms

For purposes of this discussion, the following will be based upon the most common of HomeOwner's policies . . . the Standard Bureau Form "H/O III" or the "special form" equivalent there of. As a preface to this discussion, you will need to understand a few terms (and abbreviations) that will be used herein.

All Physical Loss (APL):
Property covered on an APL basis means that property is covered against damage from Any-and-All perils EXCEPT those perils that are SPECIFICALLY EXCLUDED by the policy (act of war, flood, public domain, wear and tear, drain backup, earth movement, nuclear hazard, etc.).

Named Peril (NP):
Property covered on an NP basis means that property is covered against damage ONLY if the damage is the result of a specifically named peril (wind, rain, fire, vandalism, falling objects, etc.).

Actual Cash Value (ACV):
The maximum potential payment the Insurance Company will make for damage to covered property is based upon the ACV (or depreciated value) of the property at the time of loss. Example:  Two years ago you paid $500.00 for an item. That item had a reasonable life expectancy of ten years. You have already received two years (or 20%) use of that item when it was damaged. That item (or a comparable equivalent if that item is now out of production) currently sells for $500.00 new. Based upon ACV Coverage, the most you would collect is $400.00 ($500.00 less 20% depreciation).

Replacement Cost Value (RCV):
The maximum potential payment the Insurance Company will make for damage to covered property is based upon the current cost to replace the property with NEW comparable property (no depreciation). Example:  Two years ago you paid $500.00 for an item. That item currently sells for $500.00. Based upon RCV coverage, the most you would collect is $500.00 (no depreciation).

Declarations Page (Dec Sheet):
This is the single page form that is attached to the actual policy on which appears policyholder information such as insured name and address, mortgage company name, address and loan number, policy number, inception and expiration dates, coverages, premium charges, endorsement forms, etc.

A separate written form attached to the basic policy that changes some of the terms, conditions, limitations or exclusions that appear in the basic policy contract.
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Coverage Explanations

HomeOwner's Insurance Policies are "package" policies providing multiple forms of insurance to protect the Insured against multiple possible causes of loss. The HomeOwner's Insurance Contract package includes two primary forms of insurance:

  1. Property Insurance
  2. Liability Insurance

INCLUDED IN THE PROPERTY SECTION of your HomeOwner's Policy is coverage to protect your property against loss or damage, as well as coverage to protect your household budget against increased expenses that could be incidental to the insured property having sustained a covered loss. Coverages with the "property" section of your HomeOwner's Policy are typically referred to as Coverage(s) "A", "B", "C", and "D". These coverage designations breakdown as follows . . .

  1. Coverage "A":  This insurance covers your main dwelling structure and all permanent attachments thereto. Coverage "A" is usually All Physical Loss (APL) and is based upon Replacement Cost Value (RCV).

  2. Coverage "B":  This insurance covers other structures on your same property that are NOT permanently attached to your dwelling (fence, storage shed, gazebo, pool, etc.), as well as landscape components (trees, shrubs, grass, sprinklers, decks, etc.). Coverage "B" is usually All Physical Loss (APL) and is based upon Replacement Cost Value (RCV), except trees, shrubs, plants and lawns, which would be covered on a Named Peril (NP) basis. Coverage "B" will NOT usually cover separate structures on your premises that are "intended for use" or are actually used "in whole or part" for business purposes. If this presents a potential problem for you, ask your agent to "endorse" your policy to extend this coverage or contact one of our "I-CAN" Local Agents.

  3. Coverage C:  This insurance covers your personal property, which can be loosely defined as "anything you own which is not a permanent part of your dwelling, out buildings or land (clothes, furniture, jewelry, paintings, appliances, etc.)". Coverage "C" is usually Named Peril (NP) and is based upon Actual Cash Value (ACV). Some insurance companies are now starting to offer All Physical Loss (APL) and even more are offering Replacement Cost Value (RCV) on Coverage "C" of their HomeOwner's policies.

    Whether Coverage "C" on your HomeOwner's Policy is based upon All Physical Loss (APL) or Named Peril (NP), Actual Cash Value (ACV) or Replacement Cost Value (RCV), most basic HomeOwner's policies include coverage "limitations" that apply to certain classes of personal property.

    Following are listed some types of personal property and the typical coverage limits that could apply . . .

    1. Any personal property:  while away from premises - $1,000.00
    2. Artwork:  varies greatly (low limits to no limits) - check your policy
    3. Business property:  (not including electronic data equipment) - $200.00
    4. Electronic data equipment:  (on premises only) - $5,000.00
    5. Firearms:  $1,000.00
    6. Jewelery:  including furs, precious and semi-precious stones - $1,000.00 to $2,500.00
    7. Manuscripts:  $1,000.00
    8. Money:  medals, precious metals - $100.00
    9. Passports:  securities, stamp collections, tickets - $1,000.00
    10. Trailers:  (not used with watercraft) - $1,000.00
    11. Watercraft:  (including equipment, motor and trailer) - $1,000.00

    Having adjusted HomeOwner's Claims for many years, it always bothered me that I was the one who had to explain COVERAGE LIMITS to the insured after a loss had already occurred. This should have been explained by the agent (and endorsed if necessary) when the policy was purchased. The insured was ALWAYS DISAPPOINTED (to say the least) when they learned about COVERAGE LIMITS the hard way.

  4. Coverage "D":  This is the insurance that protects your household budget. It is typically referred to as Additional Living Expense (ALE) or Loss-of-Use Coverage. In the event you should have a covered loss that renders your home uninhabitable, you would have to incur the expense of relocating to a temporary substitute residence while your home is being repaired. The extra expense you would incur for this temporary relocation would be reimbursed to you under this coverage. This would be a dollar-for-dollar reimbursement and would not be subject to ACV or RCV conditions.

Included in the Liability section of your HomeOwner's policy is Liability and Med-Pay Coverage. Liability insurance pays to others who may sustain a Bodily Injury while on your property due to some negligence (an act or failure to act) on your part for which you may become legally liable. Med-Pay Coverage also pays to others who may sustain an injury while on your property whether you are legally liable (at fault) for the injury or not. While Liability Coverage would pay for medical expenses, lost wages, pain and suffering, etc, Med-Pay Coverage would simply reimburse the injured "visitor" for necessary medical expenses incurred in treatment of their injury.

Some HomeOwner's policies may EXCLUDE coverage for Liability arising out of a business or profession. If you are operating a business or profession out of your home, you need to check with your agent to verify that your clients would be covered if they were to sustain an injury while at your home. If your existing HomeOwner's policy does not provide this protection, have your agent endorse your policy to cover this potential liability. If your present insurance company will not provide this coverage . . . GET ANOTHER INSURANCE COMPANY!

Typical Liability / Med-Pay Coverage limits are $50,000 / $500. However, if your property has an increased "risk" (such as a swimming pool), we suggest increasing these limits to at least $100,000 / $1,000. Check with one of our "I-CAN" Local Agents for other possible recommendations to address your specific situation.
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D.O.I. Surveys / Records

You should now have a basic understanding of HomeOwner Insurance Policy Coverages. Suggestion:  dig out your current HomeOwner's Insurance policy and review it in light of what you have learned here. You may have some deficiencies you will want to address IMMEDIATELY!

Now that you know WHAT you want, it's time to decide WHERE you will buy it. To assist you in making that decision, we suggest you check out the "HomeOwner Premium Comparison Survey" and the "Personal Lines Complaint Ratios" on record at your State Department of Insurance. Most of the state Departments of Insurance have Web sites. When you get there, key on the "Consumer Publications" option. That will allow you to access the HomeOwner Premium Comparison Survey and the Personal Lines Complaint Ratios. While you are there, do a little "surfing". You just might find some other things of interest. If your state Department of Insurance does not have a Web site, there will be an address and phone number where you can reach them. Contact them directly and request their "Consumer Publications" that will provide you with their "HomeOwner's Premium Comparison Survey" and "Consumer Complaint Ratios".
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More Info . . . Specific to My State

The Free Information shared with you here is general in nature and has been provided in the hopes of making you a more informed consumer . . . and a better negotiator. If you would like to discuss your situation in greater detail we suggest you contact local help, or contact us directly. Though we will not provide legal advice, we may have some additional general information that could be helpful.

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