You’re reading our blog because you’re dead set on getting the right insurance at the best price. Well, it so happens that Covered’s primary reason for existing is to help you do exactly that. And that’s why we’re dead set on demystifying any and all aspects of homeowners insurance that may trip you up.
With that in mind, here’s another: What’s IN your homeowners insurance policy? To the untrained eye, it may look like a big, confusing stack of paper. What it really is: a KEY TO EMPOWERING YOU with the information you need to make the best choices about your coverage. And while that’s not the key to Pandora’s box, Alice’s key to Wonderland, or that super-crucial Copper Bones key that showed the Goonies the way to One-eyed Willie’s treasure, it’s still a pretty good key to have in your possession.
We promise it’s not hard. We promise it’s worth the trouble. Why? After reading this blog, you’ll know how homeowners insurance policies are organized (it’s standard across insurers!). You’ll know what’s addressed in each section, as well as the common terminology used. You’ll even understand the basics of what each coverage is for.
Why do you want to know all that? Well, you’ll be able to more clearly understand what you’re looking at as you review your existing policy or compare coverages and quotes on a new policy. You’ll be able to make sure you’re not underinsured. And, even though Covered’s best-in-class UX already makes the insurance-buying process insanely easy, you’ll be one important step further along toward getting the right insurance at the best price.
So, when you lay out any homeowners policy in front of you, what will you see? In overview:
- The policy section — also known as the declarations — lays out the basics of your coverage, including costs, dates, addresses, names, numbers (including your deductible), and definitions.
- Section I includes property coverages related to helping you pay the costs of repairing or replacing covered damage to your home and other property. The standard Section I labels and sections are:
- Coverage A Dwelling
- Coverage B Other Structures
- Coverage C Personal Property
- Coverage D Loss of Use
- Section II includes liability coverages related to qualifying instances of bodily injury or property damage. The standard Section II labels and sections are:
- Coverage E Personal Liability
- Coverage F Medical Payments to Others
- Section I and II conditions include the rights and responsibilities of the insured and the insurer, including duties in the event of a loss.
In the table below, we’ve further broken down each of these standard sections, answering the all-important questions of “What’s this about?” and “What does it do?” That way, you can easily look up whichever aspect you’re still confused about, and skip over anything you’ve already got on lockdown.
Before we dive into the table however, let’s take a brief moment to talk about policy forms. There are indeed several different homeowners forms out there, including the HO-2, HO-3, HO-4, HO-5, HO-6, and HO-8. (Currently, the HO-3 is the most common form used.) Fortunately, they all still follow the same basic structure. For our purposes today, here are the main differences that are helpful to understand:
- Named peril: Some policy forms, including the HO-2, HO-4, HO-6, HO-8, and personal property portion of the HO-3, are “named peril” policies. This means only the specific named perils are covered.
- Open peril: Other policy forms, including the HO-5 and the dwelling portion of the HO-3, are “open peril” policies. This means that all perils are covered, except what’s specifically excluded within your policy.
- Replacement cost: In all policy forms, dwellings are typically insured for replacement cost. This pays for what it will cost to replace your covered damaged property with new comparable goods.
- Actual cash value (ACV): In all forms, personal property is typically insured for actual cash value. This means your old toilet is worth only its depreciated cost… which isn’t going to be much. If you want replacement cost coverage for your personal property, you’ll need to get an endorsement for additional coverage in your policy.
Why does any of that matter? Well, if you’ve got a “named peril” policy, you need to keep an eye on those named perils. If you’ve got an “open peril” policy, you’re looking primarily for exclusions. Finally, in terms of replacement cost vs. ACV, it’s all about understanding what you’re insured for, and whether that works for your stuff. Learn more about the difference between ACV and replacement cost here.
The KEY to Understanding What’s in Your Homeowners Insurance Policy (See what we did there?)
|Section||Subsection||What’s this about?||What does it do?|
|Policy||Agreement||This section identifies the “named insured” (who’s covered by your policy), the insured location, the dates effective, the total cost to you (including your deductible and premium), your policy number, and other basics. It also indicates which discounts and benefits have been applied to reduce your premium.||It limits the scope of your insurance to the people and property you’ve identified and the dates you’ve agreed on. That’s why it’s important to review this section carefully, making sure there are no errors.|
|Definitions||In any legal agreement, certain terms must be clearly defined. This section spells out important terms your insurer wants to make sure you understand.||It makes sure all parties are 100% clear on the meaning of the defined terms. It reduces the potential for disagreements about what certain terms do and don’t mean.|
|Coverage A Dwelling||This coverage is specific to your “dwelling” — the home you live in, which will be the policy’s “insured premises.” It can also cover anything attached to your home, including things like decks or garages.||This coverage can help you pay for repairing or rebuilding your home in the event it’s damaged or destroyed by a named or non-excluded peril. Named or excluded perils will vary depending on the nature of your dwelling and where it’s located.|
|Coverage B Other Structures||This coverage is specific to any other buildings or structures on your property which are separate from your home. So this is where you could cover a detached garage, shed, fence, in-ground swimming pool, gazebo, or even a particularly fancy treehouse or doghouse.||Typically, this provides coverage to repair or replace these structures for the same named perils for which your home is covered. That said, you should closely review your policy to make sure you understand which specific perils are covered for “other structures.”|
|Coverage C Personal Property||This coverage relates to the personal belongings you have in your home — you know, all your stuff. Typically, this means things like furniture, electronics, appliances, and clothing.||If your stuff is damaged by a covered peril or stolen, this may help you pay for repairing or replacing it. Note that some valuables — think furs, jewelry, art, collectibles, and that expensive watch you got for your birthday — may require additional coverage (see below).|
|Coverage D Loss of Use||If your home is damaged to the point that you’re unable to live in it, this coverage kicks in. Loss of use can help cover your living expenses as you wait for your home to again be habitable.||These expenses can include things like hotel bills, excess restaurant bills, apartment rentals, storage or moving costs, parking and transportation expenses, and even pet boarding.|
|Additional Coverages||This section lays out any additional property coverages your policy provides. Insurers offer many different types of additional coverage. What’s right for you depends on your situation and location. Talk to your independent agent to learn about options appropriate for your situation. (In some cases, you may be better off purchasing an umbrella policy or separate policies.)||The range of possibilities is WIDE. It could include a floater covering highly valuable personal property (that expensive watch!), coverage for uncovered perils (e.g., earthquakes or hurricanes), or verbiage about higher limits for certain coverages. It could cover things like computers, smartphones, expenses related to identity fraud, temporary repairs, debris removal, or countless other options.|
|Perils Insured Against||Homeowners policy language is explicit about which perils are covered or excluded. No claims will be paid on any unnamed or excluded perils.||Covered perils vary from policy to policy. Typically, they include damage from fire, smoke, hail, wind, water, lightning, explosions, theft, vandalism, falling objects, vehicles, and the weight of ice, snow, or sleet.|
|Exclusions||If there are perils, property, or situations in which your coverage doesn’t apply, they’ll be outlined in this section. The “open peril” HO-3 and HO-5 policies, for example, will take great care in listing excluded perils in this section.||For example, if you live in an area prone to hurricanes, earthquakes, or fires and you haven’t arranged additional coverage, your exclusions will spell that out.|
|Conditions||This section lays out the rights and responsibilities of both you, the insured, and your insurer. It also lays out what you’re responsible for — your duties — in the event of a loss.||This is legalese designed to make sure both parties understand and agree on their rights and responsibilities. If you don’t complete your duties, your insurer isn’t obligated to provide coverage.|
|Personal Liability||This is for situations in which you are legally responsible for an incident in which a person (someone who doesn’t live with you) was hurt. It could also apply when something or someone you’re responsible for causes damage to someone else’s property (e.g., one of your trees drops a branch on your neighbor’s garage, or your 10-year-old kid breaks your neighbor’s windows). Bottom line, there’s a wide range of situations to which this insurance may apply.||This coverage may help you pay for lawsuits and legal costs resulting from claims for damage for which you’re personally liable. In other words, if someone is seriously injured on your property, it could cover the cost of the victim’s claim for medical bills, lost wages, and rehabilitation costs. This coverage typically has much higher limits (up to $500,000) than your medical payments coverage (see below).|
|Medical Payments to Others||This coverage applies when someone who doesn’t live with you was injured on your property, and you may or may not be legally responsible for their injury. It’s intended to cover small claims only, so its limits are much lower than personal liability.||This can help pay the medical bills of someone injured on your property, regardless of your liability. The idea is to help you avoid litigation resulting from bodily injury or property damage for which you may be liable.|
|Exclusions||This section describes any exclusions particular to your liability and medical payments coverage. Get clear on this exclusion, which applies to everyone: Your personal liability and medical payments coverage does NOT apply to any members of your household who are covered by your policy.||Generally speaking, insurers use this part to make sure your policy doesn’t cover losses covered elsewhere (e.g., by your auto insurance). It will also exclude any losses that you, the insured, expected or intended. (So yeah, don’t be pushing anyone down a staircase, okay?)|
|Additional Coverages||This section lays out any additional liability coverages your policy provides. Again, what’s right for you depends on your unique situation. Talk to your independent agent to learn about options appropriate for your situation. (In some cases, a separate umbrella policy may be the right choice for additional coverage.)||Sadly, we live in a pretty litigious society. As you think about your home, your property, and your assets, where are you vulnerable? Where might more protection be appropriate? For example, if you’ve got dogs or a pool, or you occasionally conduct business in your home, additional coverage may be helpful.|
|Conditions||Just as in Section I, the conditions lay out the rights and responsibilities of the insured and the insurer. It also explains duties in the event of a loss.||Again, this is legalese required to make sure both parties agree on and acknowledge their rights and responsibilities. Make sure you understand what’s required of you.|
|Section I and II Conditions||You’ve totally got this one by now, right? This section spells out the rights and responsibilities of both insurer and insured.||Basically, your rights are ensured if you abide by your responsibilities. That’s just how contracts work.|
As you now know, lucky for us, insurance companies all use standard organization and terminology in their homeowners insurance policies. Once you know what’s what and what’s where, it’s easy to understand your coverage.
The real key we’ve provided you today? Peace of mind that you’re fully capable of making the best decisions possible about your homeowners coverage, getting the right coverage at the best price. It’s a true adulting win. Which means ol’ One-eyed Willie can keep his treasure, right? (Anyway, all those jewels and gold doubloons probably aren’t insured. Let’s be merciful.)
Covered’s insurance experts will be happy to answer any questions or help you find the homeowners insurance policy that’s right for you. Just give us a call at (303) 302-9927 or send us a message.