That’s what I’m proposing you do now. Take out your insurance policy and read it. It will take no longer than 30 minutes and might save you thousands of dollars and hundreds of hours.
FYI… insurance is regulated by each state. It isn’t uniform throughout the U.S. Therefore, the wording or language might be different in your policy. The goal of the post is for you to understand the basics of a home policy.
Reading Your Homeowners Policy
The first section of your homeowners policy is your declaration’s page. The declarations section is where you need to double check important facts.
- Deductibles - Is this the deductible that you feel comfortable with?
- Discounts/Credits – Are there any discounts that are missing?
- Limits - How much are you covered for?
- Location – Double check that the policy lists the correct address.
- Mailing Address – Your insurance carrier will send you important notices through the mail. Your location address and mailing address can be different. Select the mailing address of mailbox you most frequently check.
- Policy Period – Most policies are for 1 year.
- Premium – Is the premium what you were quoted?
- Rating Information - Is this information correct?
If anything is wrong, immediately call your insurance agent or carrier.
Sections of a Homeowners Policy – Section I
While reviewing your coverage’s, it’s important to look at your limits. The most important limit is Coverage A. Coverage A is the coverage for the replacement cost of the house, attached structures, and building materials. Typically, coverages B, C, and D are calculated by taking a percentage of coverage A.
- Coverage A – Dwelling – Your dwelling is your home including any structures attached. Is your home insured to its replacement cost and not its fair market value? If you have an insurance agent, ask them to prepare a replacement cost estimator.
- Coverage B – Other Structures – Any structure on the premises that is not attached to the dwelling. Most likely, this is coverage for a detached garage or a shed. The limit on other structures is usually 10% of the limit on coverage A.
- Coverage C – Personal Property – Covers your belongings or property not attached to the home. This is coverage for furniture, clothes, electronics, etc… Many exclusions and endorsements apply to coverage C like jewelry, collections, and cash, Therefore, make sure to review and understand what is and isn’t covered. The limit on personal property is typically 50% of coverage A.
- Coverage D – Loss of Use – If a loss occurs that makes your house unlivable, insurance will cover additional living expenses up to a certain limit. The limit is typically 20%.
Sections of a Homeowners Policy – Section II
Coverage E - Personal Liability – If you’re sued for causing “bodily injury” or “property damage” you have limited coverage through your homeowner’s policy. The minimum amount of coverage is $100,000.
Coverage F – Medical Payments to Others – Your insurance carrier will also pay a small amount of medical payments to others if you were personally responsible for the injury.
Sections of a Homeowners Policy – Exclusions
You might be surprised by examining the exclusions of your homeowner’s policy. Here are a few typical exclusions on homeowner’s policies:
- Flood including sewer backup
- Act of War
Sections of a Homeowners Policy – Endorsements or Riders
For the best protection, many people need to customize their insurance policies. To customize they might add an endorsement or rider. Endorsements and riders override any other conflicting terms in the policy. For example, an exclusion might have excluded sewer backup from being covered, but an endorsement can add the coverage back into the policy.
Common items that need an endorsement or rider are:
- Water backup
- Debris removal
- Collections including coins and art
Sections of a Homeowners Policy – Additional Charges and Fees
If the insurance company will charge you anything other than the premium listed, it must include the charges in the policy. The most common type of charge will be billing charges, but review for any other miscellaneous charges.
Sections of a Homeowners Policy – Claim Information
Review the actions you need to take if you ever need to file a claim. Following the instructions from your insurer, is your best chance to get efficient and effective service.
Reviewing your policies and statements, especially insurance (auto, life, home, renters, etc…) is a great financial habit. The wording might put you to sleep, but you will never be surprised by what is and isn’t covered.
If there is anything you don’t understand, immediately contact your agent or the insurer.
After reading your policy, in the comments below list anything you learned from reading your policy.