Understanding Home Insurance

Over the last couple of weeks we’ve done posts to (hopefully) explain the basics of Auto and Life insurance. Today we’ll discuss homeowner coverage.

A home insurance policy is broken down into six parts (A, B, C, D, E & F) but what do they all mean?

Read on to find out…..

Section A: Dwelling. This is everything under the same roof–living and non-living square feet. Example your home is 2000 sq. ft. and you have a 400’ attached garage plus a 5’ breezeway connecting an 10 x 12 storage room – all under the same roof. These are all covered under section A or the “Dwelling” portion of your policy.

Section B: Other Structures: Picture the above scenario only the garage, covered walkway, nor storage room are attached or under the same roof. You have the home (dwelling) an unattached garage (or carport) and an unattached shed. These items would be covered under section B or “Other Structures” portion of your policy. This coverage is normally 10% of your dwelling coverage, however it can be increased.

Section C: Personal Property/Contents. This section is where the contents of your home (appliances, furniture) and personal property (clothing, jewelry, etc.) are covered. Standard contents coverage is 40 or 50% of the dwelling coverage, but can also be increased. Certain items like firearms, jewelry, and art have limited amounts of protection, but can be increased with a Scheduled Personal Property endorsement – sometimes itemized and sometimes a blanket increase.

Section D/E: Loss of Use/Additional Living Expense. If your home is uninhabitable as the result of a covered loss, this section of the policy will pay a specified amount to help with expenses to live elsewhere until the home is repaired or replaced. I put these two (D & E) together because not all policies have both. Some will list Loss of Use while others list Additional Living Expense and still, others have both options.

Schedule F: Liability. This is the most confusing of all coverages. Property Liability has two parts: Bodily Injury pays in the instance someone is injured on your property or due to some fault of yours off premises. Example: Your friend falls off the roof while helping your make repairs OR your dog bites a child at the city park. Property Damage would pay in the case of you mowing the lawn and damage a neighbor’s fence. This coverage does not cover injuries to your or your family members that live in the house. Nor does it pay if you damage your own fence while mowing the lawn. However, some companies offer the option to purchase “extended” liability coverage that will.

Now let’s talk about Replacement Cost and Actual Cash Value (ACV). You may find these terms within your home owner policy and they can be confusing. The simplest explanation is this:

An Actual Cost Value (ACV) policy will pay the actual cash value to replace your home less depreciation. Example: To rebuild your home after a total loss the cost is $100,000 but with the depreciation deduction, the policy will only pay $85,000.

Replacement Cost is the actual cost to repair or replace the home without considering depreciation. Policy usually pays up to 125% of dwelling coverage. Example: The original building cost of your home was $85,000. If you have replacement cost on your policy, it will pay up to $106,250 to rebuild your home after a covered loss. Although some people have been able to improve somewhat upon their previous structure, this feature is not designed to upgrade your home. It is designed to replace the home with “like and kind quality” (materials, design, etc.)

Both of these are based on the specified policy face amount(s) for dwelling and/or contents. You may have RC on dwelling but ACV on contents. For more information check our FAQ and/or talk with your agent and review your policy on a regular basis so that you understand the ins and outs of your policy. 

If you’re not sure what your home insurance policy covers or you’re in the market for a new policy, give us a call. We’d love to help you out! 

Until next time take care and remember: A Homeowner policy does not cover “rising water” or flooding! You need a separate flood policy for that.

Tommy Curtis and Staff