Your Homeowner’s Insurance Policy Made Simple

The HO3 policy consists of six basic coverage amounts followed by endorsements that allow you to customize a policy for varied personal situations.  Endorsements are additional coverage amounts for items that do not fall within six major policy elements.  These six basic coverage amounts are named:

A – Dwelling

B – Other Structures

C – Personal Property

D – Loss of Use

E – Liability

F – Medical Payments

Coverage A – This is also called “Dwelling A” and represents the amount of insurance on your home.  The value of Dwelling A does not take into account the land under the home.  It defines what it would cost to replace your home should it be completely destroyed.  The insurance companies rely on their agent to run an automated Replacement Cost Estimate (RCE) to determine Dwelling A.  If you feel your agent has determined a low RCE, then be sure to tell your agent about upgrades you’ve made to your home.  Things like granite counters, custom millwork, and upscale fixtures; these all make your RCE higher.  Although the HO3 policy is an all-risk, replacement cost policy, the insurance company will not pay more than the RCE or Dwelling A coverage – it’s their cap.

Coverage B - Other Structures are barns, sheds, guest houses, and the like.  Many people are under the misunderstanding that pools and screened enclosures are “Other Structures.”  They are NOT.  While an in-ground attached pool is covered as part of the home, the screened enclosure is often a structure that requires an endorsement (additional coverage amount).  There are VERY few insurance companies that include screened enclosures as part of Dwelling A.

Coverage C - Personal Property.  Here is the part of your homeowner’s policy that insures your personal items – your furniture, appliances, clothing, etc.  The coverage amount is determined as a percentage of Dwelling-A.  The amount is left to the homeowner to decide whether they want 25% or 50% (sometimes an amount in between) of Dwelling-A established as their personal property value.  The amount is “in addition” to Dwelling A.  Most insurance companies default to 50% when quoting a new policy.  This is a potential area where you can save money if 25% adequately covers the replacement of your personal property. 

Whether your Personal Property coverage amount is 25% or 50% of Dwelling-A, most insurance companies insure personal property as “actual cash value” or ACV.  Actual cash value is not replacement cost and subject to depreciation.  It often takes an endorsement to change from ACV to RC (replacement cost).  The endorsement is well worth the additional premium (cost) to eliminate the insurance adjuster telling you that your destroyed furniture is worth pennies on the dollar.  Get the replacement cost endorsement on personal property.

Coverage D - Loss of use.  OK, let’s say that a storm destroys your home and you have to live elsewhere until your home can be occupied again.  “Loss of Use” is the coverage amount that pays for this contingency.  The value is a default set by the insurance company and not a number you can request.  It is often 10% of Dwelling-A, but may be slightly different among varied insurance companies.

Coverage E - Liability.  This amount covers the homeowner for contingencies beyond the loss of their home.  Most homeowner policies provide a minimum of $100,000 in personal liability coverage, meaning the insurance company will pay up to the total to injured persons per accident. If you feel you need more protection, you can increase this amount to $300,000, or as even as high as $500,000.

Coverage F - Medical Payments.  This element of your homeowner policy is designed to pay for medical expenses to others who are accidentally injured on your location or by your activities.   You are covered for the neighbor who comes to a dinner party and walks through your glass sliding door and ends up with a slight injury.  Typical coverage amounts are $1000, $3000, or $5000 per accident.

That’s it – plain and simple.  Of course, you should give me a call to customize endorsements for antiques, guns, jewelry, furs, etc.  Of course, quotes are always free!