How to Read a Homeowners Insurance Policy

Admit it.  You’ve probably never read your homeowners insurance policy.  I didn’t when I purchased my first home.  I assumed my agent had me covered, considering what I paid.   So let’s take a look…

The basic “HO” policy for a 1-4 unit owner-occupied home consists of two sections, property and liability, which are broken down further into coverage categories.  There is, of course, much more detail in the “fine print,” but we are taking a 35,000 foot view here.

Section 1- Property Coverage: This section will help you understand what property is and is not covered.  As discussed above, the sections are broken down into easier to understand categories.  There are separate categories because different coverage has varying basic limits for losses.

Coverage A- Dwelling – this section covers your home as the residence premises, and any attached structures, which may include your garage or a deck that is attached to the house.

Coverage B – Other Structures – You guessed it!  This coverage details the structures NOT attached to your home.  This might be your shed or unattached garage.  This is also where your pool is listed.  As long as the “structure” is clearly separated from the home, it falls under this category.

Coverage C – Personal Property – This category details the basics of coverage for your “stuff.”  This coverage is not limited to your property while it’s in your home.  Your property is covered anywhere in the world.  It’s worth noting other people’s “stuff” is insured while on your residence premises as well.  Finally, you may insure the “stuff” of a residence employee or a guest anywhere you’re staying.  Meaning, if you rent a summer cabin, and your friend’s gas grill is stolen during your stay, your homeowners policy will cover it (Learn more about contents insurance).

Coverage D – Loss of Use – This coverage is a little different than the others.  It doesn’t specifically cover a type of property, rather the expenses you incur as a result of damage to your property.  If your house burns down, you’ll need to stay somewhere while it’s being rebuilt.  You’ll also be given some money for additional living expenses, such as the cost to eat out every night versus eating at home (the difference between the two, not the whole cost).  If you own a multi-unit home and one of the units you don’t reside in is damaged, you’re also reimbursed for the fair market rental value while not receiving income (less the absence of expenses while the unit isn’t being rented out, such as lawn care and paid utilities).

Additional Coverage – There are a host of possible additional coverage options available (types of homeowners insurance).  Once you’ve made yourself comfortable with the basics listed above, you may want to take a look at what additional coverage you have, and what you think you may need.

Section 2 – Liability Coverage: This section of your HO policy covers damages to people versus property.  A good way to differentiate between the sections is to think of Section 1 as insurance for the property of the person listed on the policy, while Section 2 is reserved for those not listed on the policy.  Section 2 can also be referred to as your “slip and fall” coverage.

Coverage E – Personal Liability – This section explains circumstances in which your insurance company will defend you in court against claims and pay the claims of other people if you’re found to be liable (at fault) for their injury.  It’s important to note that anyone considered an insured for liability coverage on the policy is not entitled to money from this coverage.  Meaning, if your cousin Tom, who lives with you, is bitten by your dog, he cannot receive money from your insurance company under Coverage E.

Coverage F – Medical Payments (to others) – This section describes the expenses covered for reasonable medical care to people who are not insured under the policy.  Examples include, but are not limited to, ambulance, hospital, and surgical expenses.  The difference between Coverage E and Coverage F is that Coverage F can make payments to individuals when the insured is not necessarily “at fault” for the accident.  If your neighbor’s son breaks his leg while running down the stairs in your home, Coverage F would provide, up to the coverage limit, reimbursement for the medical expenses.  If your neighbor ended up suing you for $100,000, claiming your wood stairs were too slippery, we’d be dealing with Coverage E because the neighbor is claiming the accident was your fault.

Please note that there is a difference between Med Pay for an auto insurance policy and a homeowners policy.  In the auto policy, medical payments cover anyone in the car who is injured, including people insured on the policy or first party, whereas medical payments on a homeowners policy only go towards people not insured on the policy, often referred to as third-party coverage.

As discussed previously in this article, not all homeowners policies are the same.  Remember that every policy is different and this information should only serve as a guide.  Please contact your insurance company or independent insurance agent to verify your coverage types and limits.  It is generally recommended to have the most extensive coverage types and limits you can afford to avoid catastrophic personal losses.

Tip: How much homeowners insurance do I need?

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