A Brief Breakdown to Understand Your Homeowners Insurance Policy
From knowing your deductibles, coverage amounts and what’s protected with your home insurance policy, to the factors that determine your premium prices, understanding your home insurance policy is just as crucial as getting home insurance in the first place.
Universal Property & Casualty is here for you in times of need — and to help teach you more about your policy. Let’s jump into a brief breakdown of how to understand your home insurance policy and the terms that come with it.
What Does a Home Insurance Policy Cover?
A home insurance policy covers a multitude of things — from your home’s structure to the items kept inside and from the financial wellbeing of your family to dire straits if your home is destroyed. There are six different coverage types in many policies and the one thing each category has in common is that a covered peril must occur for any of them to kick in.
A covered peril is something that causes damage or destruction and is covered by your policy, so it could be a hurricane, hail storm, house fire or several other instances. However, if caused by negligence or an uncovered peril, home insurance won’t kick in.
• Dwelling (Coverage A) :Coverage for your dwelling is arguably the most important piece of a home insurance policy since it directly covers your biggest investment and the things that help to create it. It covers the structure of your home, which includes the windows, flooring, roof and so much more that makes your house what it is.
• Other Structures (Coverage B) :Like dwelling coverage, other structures coverage pertains to homeowners and landlords who have structures on their property that aren’t directly connected to their home. These structures can include fences, sheds, carports, detached garages and things of that nature built on the property.
Other structures coverage is typically 10 percent of your home’s total dwelling coverage. So if you have $200,000 in dwelling coverage, Coverage B would max out at $20,000 per claim. In certain cases, UPCIC does allow a policyholder to increase maximum coverage amounts in certain cases.
• Personal Belongings (Coverage C) :Coverage for your personal belongings is exactly what it sounds like: coverage for items that help make your house a home. This coverage extends to things like electronics, furniture and even your clothes and bed.
Since everybody owns personal items, Coverage C is found in all home insurance policies. There are two types of personal belongings coverage you may get: actual cash value or replacement cost.
Actual cash value factors in depreciation of your items, so a 10-year old laptop you bought for $2,000 would not be worth that amount if it were destroyed by a covered peril. Since the payouts are less money, it doesn’t cost as much to enroll in this coverage.
Replacement cost coverage will cost you a little more, but it may be worth it if you go through a significant loss. It covers the entire amount you purchased your items for. So even though that $2,000 computer is 10 years old, you’d likely still get $2,000 to replace it if it were damaged or destroyed by a covered peril.
• Loss of Use (Coverage D) :Loss of use coverage kicks in during dire straits if your home is damaged or destroyed and is deemed uninhabitable, which means you must temporarily move out while it is being repaired or rebuilt Certain cases, like being forced to leave by civil authority due to a nearby gas leak or another circumstance, may also be covered.
Coverage D provides reimbursement for extra living expenses in those incidents, such as rent for an equivalent home or hotel, storage fees, pet boarding, increased food bills and things like that while you’re unable to live in your home.
Loss of use usually has a cap of 20 percent of your dwelling coverage per incident, so if your dwelling coverage is $200,000, loss of use would likely be $40,000 per claim. Covered is limited to a certain number of weeks, so it’s best to review your policy for additional info.
• Personal Liability (Coverage E) :Personal liability coverage typically has the largest dollar amount of coverage per incident, and that’s for good reasons. It’s designed to provide coverage if a claim is made against you/an insured due to bodily injury or property damage arising from a covered occurrence.
Policy limits typically begin at $100,000 per incident, but it’s not uncommon to maintain higher coverage limits in certain cases. For instance, homeowners with dogs, pools, trampolines and other attractive nuances should increase their coverage because they’re more likely to file a claim. For third-party claims such as these, limits can be increased to prevent seizure of assets.
• Medical Payments (Coverage F) :Medical payments coverage is similar to liability coverage, but there are two key differences. It’s only used for small claims (and coverage is usually only up to $5,000 per incident), and it doesn’t matter if the policyholder is found liable for injury or not.
Coverage F is designed to help pay for small medical bills, such as doctor visits, X-rays, physical therapy and general follow-up visits. It can be used in conjunction with the injured’s health insurance policy to offset the costs of medical attention.
Which Factors Determine the Cost of a Home Insurance Policy?
Now that we’ve determined what types of coverage are available in home insurance policies, let’s get into the most common factors that determine or affect the cost of home insurance policies.
1. Coverage Limits
The major factor in determining your home insurance premium prices is the coverage limits you enroll in. Those people who want to insure the structure of a $400,000 home are going to pay more than someone who’s purchasing coverage for a $200,000 home.
In addition, people with $40,000 worth of personal belongings will surely pay more than those people with $20,000 worth of personal belongings. This is because there is more risk involved for insurance companies when the limits are higher.
Your deductible plays an important factor in determining the cost of a home insurance policy because it’s the amount of money the policyholder must meet before their insurance company steps in to help with the remaining qualifying costs. So if a covered claim has been filed and approved for $2,000 on a policy with a $500 deductible, the policyholder will then receive $1,500 to cover costs since the deductible has been subtracted from the total loss.
Someone with a $1,000 personal property deductible is going to pay less in premiums than someone with a $500 deductible because their insurance company is retaining more risk if a claim were to be filed. It’s always a good idea to look over your policy once a year and determine deductibles that make sense for your individual needs.
3. Types of Coverage
As we previously mentioned, people enrolling in replacement cost coverage will pay a higher premium than those enrolling in actual cash value because the latter includes the depreciation of their personal items and the former pays the amount that the item was purchased for — even if it was purchased 10 years ago.
In addition, homeowners enrolling in actual cash value coverage may not be reimbursed for the entire value to rebuild their home, while those homeowners enrolling in replacement cost coverage will receive help to rebuild or repair their home to its original condition before a disaster.
4. Factors of Residence
Homeowners with a brand new roof will pay less in premiums than those with older roofs because there is less of a chance the roof will get damaged and a claim will be filed. On the opposite side of the spectrum, those policyholders with older HVAC and plumbing systems will likely also pay higher premiums than those policyholders with newer systems and appliances.
You’ve probably heard the saying “location is everything,” and it holds true in the world of home insurance as well. Each state faces its different disasters. Florida is prone to hurricanes. California is prone to wildfires. The Midwest is prone to tornadoes. The Northeast is prone to winter storms.
Each natural disaster has its own problems and those renting or buying in those areas will have to pay to ensure their home and belongings are safe and secure. In addition, policyholders who live near a fire hydrant or fire station may pay lower premiums because there’s more of a chance a home fire will be put out quickly.
At the heart of every home insurance policy is the discounts, which can help policyholders reduce the overall cost of premiums. A person who has installed a centrally monitored security system in their home is taking an active approach to deterring thieves from breaking in and stealing their belongings. They may be rewarded with a discount because it lessens the risk of filing a burglary claim.
Closing Thoughts to Remember About Your Home Insurance
Knowing the ins and outs of your policy could be the difference between properly insuring your home and belongings or potentially having to pay a significant sum out of your own pocket if you were to suffer a catastrophic claim.