How Well Do You Know Your Homeowner Insurance Policy?
If you own a home and have a mortgage, you have a homeowner’s fire insurance policy. It’s a requirement.
But how well do you actually know your home insurance policy?
There are different types of homeowners policy, which cover different aspects of the home and/liability of your home premises. Some policies provide more coverage than others and have minimum coverage requirements.
A few things to make sure you about your home is how you will be paid if it is damaged or destroyed, coverage for personal property, and any special deductibles or exclusions that may be applied at the time of a loss.
1. Actual Cash Value or Replacement Cost
There are two types of ways you could be reimbursed for damage to or destruction of your home, actual cash value or replacement cost.
It is important to understand the differences because depending on the type your home insurance policy pays will make a difference in the amount of money you receive in a loss.
Actual cash value is the value of property minus a depreciated amount. This means that the value of your dwelling is reduced. According to IRMI, actual cash value is calculated in 1 of 3 ways. The first way is simply repairing or replacing the damaged property minus the depreciated value of the home or property. The second way is based on the property’s fair market value. And the third way is the broad evidence rule, which uses evidence and circumstances that are determining factors to damaged property.
On the other hand, your home may be covered using replacement cost for damaged property. This form of payment for a loss is much easier to calculate and determine, but comes at a higher premium of coverage. IRMI explains that replacement cost is simply the replacement of property with like kind and quality of items.
2. Full, Limited, or No Content Coverage
Just as important as knowing how you will be paid for your property, it’s important to know if your contents will be covered.
Depending on your type of policy, you may or may not have property coverage. In the case of a loss, you do not want to be unsure of your coverages or even more upset because you thought contents were covered, but are not.
In addition, some items such as jewelry, fire arms, cash, and others may have special limits below your overall content coverage limits. If you have jewelry or fire arms that are more valuable than the covered limits, you would not be fully reimbursed for your loss. To help in these situations are specialty policies that can cover your specific item needs such as an engagement ring, wedding rings, or family heirloom gun. If you are unsure if you need one, it may be of interest to you to ask your agent about a specialty policy that covers those items and if it would benefit your needs.
3. Special Deductibles or Exclusions
In addition to getting paid for your losses and knowing how your contents are covered, you should also pay close attention to any special deductibles and/or exclusions.
Based on the location of your home, you could have a higher chance of having specialty deductibles or exclusions. For example, those along the coast could have higher windstorm and hail deductibles or named storm deductibles due to risk of hurricanes. Depending on how close to the coast you are, your home insurance policy may actually exclude windstorms and hail or named storms. Not having these coverages or having higher than expected deductibles could be an additional devastation during a storm or loss.
Other types of exclusions that you may be unaware of could be based on premises, animals, natural disasters, home offices and more. Exclusions based on premises could be an exclusion of a pool with a slide or diving board; it could also be any pool or trampoline. Animals could be excluded all together or it could just exclude an aggressive breed of animal from the insurance policy. An additional natural disaster that may be excluded on your home insurance is earth quakes. Another exclusion that many insurance policies have is limited or excluded coverage for businesses on the premises.
Knowing the how you will be paid during a loss, what contents are covered, and any special deductibles and exclusions are some of the many things in a home insurance policy.
So, how well do you really know your home insurance policy? Are you going to be securely covered if the time comes?
Take out your policy booklet and review it or give your agent a call today to discuss your home insurance coverages and find any gaps in coverage you may have.