Understanding how different types of Homeowners Insurance Coverage types work is very important in making an intelligent choice of an insurance policy to protect your valuable asset – your home. We often mistakenly think the mere fact that our property is insured guarantees extensive protection against all or almost all the risks. But in the event our home is damaged or destroyed we come to realize and have to accept that our coverage is not enough even to make up for the greater part of the expenses associated with rebuilding or repairing the dwelling, to say nothing of the personal property. That is why the first step to take when choosing a suitable coverage type is to understand the fundamental differences among the available options.
The Coverage A section of your Homeowners Insurance, known as Dwelling Coverage, offers protection against direct physical damage caused to the dwelling, including rooms, fireplaces, carpeting, tile floors and elements of decor. Structures, which are attached to the insured dwelling on the same foundation, such as a garage, are also liable to coverage under this section of your Homeowners Insurance. Besides, this section of your policy covers materials and supplies necessary to rebuild or repair your home.
It should be noted that structures which are part of your property but are not attached to your house are usually liable to the Coverage B section of a Homeowners policy, entitled Other Structures, which is typically limited to 10% of your Dwelling Coverage amount. Among the structures which are covered under Coverage B are detached garages, gazebos, patios, swimming pools, storage sheds, barns, guest houses, sidewalks, driveways, fences, etc. The risks against which you are protected with Coverage A and Coverage B are basically the same, but the conditions are different.
To furnish the details, it is necessary to outline the covered perils. Dwelling Coverage provides protection against such risks as fire and lightning, explosions, windstorms, hail, snow, damage from smoke, in some states – tornadoes and hurricanes, vandalism, freezing of plumbing and overflow from your plumbing, damage from vehicles, falling objects and, possibly, other damages stipulated in your policy.
The part describing the risks Dwelling Coverage embraces basically does not differ much from policy to policy. Yet sometimes there can be quite noticeable variations concerning the perils covered. For example, in the states where the risk of a hurricane is higher, protection against this peril will be available only by endorsement. Thus, the extent of coverage can vary depending on the state, the insurance company and the particular product offered.
If you are seriously interested in Dwelling Coverage, it is of paramount importance to determine what occasions and perils are excluded from it. Coverage A usually does not apply to exterior walls which do not support the roof of the house, fences and the piece of land on which your house is located. Dwelling Coverage typically does not cover damage resulting from floods, earthquakes, or any type of earth movement. Neither does it cover damage resulting from war or nuclear hazard. If you need protection against these perils, it can be available in the form of additional policies or endorsements. It makes perfect sense to review the policy limitations and choosing necessary additional policies to ensure that your personal property, whatever it is, is not depreciated. All the limits of coverage and optional coverage types are stated on your Declaration Page which you receive at the annual renewal of your policy.
When it comes to extra policies extending the coverage, sometimes they can be incorporated in the policy or they can be offered to the consumer for a separate price. The latter case has become increasingly common: on average, an optional coverage for perils is purchased as a supplement to a Homeowners policy. It is often recommended to add the extended replacement cost coverage to your policy as it will provide you with coverage above the usual dwelling coverage limits stated on you Declaration Page. But in the long run it is up to you to decide what additional protection, if any, is necessary for your home taking into account all the determining factors.
On another note, it is important to know at least the basics of how your Dwelling Coverage works. Your insurance contract does not only specify the coverage available under “dwelling”, but it also reflects a dollar amount you will be paid in the event of a loss to your home. Ideally, the limit amount of Dwelling Coverage should compensate for the cost necessary to rebuild or repair the dwelling in the event of a loss, which leads us to one more factor important for Dwelling Coverage. It is whether your coverage is designed for replacement value or for cash value.
The principle difference lies in the fact that if your coverage is for replacement value, the insurance company reimburses the replacement cost of your home, whereas in case your coverage is for cash value, the company will pay only the actual market value of your home. To illustrate this difference with figures, if your home, evaluated as worth $100,000, is destroyed and it costs $125,000 to rebuild it, you will receive $125,000 with a replacement value policy, but only $100,000 with an actual cash value policy. As it is seen from the example, it is advisable to insure your home to its full replacement value. But when making a decision you cannot but think about your financial opportunities which may limit you to the cash value policy.
Another tip for you is to see to it that the Scope of Loss is accurately made up. A Scope of Loss is a special document signed by two parties – you and the insurance company – that stipulates the amount and type of repairs for the dwelling in question. You are recommended to get familiar with the estimates based on the scope and together with the insurer to arrive at the replacement agreement in accordance with which the insurance company will pay you depending on how much it would cost to reimburse the rebuilding expenses with “like-kind-and-quality” materials. An accurate Scope of Loss lists the quantities and qualities of each feature of your home. If you can work toward an agreed Scope of Loss with your insurer it can serve as a guarantee that there will be no disputes arising from repair estimates which are thousands of dollars apart because they are based on different scopes. It is advisable to ask for expert advice and get a professional Scope of Loss prepared by a disinterested party. Then, the next point is to get your contractors and the insurer’s contractors bid on the same Scope of Loss. If you manage this, you are on the way to a fair claim settlement.
A dwelling policy can take various forms such as a basic form, a broad form and a special form. The main differences underlying these forms are the perils covered. The basic form is essentially a very limited policy covering only such major events as fire, lightning and internal explosion. All the other perils and typical benefits, including additional living expense coverage, can be added to this policy form by endorsement. The broad form includes all the benefits offered under a basic form contract as well as additional living expense and the perils which are optional under a basic form (for example, accidental discharge or overflow of water or steam, freezing, damage by burglars, etc). The special form is very much like the broad form, but the former insures the dwelling and other structures against whatever perils (i.e. on an open-perils basis) and also covers personal property on the premises.
To be reimbursed for the damage to your home under Dwelling Coverage of your Homeowners Insurance, you must file a claim stating the reason for the loss that has been inflicted to the insured dwelling and indicating how severe the damage is. There are some preliminary steps you can take to spare yourself a lot of time and paperwork when filing a claim. It is reasonable to prepare a document describing the dwelling you are going to insure. It can be useful as it gives grounds to negotiate the conditions of the contract, if necessary. If you have not prepared such a document in advance, in the event of a loss you will still have to provide your insurance company with all the available information about what the dwelling was like before the loss: building plans, photos, videos – whatever can help to recreate the exterior and interior of your home. Done in good time, all these small things will facilitate the procedure of getting reimbursed for rebuilding or repairing costs.
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