Confused about homeowners insurance? Part 2

Section one coverages:

  • Coverage A, Dwelling. Primary dwelling and attached structures like a garage, deck, or fence.
  • Coverage B, Other Structure. Detached garage, shed, permanent pool, etc.
  • Coverage C, Contents. Personal belongings in your home as well as anywhere in the world.
  • Coverage D, Loss of Use. Additional living expenses if a covered loss forces you to relocate temporarily.

Some important points to note for section one:

  • Dwelling Coverage Limit. Homeowners insurance is based on replacement cost, which is how much it takes to rebuild the dwelling using materials of like kind and quality. It is best to insure your home for its full replacement cost, which is not the same as its market value, appraised value, or loan value. Insuring for less than replacement cost could result in a loss settlement far below the cost to rebuild or repair damaged property. Partial dwelling losses are settled on a replacement cost basis, which means depreciation is not a factor. A total loss cannot exceed the policy limit unless the policy includes guaranteed or extended replacement cost coverage.
  • Contents Coverage Limit. Most people own more personal property than they realize. A personal property inventory is the best way to evaluate contents insurance needs. Make a room-by-room record that lists and describes each item. Identify make, model, and serial numbers along with purchase details. Receipts and photos are helpful. Appraisals on unique or high-value items are helpful. Compare the total value of your belongings to the contents coverage limit. Look for policy limitations and restrictions that may be problematic. Contents losses are insured for specific losses outlined in the policy (fire, theft, and more). Losses are settled on an actual cash value (depreciated) basis. Insurers offer a wide range of endorsements to tailor coverage for unique needs. Among those to consider: contents replacement cost, scheduled property floater, backup of sewer and drain, and more.
  • Exclusions identify losses that are not covered by the insurance policy . Some important exclusions to be aware of include flood, earthquake, wear and tear, damage from pets, animals, and pests, and more. Flood insurance is available as a separate, stand-alone policy. Many insurers offer buy-back coverage for earthquakes.
  • Most homeowners buy HO-3, special form coverage. These policies cover direct loss to the dwelling and other structures subject to exclusions outlined in the contract. Contents losses, on the other hand, are inured for specifically named perils. Among these are lightning, fire, hail, smoke, theft, vandalism, and more.