Explaining the Standard Homeowners Insurance Policy

The standard sections of a homeowner’s policy are the property and liability sections. Each has several components and as well as policy forms that affect what they cover.

Section I is the property section. It is broken down into four categories: (A) Dwelling, (B) Other Structures, (C) Contents, and (D) Loss of Use.

A. The dwelling covers the home itself. There are several ways to come up with the value assigned to the dwelling and vary by company. Replacement coverage is not always automatic. You are normally required to insure to 80% of the rebuilding cost of the home, and may have to have an endorsement on the policy to get full replacement cost.

B. Other Structures covers unattached buildings on your property; commonly garages, gazebos or storage sheds. The limit for this is 10% of the dwelling value. It is often overlooked on an insurance policy, but this coverage can be increased by endorsement. This helps provide better coverage on larger or unique outbuildings.

C. Contents coverage is what protects your stuff. Clothing, furnishings, tools and other possessions are covered for 50%-80% of the dwellings value, depending on the company. A Replacement Cost provision can often be purchased for this part, providing that you replace the items after a loss. By doing so you get the amount the items cost. Always remember, there are limits on certain items under a policy like jewelry, that would require you to schedule them onto the policy to get coverage for the full value. Off road vehicles are often excluded under this section.

D. Loss of Use is normally set at 20% of a dwellings value. This coverage is pretty straight forward. If a covered loss prevents you from living in the home, it provides money for rent while repairs are being done or the home rebuilt.

Section II is the liability section. It is broken down into two categories: (L) Liability and (M) Medical Payments to Others.

L. Liability provides protection for when you’re sued from an incident arising on your property or something in your care, such as a pet that injures a neighbor’s child. Items such as pools and trampolines could have surcharges under the policy, or even make you ineligible for insurance coverage.

M. Medical Payments to Others is a simple way for your insurance policy to cover a minor medical bill incurred under your policy without having to bring forth a lawsuit. As the name suggests, this provides no benefits to you or a family member. A real example of this benefit being used: a cat owned by the insured bites a guest who comes onto the porch. That person goes to the ER for stitches and a shot. The medical bills fall under the amount available from this coverage and are paid by the insurance company.

These six parts comprise the values available under the policy. There are a number of endorsements that can be used to expand or restrict coverage and vary from insurance company to company.

One thing many people are unaware of is that there are three standard types of homeowners insurance known as Basic, Broad and Special. Basic and Broad form policies are names peril policies. This allows the policy to spell out coverages that are provided, such as Fire and Lightning. A Special form policy covers everything but that which is excluded. This requires insurance companies to specifically say they do not cover incidents like War, Flood or Earthquake. Reading a Special form policy can be a little jarring, because it needs to outline everything that is not covered, where the Basic and Broad form policies tell you what is covered. Nevertheless, the Special form does provide the most expansive coverage of the three.

Insurance companies have rules in place governing the condition and age of the home for eligibility. If your home does not meet the requirements, you are unable to purchase certain forms of coverage. This is why not every policy uses the same form. The older the home, or the poorer the condition, the more likely the coverage will be on the Basic end of the spectrum.

As always, if you have specific coverage questions, ask your agent. Insurance regulations vary by state.