Explanation of Coverages
The following is a description of what each of the coverages in your insurance will generally be. The basic terminology is:
Type of Insurance aka Policy Form: The type of insurance is based upon the type of dwelling and what its use is. There are stand-alone dwellings that are your residence (HO-3), an apartment you rent to live in (HO-4), a condominium you either live in or rent to others (HO-6), or a property you own to rent to others (DP).
Deductible: A deductible is the portion of a covered loss you must pay before your insurance company pays for any of the loss. Typically, your insurance company will simply subtract the deductible from the total amount of your claim, rather than requiring you to pay the deductible up front.
- In Florida, the policy is split between two main perils: wind or hurricane and all other perils. Insurance companies calculate the hurricane/wind deductible as a percentage of the dwelling value. Example: $200,000 Coverage A * 2% = $4,000 deductible. All Other Perils is a flat dollar amount.
Dwelling: Your dwelling is your house itself. The term “replacement cost” is defined or explained in the policy. Simply stated, it means the cost to replace the property on the same premises with other property of comparable material and quality used for the same purpose. This applies unless the limit of insurance or the cost actually spent to repair or replace the damaged property is less. The dollar value is the cost to rebuild your house or replacement cost as calculated by special computer programs, not the money you could get if you sell it or what you owe on your mortgage. These amounts are most often different.
Example: Several years ago, your house might have a sales value of $200,000 and now it might be $300,000. The mortgage value falls as it is repaid. So you might still owe $136,500 on your mortgage. The cost to replace the house may have been $225,000, when you bought it and will only change by inflationary factors and supply and demand for the materials.
*If the dwelling is insured at actual cash value, this generally means: the cost to replace with new property of like kind and quality, less depreciation. Please refer to your policy.
Other Structures: This is for other structures that you have on your property, a detached garage, guest house, fence, tennis court, or storage building.
Personal Property: This is also known as contents. It’s best to think of contents as anything which would fall out of a house if you flipped it upside down. Personal property is usually valued at 25% of the value of the dwelling and greater.
- Actual Cash Value (ACV) is the fair market value of the item less depreciation.
- Replacement Cost is the cost to replace new.
Loss of Use: If you must live away from your home as the result of a loss, this covers the increase over normal living expenses.
- Ordinance or Law Limit: This gives you a bit more money to rebuild your dwelling, if the building codes have changed. It is usually a percentage of the dwelling value.
Example: After all of our hurricanes in 2004, builders stopped using just nails to hold the roof trusses together and moved first to clips, then straps. Both are more expensive than nails.
Personal Liability: Liability coverage provides coverage if you or another insured are found responsible for someone else’s bodily injury or property damage. If an injured or damaged person brings a lawsuit, your insurance company may also pay to defend you or any other insured named in the lawsuit. You should note, though, that you’re typically covered only for negligence (carelessness); you aren’t covered for intentional injuries and damage. The liability part of your homeowners insurance covers you both at home and away. It also covers those family members who live with you. It protects you against many types of accidents and occurrences, including slip-and-fall injuries on your property and damage done to others property.
Note: Animal liability (dog bites) is normally not included and in some cases may be endorsed onto the policy for some breeds, but not all.
Medical Liability: This is for more minor medical payments to others as a result of injuries incurred on your property, regardless of negligence. The amounts are usually $1,000, 2,000, or $5,000.
There is usually a limited level of coverage for the items below, but they can be increased.
- Limited Fungi, Wet or Dry Rot or Bacteria (Property): This is for mold in your ceilings or walls that must be remediated or fixed as it is a health hazard.
- Limited Fungi, Wet or Dry Rot or Bacteria (Liability): Because mold is a health hazard, people may become ill as a result and can sue you. This covers that possibility.
- Jewelry, Silver, Guns, Furs and Collections: Like electronics, these items carry higher costs and are therefore considered separately. If you one or more expensive items or a special collection of stamps, coins, etc. whose value would be affected by loss or damage, you might consider adding more coverage here by endorsement. $2,500 is covered under the policy without adding more coverage.
- Loss Assessment: This covers condominium or neighborhood association assessments for commonly owned property. $1,000 is covered under the policy without adding more coverage.
- Sinkhole Coverage: All policies include catastrophic ground cover collapse for when the ground suddenly collapses affecting the foundation and the house is condemned. The sinkhole that just causes stress fractures in your walls or cracks in the driveway is covered under the sinkhole endorsement. This endorsement requires an inspection you must pay for and can take 30-60 days for review, underwriters can (and often do) deny offering the endorsement.
- Equipment Breakdown: Some carriers will offer a coverage like a maintenance agreement on your appliances.
- Identity Theft: Some carriers will offer coverage for losses from credit cards, etc. when your identity is stolen. Certain carriers also offer resolution cost coverage.
- Water Damage: Older homes are more prone to sudden pipe leaks or bursts, therefore homes over a certain age receive limited water damage coverage. Usually when a dwelling reaches 50 years of age, the coverage is limited to $10,000. Some carriers will allow you to endorse the policy back to full water damage coverage upon receipt of a passable 4 point inspection.
- Windstorm Protective Devices: Roof clips or straps, hurricane shutters, a new roof, etc. can reduce the cost of your insurance.
- Secured Community: A gated and/or guarded community will receive a discount; while a neighborhood that is entered through a single entry point receives a smaller discount.
- Fire and Burglar Alarm: Upon receipt of a recent alarm certificate, a discount will be given.
- Insurance Score: This is calculated from information on your credit report, it is a ‘soft hit’ on your report and does not affect your credit rating.