Policy Detail - What Are the Different Parts of a Homeowners Insurance Policy?

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You’re reading our blog because you’re dead set on getting the right insurance at the best price. Well, it so happens that Covered’s primary reason for existing is to help you do exactly that. And that’s why we’re dead set on demystifying any and all aspects of homeowners insurance that may trip you up.

With that in mind, here’s another: What’s IN your homeowners insurance policy? To the untrained eye, it may look like a big, confusing stack of paper. What it really is: a KEY TO EMPOWERING YOU with the information you need to make the best choices about your coverage. And while that’s not the key to Pandora’s box, Alice’s key to Wonderland, or that super-crucial Copper Bones key that showed the Goonies the way to One-eyed Willie’s treasure, it’s still a pretty good key to have in your possession.

We promise it’s not hard. We promise it’s worth the trouble. Why? After reading this blog, you’ll know how homeowners insurance policies are organized (it’s standard across insurers!). You’ll know what’s addressed in each section, as well as the common terminology used. You’ll even understand the basics of what each coverage is for.

Why do you want to know all that? Well, you’ll be able to more clearly understand what you’re looking at as you review your existing policy or compare coverages and quotes on a new policy. You’ll be able to make sure you’re not underinsured. And, even though Covered’s best-in-class UX already makes the insurance-buying process insanely easy, you’ll be one important step further along toward getting the right insurance at the best price.

The Basics

So, when you lay out any homeowners policy in front of you, what will you see? In overview:

  • The policy section — also known as the declarations — lays out the basics of your coverage, including costs, dates, addresses, names, numbers (including your deductible), and definitions.
  • Section I includes property coverages related to helping you pay the costs of repairing or replacing covered damage to your home and other property. The standard Section I labels and sections are:
    • Coverage A Dwelling
    • Coverage B Other Structures
    • Coverage C Personal Property
    • Coverage D Loss of Use
  • Section II includes liability coverages related to qualifying instances of bodily injury or property damage. The standard Section II labels and sections are:
    • Coverage E Personal Liability
    • Coverage F Medical Payments to Others
  • Section I and II conditions include the rights and responsibilities of the insured and the insurer, including duties in the event of a loss.

The Nitty-gritty

In the table below, we’ve further broken down each of these standard sections, answering the all-important questions of “What’s this about?” and “What does it do?” That way, you can easily look up whichever aspect you’re still confused about, and skip over anything you’ve already got on lockdown.

Before we dive into the table however, let’s take a brief moment to talk about policy forms. There are indeed several different homeowners forms out there, including the HO-2, HO-3, HO-4, HO-5, HO-6, and HO-8. (Currently, the HO-3 is the most common form used.) Fortunately, they all still follow the same basic structure. For our purposes today, here are the main differences that are helpful to understand:

  • Named peril: Some policy forms, including the HO-2, HO-4, HO-6, HO-8, and personal property portion of the HO-3, are “named peril” policies. This means only the specific named perils are covered.
  • Open peril: Other policy forms, including the HO-5 and the dwelling portion of the HO-3, are “open peril” policies. This means that all perils are covered, except what’s specifically excluded within your policy.
  • Replacement cost: In all policy forms, dwellings are typically insured for replacement cost. This pays for what it will cost to replace your covered damaged property with new comparable goods.
  • Actual cash value (ACV): In all forms, personal property is typically insured for actual cash value. This means your old toilet is worth only its depreciated cost… which isn’t going to be much. If you want replacement cost coverage for your personal property, you’ll need to get an endorsement for additional coverage in your policy.

Why does any of that matter? Well, if you’ve got a “named peril” policy, you need to keep an eye on those named perils. If you’ve got an “open peril” policy, you’re looking primarily for exclusions. Finally, in terms of replacement cost vs. ACV, it’s all about understanding what you’re insured for, and whether that works for your stuff. Learn more about the difference between ACV and replacement cost here.

The Wrap-up

As you now know, lucky for us, insurance companies all use standard organization and terminology in their homeowners insurance policies. Once you know what’s what and what’s where, it’s easy to understand your coverage.

The real key we’ve provided you today? Peace of mind that you’re fully capable of making the best decisions possible about your homeowners coverage, getting the right coverage at the best price. It’s a true adulting win. Which means ol’ One-eyed Willie can keep his treasure, right? (Anyway, all those jewels and gold doubloons probably aren’t insured. Let’s be merciful.)

Covered’s insurance experts will be happy to answer any questions or help you find the homeowners insurance policy that’s right for you. Just give us a call at (303) 302-9927 or send us a message.

Cover Photo by Eric Muhr on Unsplash