Understanding Your Homeowner's & Renter's Policy

Many people don’t fully understand how their Homeowner’s or Renter’s policy works. This article will give a brief overview of the coverage included in both policies, and will provide links to articles that further explain the coverages and terms.

Homeowner’s and Renter’s insurance policies are package policies designed to cover the insurance needs of the average renter or homeowner. There is a lot of overlap with these policies, but the Homeowner’s policy covers the extra property exposures that they face. Each of the policies have coverage parts, designated by different letters. Below is each coverage part, with a description of what it does:

Coverage A, Damage to the Home:

Coverage A is exclusive to the Homeowner’s policy, as a renter (obviously) doesn't own their residence. The coverage provided can be widened or narrowed, depending on the provisions inside the policy. The first provision that modifies coverage is what valuation the home is written as—either Replacement Cost or Actual Cash Value. The abridged explanation is that Replacement Cost valuation would provide you with a brand new home after total loss, where Actual Cash Value would reimburse you with the market value of the home, allowing you to go find another home of similar price to purchase.

Another provision that modifies Coverage A is what Cause of Loss Form it is written on. These Forms define which Perils your home is insured against. The Forms are Basic, Broad, and Special, with Basic providing the narrowest of coverage and Special being the widest. Lastly, you are required to insure your home for approximately its exact worth due to the Coinsurance Clause.

Coverage B: Other Structures:

The Other Structure coverage is another Homeowner’s policy exclusive, as it covers any unattached buildings or structures on your property (such as a shed or gazebo). The amount given by the coverage is usually 15% of the Coverage A amount, and can be adjusted to accommodate your specific needs.

Coverage C, Personal Property:

Both the Renter’s and Homeowner’s policies have Coverage C. This section provides coverage for all of your personal items, such as your TV, furniture, clothing, etc. Like Coverage A, it is subject to Replacement Cost or Actual Cash Value valuation and the Causes of Loss Forms. However, Coverage C is also subject to Sublimits. Sublimits typically apply to collection items, such as furs, guns, precious metals, etc. To properly cover all of your personal property, you may need to increase the Sublimits, or alternatively, you can Schedule each individual item.

Coverage D, Additional Living Expense:

Also known as Loss of Use coverage, Coverage D can be found on both the Renter’s and Homeowner’s policies. Coverage D would reimburse the policyholder’s expenses after a covered Peril makes their home uninhabitable. So if a fire destroys your home, Coverage D will pay to put you in hotel while your home/apartment is being rebuilt. It will also pay any additional expenses you have to pay, such as increased cost for food. The amount provided for Coverage D varies, but can usually be increased. Note that this coverage typically is only available for a stated amount of time, such as coverage for up to six months after a covered loss.

Coverage E, Personal Liability: 

This section covers the renter or homeowner and their family against lawsuits (legal liability). Situations that would be covered by your Personal Liability coverage would be if your dog bites someone, if a guest trips and injures themselves on your property, if you damage someone else’s property, Personal Injury, etc. The limits can typically be set as low as $50,000 up to $500,000. (the Personal Umbrella policy provides additional liability coverage on top of the Personal Liability coverage)

Coverage F, Medical Expense: 

Also known as Medical Payments coverage, this coverage is available for both Renter’s and Homeowner’s policies, and it is a supplementary coverage to your personal liability. Though your Personal Liability coverage will cover any medical expenses that you’re held liable for, the Medical Expense coverage will pay the medical expenses of people who harm themselves on your property even though you didn't negligently cause it. Essentially, this coverage was designed to pay their medical bills to keep you out of court.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

The Ins and Outs of Other Structure Coverage

Your Homeowner's policy has Other Structure coverage automatically included. It covers the various buildings on your property that are detached from the house, but is it enough? How is Other Structures coverage determined? Are there any exceptions to the coverage?

Other Structure coverage, like most insurance terms, is very unimaginative in its name. It covers most Other Structures or buildings on your property, most likely being a detached garage or shed(s).  It is an extension of your main building coverage (Coverage A). The amount of Other Structure coverage you have is almost never calculated as a set amount. Instead, your insurer will typically use 10% of your main dwelling coverage (Coverage A) to find the amount for it (Coverage B). So, if you home is covered at $150,000, you would have an automatic $15,000 of coverage for Other Structures. The amount of Other Structure coverage can typically be increased (for a fee), and the coverage covers all the buildings on your property that are separate from you home, up to the designated amount for Other Structures.

The caveat to Other Structure coverage is in the use of the building. If the main use of the shed/detached garage/etc. is for business purposes, then the Homeowner’s policy will not cover it. A standard Homeowner’s policy will typically cover approximately $1,000 of Business Personal Property you have on the premises of your home, but it will not cover a building that is used primarily for business purposes.

To illustrate this, an easy example would be a contractor: the contractor uses his detached garage exclusively to store his work truck and tools. To have these properly covered, the auto would need to be on a Commercial Auto policy, and the detached garage and tools would need to be insured as business property on a Commercial Property policy. (Note: come claim time, if there was a mix of business and personal items in a separate building from the home, it would take debating by the insurer and adjuster to determine what is and isn’t covered. Please talk to your agent if a situation like this is currently occurring, especially if you are running any type of business out of your home.)

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.