Understanding Your Homeowners or Renter’s Policy

Homeowners insurance protects your home, its contents, and, indirectly, your other assets in the event of fires, theft, accidents or other disasters. A standard homeowners policy (known as an HO-3 policy) will protect you from things like fires and fallen trees. Notice how we didn’t mention floods or earthquakes—those events are specifically not covered by a standard policy and require additional coverage. Homeowners in some areas of the country may be required by their mortgage company to carry these kinds of policies. A standard policy will also protect your possessions from said disasters as well as theft. But a standard policy is not a blank check: there’s a limit to how much you’ll be compensated. If you have specific items of value, such as jewelry or artwork, you can pay a little extra each year to insure them for their full replacement value.

Now, if someone is on your property and slips and falls and sprains his ankle, he might sue you for his medical expenses. Homeowners insurance covers your liabilities in this situation as well. And like the examples mentioned above, you can pay more for extra coverage.

Your policy will typically have four parts:

  1. The declaration/information page identifies the policy number, the effective dates, the address of the insured property, the mortgage holder, the coverages, coverage limits, the premium and any discounts.
  2. The insuring agreement summarizes the policy coverages. This form is typically a general listing and can be modified by endorsements later in the policy, which should be listed on the declaration page. The insuring agreement will also explain the types of perils—or losses covered.
  3. The exclusions section outlines specific coverages or perils not covered by your policy. This section can modify coverages in the insuring agreement. Typically flood and earthquake are excluded from homeowners and renter’s policies. Personal property, like automobiles and animals, are also typically excluded.
  4. The general conditions section explains what you are expected to do in case of a loss. This section also contains definitions for the terms used on the declarations page and in the insuring agreement.

Create a Home Inventory

A home inventory will help you figure out how much personal property insurance your policy should include. It will also help you file a claim in the event of a loss. An inventory should include all of the vital information about your belongings (brand name, price, date of purchase, model, serial number and receipts) and should be accompanied by photos of the items. Once you have made your inventory and taken photographs of your home, e-mail the information to family or friends, or to your insurance agent. Walking around your home and taking a video is a great way to help you remember everything you have in the event of a devastating loss such as a fire or tornado.

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