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Declarations. This is the who, what, when and where of a homeowner’s insurance policy . It includes the policy number, name of the insured, the name of the insurance company, the address and description of the property covered under the policy, the policy period, and amount of insurance coverage. Always review the Declarations for accuracy . Coverage. Coverage refers to the dollar amount of insurance provided under an insurance policy. For example, “there is $100,000 of coverage under the policy”. There are two basic types of homeowner’s coverage and their features are effectively described by their names, so they’re pretty easy to understand: “Named perils coverage” insures only the losses named in the policy, such as losses from fire or theft. “All risk coverage” covers exactly that — all risks , unless they are specifically excluded . Conditions. Remember, an insurance policy is a contract. That means both parties have responsibilities. In addition to paying the premium, the homeowner has responsibilities to do or not do certain things in order to keep the coverage in place. Conditions tell the policy holder what they must do (or not do) to maintain coverage. For example, if there’s a hazardous condition on the property and the homeowner knows about it, they’ve got to fix it! If not, they may be in breach of the contract and lose coverage. Exclusions. This section highlights the types of losses not covered . Most policies don’t cover damage from floods, sewer backups (yuck), earthquakes, and a few other horrible circumstances. If you want insurance for things that have been excluded, you have to buy additional insurance , called a rider (also called an endorsement ). For example, if you intend to freelance from home, be aware that equipment used in a home business is usually excluded from coverage under a homeowners’ policy. You’d have to buy a rider to get that coverage. Think about it this way: exclusions remove items from coverage . Riders put them in. Always review and discuss with the insurance agent exactly what the insurance policy covers and what is excluded. Make sure the policy matches your needs and expectations. PRODUCT PREVIEW What Does a Homeowner’s Policy Cover? Property Damage A homeowner’s insurance policy protects against many different types of losses. First and foremost, it covers property damage which is loss of or damage to the building structure of the home and its contents in case of a fire, theft, storm or any other damage-causing event. Insurance policies cover replacement cost, which pays for repairing or rebuilding the home and replacing all of the damaged or destroyed contents like furniture and appliances. Property damage coverage is so important that mortgage lenders actually require it as a condition to making a home loan . After all, a lender is substantially invested in the home too! If a home is lost to fire or other disaster, the lender stands to lose if the homeowner walks away from the property and stops making their loan payments. Personal Liability A homeowner’s policy also covers a homeowner from personal liability for injuries and
property damage sustained by others for which the policy holder or their family members are responsible. For example, if someone falls down the homeowner’s stairs, or the homeowner’s dog bites someone while on a walk, or the homeowner’s kid hits a baseball through the neighbor’s window, the insurance company picks up the costs. Without personal liability insurance, the homeowner would have to drain bank accounts or sell off assets in order to pay for the losses suffered by the other person.
THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY 287
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