Sparks Lane in Cades Cove near Gatlinburg, Tennessee.

 

What Is It?

Most of us would choose to read the back of a cereal box with our morning coffee if the only other available reading material was the fine print in our homeowners policy. Not to mention that at first, second, and even third glance, your policy appears to be written for law school graduates only. You should, however, be familiar enough with the terms of your policy to know where to look for information when you need it.

The middle of a telephone argument with your claims adjuster is not the best time to begin reading your policy for the first time. The good news is that all homeowners policies follow a few easy design principles. That means you can use this roadmap to understand your policy and to locate key information, no matter which of the six different types of homeowners forms your policy is written on.

Tip: The following discussion applies only to terms and conditions shared by all six policy forms. Terms and conditions that affect only one or two forms are omitted from the discussion. Make sure you read your homeowners policy to learn the terms and conditions of your coverage.

Top View

Here's a simplified version of your homeowners policy:

  1. Declarations Page
  2. Definitions
  3. Section I
  4. Property Coverages
  5. Perils Insured Against
  6. Exclusions
  7. Conditions
  8. Section II
  9. Liability Coverages
  10. Exclusions
  11. Additional Coverages
  12. Conditions
  13. Section I and II Conditions

Broadly speaking, your homeowners policy is split into two sections. Section I applies to the property insurance aspect of your policy, while Section II applies to liability insurance. How do you distinguish between the property insurance and liability insurance aspects of your policy? It's easy. Both are based on the principle of indemnity , but property insurance pays for losses proximately caused by damage to your property and related costs and expenses. Liability coverage, on the other hand, pays for losses proximately caused by damage to property owned by others, or personal injury suffered by others, and related costs and expenses.

Tip: To qualify for liability coverage under your homeowners policy, the damage or injury must be caused by you or your property or affect a visitor to your home.

Tip: Depending on your situation, your family's property and activities may also be covered by property insurance and liability coverage included in your homeowners policy.

Once you understand that property insurance and liability insurance are quite different but your homeowners policy covers you for both, you're a long way toward a working understanding of your homeowners policy. The next step is to get a grip on the different parts, or subsections, of your policy so that you can go directly to any of the following sections to find an answer to a question.

Identifying Features

The features that identify and describe your particular situation are set forth on the Declarations Page of your homeowners policy. This page contains the following items:

  • Policy number
  • Beginning and end date of coverage
  • Name and address for the primary insured (usually you and your spouse)
  • Name and address of your insurance agent
  • Location of the insured premises (usually by street address)
  • Mortgagee's name and address (i.e., the bank or mortgage company that holds your loan)
  • Coverage limits for each separate coverage type
  • Deductible amount
  • Premium amount
  • Modifications and endorsements affecting the policy, if any

Generally, only the Declarations Page of your policy is tailored specifically to you. The rest of the policy consists of preprinted pages that apply to you and every other individual who has bought your form of homeowners insurance.

Definitions

This is one of the most important sections of your policy because it explains important concepts that may make the difference between coverage (that's good) and noncoverage (that's bad). The definition section can also help you understand terms that are used elsewhere in the policy. You might think that you already understand what "bodily injury" means, but check it out--you'll be surprised to learn that bodily injury means required care, loss of services, and death in addition to bodily harm, sickness, or disease. The following defined terms deserve close attention: "Insured" means you and residents of your household who are:

  • Your relatives or
  • Other persons under the age of 21 and in the care of any person named above

Under Section II, "insured" also means:

  • With respect to animals or watercraft to which this policy applies, any person or organization legally responsible for these animals or watercraft that are owned by you or any person included in 3.a. or 3.b. of Section 2.0. A person or organization using or having custody of these animals or watercraft in the course of any "business" or without consent of the owner is not an "insured"
  • With respect to any vehicle to which this policy applies:
  1. Persons while engaged in your employ or that of any person included in 3.a. or 3.b. of Section 2.0 or
  2. 2 Other persons using the vehicle on an "insured location" with your consent

"Insured location" means:

  • The "residence premises"
  • The part of other premises, other structures, and grounds used by you as a residence and:
  1. Which is shown on the Declarations Page or
  2. Which is acquired by you during the policy period for your use as a residence
  • Any premises used by you in connection with a premises in 4.a. and 4.b. of Section 2.0
  • Any part of a premises:
  1. Not owned by an "insured" and
  2. Where an "insured" is temporarily residing
  • Vacant land, other than farm land, owned by or rented to an "insured"
  • Land owned by or rented to an "insured" on which a one- or two-family dwelling is being built as a residence for an "insured"
  • Individual or family cemetery plots or burial vaults of an "insured" or
  • Any part of a premises occasionally rented to an "insured" for other than business use

Tip: Any words or terms that are enclosed in quotations within the body of a definition are defined elsewhere in the section.

Coverage Descriptions

The property and events for which you are insured under your homeowners policy are split into six categories of coverage, lettered A through F, as follows:

Section I

Section II

Coverage A

Coverage B

Coverage C

Coverage D

Coverage E

Coverage F

Dwelling

Other Structures

Personal Property

Loss of Use

Personal Liability

Medical Payments

Here's the simple rule: If an instance of damage, injury, or expense falls within any of these six categories, you are covered by the policy as long as no exclusions apply, and you meet all relevant conditions of the policy (see the following sections). Qualifying for coverage under the policy means that your insurance company will reimburse you for your financial loss up to your coverage limit resulting from the particular damage, injury, theft, or expense.

Tip: All six homeowners forms include the Coverages listed in the preceding table, with the exception of the renters (contents) form, which omits Coverages A and B, and the condominium unit owners form, which provides a limited version of Coverage A and omits Coverage B.

Section I--Property Coverages

This subsection of your policy discusses what is and what isn't covered by the property insurance provisions of your homeowners policy. Four topics are covered in this subsection:

  • Property covered under Coverages A, B, C, and D
  • Property not covered under Coverages A, B, C, and D
  • Coverage limits for certain situations (which are more specific than the broad coverage limits that appear on the Declarations Page)
  • Certain types of losses and expenses that qualify for additional coverage under Section I of your policy, such as debris removal and broken glass

Tip: If you failed to read this subsection of your policy (or this resource), you'd never know that homeowners insurance covers you for stolen credit and debit cards, forged checks, and counterfeit money up to a $500 limit.

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Section II--Liability Coverages

This subsection of your policy discusses the events and situations that are included and excluded from Coverage E (personal liability) and Coverage F (medical payments to others). You'll note that this area is quite brief, because the general rules for liability insurance are simply summarized as follows:

  • If you are found to be legally liable for another person's property damage or personal injury, your insurance company will pay up to the coverage limit for any sums due that person
  • If you are sued by another person for property damage or personal injury, your insurance company will defend you at its expense
  • If another person suffers a personal injury while on your premises, your insurance company will pay his or her necessary medical expenses for the next three years
  • If another person suffers a personal injury anywhere away from your premises, your insurance company will pay his or her necessary medical expenses for three years so long as the injury is related to your premises or was caused by you, another insured, or your pet

Section III--Additional Coverages

This subsection of your policy provides coverage for claim- and lawsuit-related expenses, first aid expenses, damage to property owned by others, and loss assessments charged to you by a condominium or homeowners association.

The coverage description sections of your policy should be the first place you look to see if you are covered in any situation, always keeping in mind that the Declarations Page or definition section may also provide valuable information. Never end your search for information with the coverage description sections, however, because the rest of the policy contains important exclusions and conditions that may limit or even eliminate coverage.

Exclusions

If the coverage description sections are the first place you should turn to in your policy, the exclusion sections should be the second. That's because you may think the coverage description sections giveth you coverage, only to find that the exclusion sections taketh it away.

Tip: The subsection of your policy entitled Section I--Perils Insured Against is important. Your policy may not cover you for all causes of damage or injury, so you should always check this subsection to make sure that you are covered for the actual event or situation that occurred. This feature of your policy will vary, depending on which of the six forms you received.

Section I--Exclusions

This subsection is usually quite brief. It describes eight situations when you are not covered by property insurance:

  • Enforcement of laws regulating building or other structures
  • Earthquakes or other earth movements (although losses caused by fire, explosion, or breaking glass resulting from earth movements are covered)
  • Floods, waves, overflowing sewers, and similar water damage (although losses caused by fire, explosion, or theft resulting from water damage are covered)
  • Power failure
  • Your failure to save and preserve your property once it is at risk
  • War
  • Nuclear hazard
  • The intentional acts of any insured

Section II--Exclusions

Section II--Exclusions, on the other hand, is generally quite a lengthy subsection. Some exclusions apply to Coverage E, others to Coverage F, and still others to both. The 12 standard exclusions from both Coverage E (Personal Liability) and Coverage F (Medical Payments to Others) include injury or damage:

  • That is expected or intended by the insured
  • That arises out of, or in connection with, a business engaged in by the insured
  • That arises out of the ownership, maintenance, use, loading, or unloading of an aircraft
  • There are an additional six listed situations when Coverage E alone does not apply, and an additional four listed situations when Coverage F alone does not apply

Conditions

There are three different subsections in your policy that describe conditions or requirements that must be met by you or by the situation in order for coverage to apply or for you to receive payment. According to one of the 16 conditions listed under Section I--Conditions, to qualify for coverage under Section I, you must:

  • Give prompt notice to your insurance agent of any damage to your property or other loss
  • Notify the police if you're the victim of theft
  • Notify your credit or debit card company of any loss related to those cards
  • Repair or otherwise protect damaged property to prevent further damage and keep a record of your repair expenses

Yet another example is the requirement included in Section II--Conditions that anyone seeking payment under Coverage F (Medical Payments to Others) furnish a written claim and copies of his or her medical records and agree to a medical exam.

Finally, Section I and II--Conditions usually describes nine conditions that apply to both Section I and Section II. One of these conditions, Policy Period, is a very important condition as far as your insurance company is concerned. Its language is deceptively simple:

Policy Period--This policy applies only to loss in Section I or "bodily injury" or "property damage" in Section II, which occurs during the policy period. Yet this condition has a big impact, because it means that your homeowners policy protects you on an occurrence basis only.

That's great news for your current insurance company, because it's protected against paying you for any damage, injury, or other loss that took place before the beginning date of your current policy. It's something of a disadvantage for you, because it means you should keep copies of all your previous policies and keep your fingers crossed that your old insurance company stays in business. A policy written on a claims-made basis would be better from your point of view, because you would only have to deal with your current insurance company for any claim, no matter how far in the past the damage or injury occurred. Unfortunately, claims-made policies are not available for homeowners insurance.

Example(s): Say Jane accidentally runs over her neighbor's foot on November 30. Subsequently, she decides to leave Gitoud Adodge Insurance and takes out a new homeowners policy with Doggz Life and Casualty on April 1 of the following year. If her neighbor sues her on May 1 for lingering pain and disability that he has suffered from a pinkie toe injury caused by the accident, Jane can only make a claim against Gitoud Adodge.

Tip: The best time to become familiar with the condition sections of your policy is before damage, injury, or theft occurs. That way, you know what to do if an accident or misfortune occurs.

Table of Questions

These are the questions you should ask yourself whenever you think you've suffered a loss covered by your homeowners insurance policy. The answers, combined with a close reading of your policy, should tell you whether you're covered by your policy.

Who

...owns the damaged or stolen property?

...suffered the injury?

...caused the damage or injury?

...stole the property?

What

...caused the damage or injury?

...was damaged or stolen?

...is the extent of damage or injury?

...was the incident related to, business or pleasure?

Where

...did the accident or incident occur?

When

...did the accident or incident occur?

Why

...did the actor take the action in question?

How much

...will it cost to replace or repair damaged property?

...are you legally liable for?

...were medical costs to treat an injury?

...were your living expenses during repair?

...did it cost in terms of loss of use?

 

 

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

 

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The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.

 

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