What Are The Key Homeowners Insurance Terms That You Should Know?
Buying a home represents a major milestone and investment, and finding a homeowners insurance policy goes hand in hand with it. Before you settle on one, make sure you familiarize yourself with these nine key industry terms.
Common Area
When insurers refer to the common area, they mean the space in an estate or residential area that no single individual can lay claim to. These amenities are often owned by a homeowners’ association or a condo association (see Condo Insurance 101 to learn more). They may include swimming pools, gyms, tennis or basketball courts, elevators, driveways, stairways, and patios. If common areas are insured, they will be covered under the homeowners’ association’s insurance, not an individual homeowner’s policy.
Material Misrepresentation
Material misrepresentation occurs when an applicant lies to an insurance company during the purchase of a policy. Some people, for instance, exaggerate their property’s worth or fail to disclose all the information regarding the condition of their property.
In the event of a misrepresentation, the company may legally pay your claim partially, refuse to pay your claim, or worse still, cancel your entire policy. Different states have different legislation regarding material misrepresentation, so what applies in your state might not be applicable in another.
Personal Property Coverage
Personal property refers to your movable possessions, such as furniture, clothing, and electronics. Most homeowners insurance providers include personal belongings in their policies.
The level of coverage varies, but it is commonly between 50 to 70 percent of the item’s worth, which is a much better deal than total loss. However, there is a clause for every item. Most insurance companies advise purchasing a special endorsement or rider, usually referred to as a floater, to insure specific types of personal property (learn more about these in Personal Property Floaters 101).
Liability Coverage
Liability coverage is a special coverage that shields the homeowner from lawsuits (to find out what role insurers play in these proceedings, see Insurance and Lawsuits). If someone gets injured while on your property, and they decide to sue you, this form of coverage takes care of your court defense and liability fees up to your policy limit. A “no-fault medical coverage,” on the other hand, covers individuals who sustain injuries within your property.
Peril
Perils are occurrences that can bring about damage to your home or possessions. There are two types of peril policies: open peril and named peril. An open peril policy insures you against all perils, provided your policy does not exclude them. A named peril policy, on the other hand, only covers perils specifically listed in your policy.
Cancellation
Cancellation is simply a term designating the termination of home insurance policy. The terms of agreement detail the reasons that can lead to the termination of an insurance policy, and they differ from state to state and have to be permitted by law (see Is Flat Cancellation an Option in Every Insurance Contract? to learn about the policyholder’s options for cancelling their coverage).
Subrogation
In subrogation, your insurance provider may sue on your behalf in the event another party destroyed your home. If they win the lawsuit, the money goes toward repaying your deductible.
Subrogation may also refer to the action of your insurance provider coming to your rescue if your actions results in damage to a neighbor’s house or property, as may happen if, for example, a plumbing repair in your apartment causes flooding in your neighbor’s unit.
Your policy provider can also apply subrogation on your behalf to sue a manufacturer for damage caused by a faulty product, such as a faulty stove causing a fire.
Loss History
During purchase or renewal of your policy, the company accesses a CLUE report, which details a loss history of your house in the past seven years (see CLUE Yourself In: How Your Claims History Informs Your Insurance Future). And the history really applies specifically to your house, regardless of whether or not you were the owner during that time.
The company goes through any claims filed by you or the previous occupants. Depending on the number and size of the claims, it may result in the company raising your premiums or even turning down your request for coverage.
Additional Living Expense
If the damage to your home is so severe that it forces you to relocate to a temporary residence, additional living expenses coverage will help pay for your accommodations. This offers you peace of mind during the period in which your home is being repaired. Leading insurance firms provide it for their clients.
Conclusion
A homeowners insurance policy is a legal contract between you as the policyholder and the insurance company. Make sure you are aware of your rights and responsibilities and the rights and responsibilities of the company. It is paramount that you read and understand the policy completely and are satisfied with the terms before committing to it.
