Breaking Down Your Homeowner's Insurance Policy, from Coverage A to Coverage E

Owning a home requires maintaining adequate homeowner’s insurance. However, many homeowners don't quite understand what adequate coverage really entails. So, they look to experts to help them decide what insurance coverage is needed for their home and belongings, including their real estate agent, insurance agent, and possibly their friends and family (for tips on finding a good insurance agent, see 5 Questions to Ask Before Choosing an Insurance Agent). While these individuals can offer helpful and knowledgeable advice, none of them know what everything you own is truly worth to you, so it's important for you to get a basic understanding of the coverage so you can make informed decisions about your policy.

Basic Guidelines

When making a decision regarding your homeowner’s insurance, follow these three basic guidelines.

First, you should maintain enough coverage to cover damage or loss to your property and belongings (see Personal Property Floaters 101 for information about covering luxury items).

Second, make sure you protect yourself and your family from financial harm resulting from lawsuits that you may incur from, say, a person getting injured on your property (see Insurance and Lawsuits to find out what to do if you are sued). The more coverage you have, the less you become personally liable for out-of-pocket expenses associated with these legal actions.

Finally, make sure you accommodate both lender and policy requirements. Your mortgage company will require minimum coverages and your insurance will have coverage requirements based on your policy details. Your coverage should, at the very least, fulfill both of these.

Breaking Down Your Home Insurance

Now that you are aware of these guidelines, it's time to break down the coverage into terms everyone can understand. The elements of your policy's coverage are labeled alphabetically, from A to E.

Coverage A

Coverage A is the most basic part of the policy. It covers any damage to the actual property. This coverage is partially established by the requirements of your lender, as the face amount of the policy is the amount you will receive should your home be completely destroyed.

Coverage B

Coverage B is also set by the lender, at least in part, and covers other structures related to the primary property, such as a detached garage, shed, or even a fence. Anything that is related to the property, even if it is detached from the main structure, is covered under Coverage B.

Coverage C

Coverage C is one of the more variable parts of the policy. This covers your personal property, including furniture, clothing, electronics, household goods, books, and anything that helps make your house a home. Receipts or photos may be required for certain parts of this coverage, and anything unusual with an appraised value will likely require a copy of the certified appraisal.

Fraudulent reports of value frequently occur under this category. Attempting such an act of fraud is highly inadvisable, especially if you would like to avoid jail time.

Coverage D

Coverage D covers any additional living expenses. This coverage is in place to help you find a suitable living environment while your home is being repaired or rebuilt due to a covered claim. It is very important to understand this is not to help if you choose to remodel your home. However, if your home is destroyed by a fire or storm, this will help you maintain a residence while it is being repaired.

Coverage E

Finally, Coverage E is your comprehensive personal liability coverage. This is where your tort claims are available. If a person has an accident on your property, this is the part of the insurance that will pay for damages in the event of a lawsuit or agreed settlement.

Find Out More

To learn more about insurance coverage and how to protect yourself, your home, and your belongings, contact the experts at Insuranceopedia. They will be happy to answer any of your insurance questions.