From the Reading Eagle January 26, 2020
Homeowners Insurance Buyers Can Benefit From Knowing Terminology
You’ve saved your hard-earned dollars for years. and you shouldn’t part with it easily or uninformed. You’ve searched and toured open houses and imagined how your furniture, artwork and other belongings would look in this home versus the next.
After all your searching, you’ve finally found the perfect house. The process of making the biggest investment of your life can be complex and intimidating, but your search is over. And now, you need to care for that investment.
Caring for your new home goes beyond weekends spent at Home Depot and do-it-yourself painting and landscaping. The most important way to care for your first home is by investing in homeowners insurance, which will safeguard damage to the property and your financial well-being.
While not required, homeowners insurance is standard practice (you would be hard-pressed to acquire any type of home loan without a policy), and no one wants to be caught without coverage in the event of fire, theft or really anything more significant than minor property damage. All homeowners insurance policies are comprehensive agreements with dozens of elements and subcategories of coverage that cater to your specific needs. But some companies go the extra mile to strip the complexity away from the process, making the nitty gritty approachable, cutting through the jargon and providing transparency.
Yes, there’s plenty of fine print, and you should read it all, but there are some essential terms that you need to understand when evaluating your policy. Here are some terms you need to be aware of as a new homeowner:
Deductible: This is where you come in. The deductible is the way policyholders and insurers share the cost of coverage; the amount a homeowner must pay before any insurance claims or reimbursements can be made. Usually, a higher deductible means the homeowner pays lower monthly premiums, but higher out-of-pocket responsibility in the case of a claim.
Liability insurance: Your homeowners insurance policy will likely have a liability component that protects you and your family from legal claims that result from injuries that occur on your property. Liability also covers the medical costs and compensation for these damages, as well as the legal fees for your defense.
Umbrella policy: An umbrella policy provides extra liability coverage, an added layer of protection to your standard policy, to protect against lawsuits stemming from damages to other people’s property or accidental injury. Umbrella policies go above and beyond the liability portion of most policies and can add to peace of mind. Pro tip: Smart devices such as home security systems, video doorbells and carbon monoxide detectors can save you an average of 5% on insurance premiums annually.
Dwelling protection: This covers the nuts and bolts of the home , or dwelling, and all the components that are actually attached, from carpeting and fireplaces to attached garages, decks and porches. Under dwelling protection, the policy may help to pay to rebuild or repair structures damaged by any covered hazard, such as fire and severe storms. There is also additional, optional, enhanced dwelling protection that can be purchased to ensure that all rebuilding costs are covered.
Other structures protection: This portion of coverage applies to all other structures on your property, such as fences, carports, sheds and other detached buildings. Other structures protection typically covers the cost of these structures up to 10 percent of the total protection of your dwelling coverage. For example, if your home is insured for $250,000, you’re covered up to $25,000 for other structures at no cost, but you can always purchase additional coverage at a relatively low cost, in most cases.
Actual cash value: This is the actual value of lost or damaged property at the time of loss and/or damage. This value takes depreciation into account.
Replacement cost: This is the cost of replacing damaged or lost property at the current market value, not taking into consideration depreciation, necessary to restore or replace your home or your belongings to their original state.
Extended replacement cost: While replacement coverage covers the cost of repairing or rebuilding your home to its condition prior to the damage, without taking depreciation into account — that is, covering the amount for which your home is insured — extended replacement cost enhances your standard policy coverage, typically 25% to 50%, helping to account for increased market value of rebuilding. Pro tip: To ensure you’re covered beyond just your home’s real estate market value, find out what local construction costs per square foot are in your area and multiply that by the square footage of your home. This will give you a more complete picture of rebuilding costs. Also, take inventory of your belongings and record their value so you know exactly what may be lost to potential damage.
Additional living expense: Should something happen to your home that makes it uninhabitable while repairs are in progress, this coverage will pay for your temporary housing, which may be a hotel for a short time or an apartment or rental home for longer repairs, clothing, pet boarding and even baby supplies. Depending on your needs and the needs of your family, a daily allowance will be established.
Insurance adjuster: Not to be confused with an insurance agent (one who sells insurance), an adjuster is the person you call when the roof caves in, literally or figuratively. This is the person responsible for filing, assessing and ultimately paying out on your claim.
There are dozens of insider insurance terms and phrases that can make this whole process seem convoluted and overwhelming. However, it’s worth spending the time to get to know some of the most important terms that make vital differences to the type of homeowners insurance you will need. Every nuanced word in a homeowners policy is intended to make each individual contract perfectly suited to your needs and wants as a homeowner.