Understanding Your Homeowners Insurance Policy [Complete Guide]

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All homeowners insurance policies follow the same general format; they include a declarations page, a definitions section, and sections for property insurance and liability insurance.

Declarations Page

The declarations page of your homeowners insurance policy provides an overview of all details of your contract. Included on the declarations page are the following:

  • Name of the insurance company.
  • Your name and address.
  • The policy number
  • Effective and expiration dates of the policy. Your policy provides coverage between these two dates, inclusively.
  • Mortgagee's name and address. This is the bank or mortgage company that holds your loan.
  • Coverage information. Expect to see the different types of coverage you have selected listed here along with your deductible and the limits for each line of coverage.
  • Premiums. This is how much you will pay each month for coverage.
  • Name of the loss payee. This is the person or entity that is entitled to all or part of the insurance proceeds when a claim is paid out.
  • Any special conditions or changes made to the policy.
Since policies can vary widely, the best way to be sure about specific exclusions is to read your own policy.
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When you receive a copy of your policy, it's important to review all of the information on the declarations page for accuracy. Keep a copy of your declarations page in your files in case you find yourself with questions about your policy.

If you change or revise your policy at any time, a new declarations page will be issued to you reflecting the changes. Make sure to review and keep this new declarations page as well.

Definitions

A homeowners insurance policy always includes a definitions page. This is where the "fine print" of your policy is located. The definitions page defines vocabulary in your policy to make it easier for you to understand. It also states your rights as the policyholder.

A standard homeowners insurance policy insures the home itself and the things you keep in it. It is typically a package policy, which means it covers both damage to your property and your liability or legal responsibility for any injuries and property damage you or members of your family cause to other people.

Property damage coverage and liability coverage will be grouped into two separate sections on your policy.

Property Protection Coverage

Dwelling - This offers protection as a result of damage to the structure of your home, including plumbing and heating, due to a loss like fire or hail storm damage. It does not cover the normal wear and tear of your home or maintenance-related problems. You need enough coverage for the cost of rebuilding or repairing your home, minus the cost of the land. Determining replacement coverage can be somewhat complex, but Scrivens can help you with this process.

Other Structures - This includes coverage for detached structures and fixtures attached to the land. Some examples include a garage, garden shed, driveway, sidewalks, patio, fence, or swimming pool.

Personal Property - This covers the contents and personal items in your home such as furniture, clothing, and sporting goods. It also extends to your personal belongings anywhere in the world. Calculating the value of your belongings can be difficult, but these three easy steps will help you.

  1. Create extensive records of your possessions. We recommend that you take close-up and wide-shot pictures of individual belongings. Then make an item-by-item list so that if necessary, you can quickly skim it to see what items are documented in the photos. Some people find it easier to keep this list of belongings grouped according to the rooms they are located in. Others group their belongings by item type, such as jewellery, artwork, books, or furniture. However you decide to record your possessions, it's a good idea to store the information in at least two different places. Consider keeping a hard copy of all of your lists and photos in your office at work and also saving them to a folder on your computer, an external hard drive, or in the cloud.
  2. Learn the difference between policies that provide "fair market value" and "replacement cost". With "fair market value", once an item is lost, you'll receive the amount that your item is currently worth. So if you purchased a couch five years ago for $500 dollars, now it may only be worth $100. If your policy provides you with the "replacement value", you'll receive the amount it costs to replace the item with another one of comparable value. So in this case, though that $500 couch is now worth $100, it would cost $900 to replace it with a comparable one. Replacement value covers you for the $900.
  3. Do your research. Even though your kitchen table may have cost you $500 when you first bought it, a comparable new one could cost you double that amount, so that's the amount you want to be covered for. Search online and visit local furniture stores to see what comparable prices are.

Loss of Use - If a covered loss forces you from your home, such as a fire, loss of use provides a safety net for additional expenses over and above your normal living expenses while you are unable to live in your home, up to the policy limit.

Liability Coverage

This portion of your policy covers against lawsuits for bodily injury or property damage that you or your family members may cause to other people. It pays for both the cost of litigation and any court awards, up to the limit of your policy. It covers you whether you are at home or away.

If a visitor is injured in your home, you will not need to incur any expenses except for those associated with emergency first-aid (if applicable). All additional costs of the injury will be paid to the injured person up to the policy limit without a liability claim being filed against you.

Additional Considerations

Damage caused by many disasters is covered in a standard homeowners policy, but floods, earthquakes, and other specific types of occurrences are generally excluded. Since policies can vary widely, the best way to be sure about specific exclusions is to read your own policy. Scrivens can provide additional explanation if there is anything you have difficulty understanding.

Make sure to set aside some time each year to review your policy and ensure that the limits and coverage you have selected are right for you.

Evaluate your needs based on your provincial regulations, the value of your home, the money you have in savings, and the amount of risk you feel comfortable taking. Then, make sure to read the entire insuring agreement - especially the exclusions - to guarantee that you are covered in every situation that is necessary for your lifestyle.

If you have any questions about your homeowners insurance policy or would like a home insurance quote, please contact Scrivens today!

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