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Homeowner Insurance: Property Coverage (Section 1)

A homeowner policy is made up of two sections, Section 1 Property and Section 2 Liability.  This blog post will focus on Section 1 which outlines the four property coverages provided by a homeowner policy.  Those four coverages are as follows: 

Coverage A Dwelling:  This coverage pertains to the actual house itself.  The limit shown on the policy in this section is the amount of insurance the policy will pay out if the house was totally damaged.  It Is important to understand that this limit of insurance should be based on Reconstruction Costs (the amount it would take to rebuild the house) instead of Market Value (the amount you can buy or sell the house on the real estate market).  For more details on this check out our Reconstruction Cost vs Market Value article.  The dwelling limit of insurance will drive the other three parts of Section 1 Property so for example purposes let's say our Coverage A Dwelling limit is $200,000. Homeowner Insurance: Property Coverage

Coverage B Other Structures:  Other Structures are property located on your land that are not permanently attached to your home.  This would be things like detached garages, fences, sheds, barns and pools to name a few.  Back in the 50's this was a much more common concern to have Other Structures coverage because the norm was to have a detached garage.  Today many garages are part of the house, so this coverage is not as much of a focus on new homes.  The homeowner policy, however, automatically includes this coverage in most cases so even if you do not have a need for it, still it is there.  The limit for this coverage is usually 10% of the dwelling limit so if our Coverage A is limit is $200,000 then our Other Structures limit is $20,000.   

Coverage C Personal Property:  This section covers your contents, your personal belongings inside the house, such as TVs, clothes, furniture, pictures, etc get its coverage.  The important thing is to be sure that you have replacement cost coverage for your Personal Property and not actual cash value.  If you have actual cash value, it means they will consider how old your stuff is and not give you enough money to go out and replace your items without having to go buy used.  If you have replacement cost coverage you can go replace your furniture with new furniture from a store and the policy will reimburse you the full amount.  Coverage C Personal Property is also derived from the Coverage A Dwelling and usually is 70% or 75% of the amount.  This means that if our Dwelling limit is $200,000 then our Personal Property limit would normally be $140,000 or $150,000. 

Coverage D Loss of Use:  Loss of Use means that if you have a claim on your house that makes it so that you cannot live in the house for a period of time, the homeowner policy under this section will help pay for your lodging expenses and some of your eating out expenses (usually 1/3rd of your meal expenses).  This loss of use might be for a few days or a few months depending on the extend of your homes damage.  The limit of coverage given under this section can vary from company to company.  Some companies give a time period they will cover it for (example 2 years) or they will just pay whatever the amount of loss is (actual loss sustained).  Some companies, like how they do it on the Other Structures and Personal Property section, give a percent (usually 10%-20%).

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