Insuring your home or business can be a daunting task. Policy language is often confusing, leaving policyholders wondering if they are adequately covered. While the questions below are not intended to be an exhaustive list, they will serve as a great starting point to better understanding your policy and knowing its limitations.
1. Do I have an all-risk or named peril policy?
Understanding the type of policy you have is the first step in understanding the kinds of covered losses. An “all risk policy” is a common homeowners insurance policy covering general damages such as fires and weather-related damage. This type of policy will contain exclusions (exceptions) for other types of damage such as floods, war, and neglect.1 A named peril policy limits coverage to specific kind of property losses. This policy will cover the property only when a specific kind of loss occurs – as named in the policy.2 Different homeowners insurance forms (e.g., HO-3 versus HO-1) differ in the number of covered perils.
2. Do I have replacement cost or actual cash value coverage on my property?
Understanding the difference between Replacement Cost Value (“RCV”) and Actual Cash Value is critical to understanding how you will be indemnified in the event of a loss. If your policy provides RCV on the dwelling or contents you will receive the cost to completely replace your property of “like kind and quality” without deduction for depreciation. It is important to understand the maximum limit on your replacement cost coverage. If your policy provides ACV on the dwelling or contents you will receive the cost to repair/replace the damaged property of like kind and quality, less depreciation.3 Depreciation is the decrease in the property’s valuation from the time of purchase to age or wear and tear.4 We often see ACV with contents coverage. Naturally, insureds often prefer RCV coverage on both dwelling and contents to prevent heavy depreciation in the event of a total loss.
3. Do I know the rebuild cost of my dwelling?
The rebuild cost of your dwelling is not necessarily its “market value”. Therefore, it is important to request your agent complete a rebuild cost estimator/calculator to determine the appropriate dwelling limit.
4. Does my policy contain an inflation guard endorsement?
Property costs and valuations are constantly increasing over time. To help ensure properties are not underinsured, many policies offer inflation protection, automatically increasing the policy coverage by a small percentage every renewal.5
5. Are my collectibles and other valuable personal property adequately insured?
Many policyholders are surprised to learn their most valuable items are not properly insured in the event of a catastrophic loss. Some policyholders may need to seek out separate collectibles insurance or schedule personal property items such art, antiques, sports memorabilia, jewelry and other expensive items. In doing so, it is recommended to have these items professionally appraised.
6. Are adjacent structures and landscaping covered under my policy?
While most policies provide some basic limited coverage for adjacent structures such as sheds, fences, detached garages and landscaping, policyholders should always ensure these items are adequately insured in the event of catastrophic weather-related perils.6
7. Do I have flood insurance?
Most insurance policies do not include flood insurance. However, flood insurance is mandatory for properties in high-risk floor areas with mortgages from government-backed lenders.7 Given floods can happen anywhere, and can cause damage in excess of $25,000, flood insurance is often recommended to cover the dwelling and contents in the event of a flood in your area.8
8. Does my policy contain a lawsuit limitation?
A “Suit Against Us” provision in an insurance policy requires policyholders to file a lawsuit within one year of the date of loss.9 Some state laws override these provisions; however, it is important to understand whether your policy contains this provision to adequately preserve your legal rights.10