A Simple Guide to Coverages and Deductibles

If you relate to one of these questions or statements, then keep reading. You might just learn something...

That is a small list, but this blog post will cover many more questions and statements that people can relate to, other than the ones listed. No more wasting time, let’s get straight to it....

Coverages

Like the title says, this section is for home insurance, not condo or townhome insurance. There will be other blog posts for that. If that bothers you, then at the bottom of this post there will be a link to another resource that should suffice. To better illustrate the coverages on a homeowners insurance policy, I have included a table that looks identical to the “coverages” section on a typical policy:

The table above illustrates the basic coverages that come on a homeowners insurance policy. Here is the breakdown of each:

Dwelling - This coverage is for the physical structure of your home and any structures that are attached to your home. An attached structure can be a garage for example. If your home or an attached structure is damaged by a covered loss, this is where the money will come from in order to repair or rebuild it.

Other Structures - This covers a fence, shed, or detached garage. If one of these were to suffer a loss due to a covered loss, then the other structures coverage would pay to repair, rebuild, or replace it.

Personal Property - If you were to pick up your house, open all the doors and windows, turn it upside down and start shaking it, then your personal property would basically be everything that fell out. This is a very important coverage, mainly because you want to make sure you have enough of it. All of your belongings add up a lot faster than you may think.

Loss Of Use - If your home is damaged, and you are unable to live in it, loss of use coverage would be there to help you pay for any additional living expense that may occur while you are unable to live in your home. These can include but are not limited to hotel charges, food expenses, and utility expenses. Example: If you normally pay $500 a month for groceries, but now that you are unable to live in your home you have to pay $600, then this coverage would pay for the additional $100.

Personal Liability - This coverage will pay for bodily injury and property damage caused by you or one of your family members. If someone tripped and fell down your stairs, or your child broke a piece of the neighbor's property, then this coverage would be there to help defend you in the event you are sued.

Medical Payments - This coverage is for a guest who is accidentally injured on your property. It pays regardless if you or a family member were legally liable or not.


Once you have read through the definitions above, you may have wondered what exactly is a “covered loss.” Well, here are some examples of covered losses on the most basic of homeowners policies:

DISCLAIMER: These are very standard causes of loss. The majority of basic homeowners policies will cover these, but it is important to talk with your agent before assuming you are covered!

What is a Deductible???

Here’s Google’s definition ↓

“A specified amount of money the insured must pay before the insurance company will pay a claim.”

If that’s not clear, I'll elaborate. In an insurance policy, a deductible is the set amount of money you agree to pay in the event of a claim. Once you pay that set amount, then the insurance company comes in and pays the rest. So, let’s say your deductible is $1,000, and your roof suffers damage amounting to $8,000. You would then pay $1,000 (the amount of your deductible), and the insurance company would then pay the remaining $7,000. However, if your deductible is $1,000 and your roof suffers damage of $400, then you would have to pay the entire $400 yourself because the amount of damage did not exceed the amount of your deductible.

The higher the deductible = The lower the monthly premium

Customer: “That sounds fantastic! Let’s raise that sucker as higher as it will go! I’m trying to save money.”

Me: “Hold up there cowboy! You might want to learn a bit more about deductibles before you start saying all that!”

Low monthly or annual payments sound good. The only problem with that is depending on the amount of your deductible, all that money you thought you were “saving” by raising the deductible, could be gone the moment you have to pay out of pocket for a claim. Down in Spanish Fort, AL we have the threat of what’s called a hurricane! It’s not an issue of IF we will have another, IT’S WHEN! So that 10% deductible makes that premium amount look great, but if your home is worth $200,000, and your deductible is 10%, then you’ll have to pay $20,000 before insurance will ever kick in! Let that soak in before you start thinking about jacking up your deductible.

Sometimes all that information can be a bit overwhelming. So that’s all for now, but stay up to date with the blog for other “Starter Packs” on topics such as renter’s & condo insurance, life insurance, auto insurance, and much more!

 

Make Insurance Great Again!

-Harrison Horton