An insurance policy is a legal contract between the insurance company (the insurer) and the person(s), business, or entity being insured (the insured).
Reading your policy helps you verify that the policy meets your needs and that you understand your and the insurance company’s responsibilities if a loss occurs. Many insureds purchase a policy without understanding what is covered, the exclusions that take away coverage, and the conditions that must be met in order for coverage to apply when a loss occurs. The SCDOI would like to remind consumers that reading and understanding your entire policy can help you avoid problems and disagreements
with your insurance company in the event of a loss. Show
The Basics of an Insurance ContractThere are four basic parts to an insurance contract:
It is important to understand that multi-peril policies may have specific exclusions and conditions for each type of coverage, such as collision coverage, medical payment coverage, liability coverage, and so on. You will need to make sure that you read the language for the specific coverage that applies to your loss. The Declaration PageThis page is usually the first part of an insurance policy. It identifies who is the insured, what risks or property are covered, the policy limits, and the policy period (i.e. time the policy is in force). For example, the Declarations Page of an automobile policy will include the description of the vehicle covered (e.g. make/model, VIN number), the name of the person covered, the premium amount, and the deductible (the amount you will have to pay for a claim before an insurer pays its portion of a covered claim). Similarly, the Declarations Page of a life insurance policy will include the name of the person insured and the face amount of the life insurance policy (e.g. $25,000, $50,000, etc.). The Insuring AgreementThis is a summary of the major promises of the insurance company and states what is covered. In the Insuring Agreement, the insurer agrees to do certain things such as paying losses for covered perils, providing certain services, or agreeing to defend the insured in a liability lawsuit. There are two basic forms of an insuring agreement:
The ExclusionsExclusions take coverage away from the Insuring Agreement. The three major types of Exclusions are:
Typical examples of excluded perils under a homeowners policy are flood, earthquake, and nuclear radiation. A typical example of an excluded loss under an automobile policy is damage due to wear and tear. Examples of excluded property under a homeowners policy are personal property such as an automobile, a pet, or an airplane. The ConditionsConditions are provisions inserted in the policy that qualify or place limitations on the insurer’s promise to pay or perform. If the policy conditions are not met, the insurer can deny the claim. Common conditions in a policy include the requirement to file a proof of loss with the company, to protect property after a loss, and to cooperate during the company’s investigation or defense of a liability lawsuit. DefinitionsMost policies have a Definitions section, which defines specific terms used in the policy. It may be a stand-alone section or part of another section. In order to understand the terms used in the policy, it is important to read this section. Endorsements and RidersAn insurer may change the language or coverage of a policy at the time of the policy renewal. Endorsements and Riders are written provisions that add to, delete, or modify the provisions in the original insurance contract. In most states, the insurer is required to send you a copy of the changes to your policy. It is important that you read all Endorsements or Riders so you understand how your policy has changed and if the policy is still adequate to meet your needs. Want to Review Your Policy?To obtain a copy of your insurance policy, please contact your insurance agent or company. < previous: Types of Homeowners' Insurance Policies There are various types of homeowners' insurance policies, but the one most commonly sold is based on the HO-3 policy by the Insurance Services Office (ISO), which is the minimum coverage required by most mortgage lenders. This policy is discussed in more detail below to give you an idea of what a homeowners' policy covers, but it does not cover all the details, and since policies differ widely, always read any policy considered for purchase. The 1st part of the policy consists of the declarations, insuring agreement, and definitions. Two major sections follow:
This policy provides divided coverage, meaning that each section has its own policy limits, independent of the other sections. Section 1 — Property CoverageDeclarationsThe Declarations section specifies who is insured and the location of the property, and deductibles. The persons insured include the owner of the policy and spouse, any relatives living at home, anyone living in the residence under age 21 and any relative who is a full-time student under age 24 or, if under the care of the insured, under age 21, who lived at the residence prior to moving away for school. Also covered for liability are animals, watercraft and employees providing personal service for the insured. For instance, a housecleaner that falls and hurts himself while cleaning your home, or a dog that roams around and bites someone is covered. Insuring AgreementThis short part stipulates that the insurer will provide you with insurance only if you pay premiums and follow all provisions of the policy. DefinitionsThis section provides definitions of important terms in the contract, which removes possible ambiguities, which not only helps the insured to understand the contract better, but it protects the insurer, since any ambiguity in an insurance contract is construed against the insurer by the courts. Coverage A: DwellingThis specifies coverage of the main residence and any attached structures, such as a garage. Materials and supplies for repair or new construction to the main residence is also covered. Land is specifically excluded. The amount of coverage on the dwelling determines the amount of coverage for other structures, personal property, and loss of use. Coverage B: Other StructuresThis covers any structure not attached to the main dwelling such as a garage or tool shed. The amount of coverage is limited to 10% of the main dwelling. Specifically excluded are structures rented out to others, structures to conduct a business, or to store business property, although there are some exceptions. Coverage C: Personal PropertyGenerally, all unscheduled personal property of the insured where the loss is verifiable and that is not normally covered by other policies is covered, regardless of where it is located. Thus, if a covered college student's computer is stolen at school, then the loss will be covered. The amount of coverage is limited to 50% of Coverage A, although this amount can be increased, if desired, by an endorsement. There are certain types of property with specified maximum amounts for any loss, if they are covered at all, because it would be difficult to verify the amount lost — such as a stolen wallet. A policy that didn't require verification of the loss would create a moral hazard that would tempt some insureds to inflate the amount of the loss. Hence, such losses are either not covered or only a token payment is made. For instance, there is a $200 limit on cash and a $1,500 limit for securities, tickets, etc. Other property excluded because of indeterminable value includes pets, business records, and various electronic cards, including credit and debit cards. Property that should be covered by other insurance policies includes the property of renters, and various types of transportation, such as motor vehicles, watercraft, and aircraft. Scheduled Personal Property EndorsementCoverage for property that should be insured under a separate policy specifically for that item — such as a stamp collection or jewelry — is also minimal or excluded. However, such items can be covered under the scheduled personal property endorsement, which is an endorsement specifically for valuable property, especially property that may vary widely in value. Such property includes:
Most scheduled personal property endorsements have an agreed value loss settlement, where the property and its value are agreed to when the endorsement is purchased. The scheduled property is insured against all risks unless specifically excluded. If there is a loss, then the insurer simply pays the amount listed in the schedule, which is independent of the amount of any other coverage. Coverage D: Loss of UseIf the main dwelling is unfit because of a covered loss, then this policy will cover loss of use expenses and income up to 30% of Coverage A. Additional living expenses are provided for renting a temporary residence while the main dwelling is being repaired. These expenses will also be paid if the insured is prohibited from living in their residence by the legal authorities, because of a fire next door, for instance. In addition, if part of the covered residence was rented out, then this policy will pay the fair rental value minus any expenses that would not continue because it is not being occupied. Section 1 Additional CoverageMiscellaneous coverages are listed in this section. This section also lists the deductible, which is usually $250 for each covered loss, although this can be increased to reduce the premium. For instance, increasing the deductible to $1,000 may decrease the premium by as much as 25%. Debris removal from a covered peril is covered as well as property temporarily moved to another location for safekeeping until the main residence is repaired. Reasonable costs to protect the property from further damage are also covered. Trees, shrubs, and other plants are covered up to a limit of 5% of the main dwelling, but no more than $500 for any single plant. Other covered items include collapse of a building due to specified causes, glass, and grave markers. Furnishings owned by the insured in an apartment or room located on the insured's premises that is rented out is also covered for Coverage C perils except theft. Perils Insured AgainstDwelling and Other StructuresThis policy is an open perils policy— thus, everything is covered except that which is specifically excluded, which is listed here: collapse of a building; freezing of water, unless adequate heat is maintained; fences, pavements, patios; theft of materials used for construction, or parts of a dwelling under construction; vandalism, if the property was vacant for the previous 60 days; mold, fungus, or dry rot; and many other exclusions not insurable, such as wear and tear. Personal PropertyThis section provides a named-perils coverage — only those perils listed are covered. Fire is a covered peril, even if it is a proximate cause of the destruction, rather than a direct cause. For instance, if firefighters have to break down a door to fight a fire, then the door is covered. However, the fire must possess 2 qualities before it would be considered a covered fire. There must be a flame or a glow. Scorching, for instance, wouldn't be covered. It must also be a hostile or unfriendly fire, which the courts have defined as a fire that burns outside of where it is expected. For instance, if some of your personal property somehow gets into the fireplace and burns, then it wouldn't be covered, because the fire in the fireplace is considered a friendly fire, since it is burning where it is expected. Smoke damage is covered, even from a friendly fire, as is any kind of explosion. Windstorm, hail, and lightning are generally covered. Damage from or within vehicles is covered, so if your personal property is damaged in an auto accident, then it will be covered. Other covered perils include, with some exclusions and conditions, theft, vandalism, riot, aircraft, falling objects, weight of snow, ice, or sleet, accidental discharge or overflow of water or steam, freezing, and volcanic eruptions. Section 1 ExclusionsThis section lists more general exclusions, which are generally not insurable risks:
Section 1 ConditionsThis section lists the conditions that the insured must abide by, and also explains various details of the policy. Duties After a LossTo receive insurance coverage, certain duties must be performed after a loss:
Loss SettlementOnly the actual cash value, which cannot exceed the cost of replacing or repairing the item, of personal property losses is paid minus the deductible. This also includes structures that are not buildings, and such items as carpets and appliances. However, a replacement cost endorsement can be purchased, which covers the cost of replacing the item without any deduction for depreciation. For the dwelling and other buildings, the replacement cost is paid, with no deduction for depreciation, but only if at least 80% of the value is insured; otherwise, a coinsurance penalty is applied. Because some disasters can destroy a home beyond repair, or where many homes are destroyed in the same area, rebuilding or repairing a home could cost significantly more than usual. For these cases, an extended replacement cost endorsement can be purchased that will pay 20% or more above the policy limits. However, the insured must insure the property for full replacement cost, and notify the insurer if there are significant alterations to the property that might change its value. Some insurers offer a guaranteed replacement cost policy, where the policy will pay 100% of the cost of restoring the property to its previous condition, even if it is more than the policy limits. However, the insured must insure the property for 100% of its value at the time of purchase. Because of the risks for insurers due to fraud and inflated appraisals, and higher costs in a major disaster, this type of policy is becoming rarer, and, in any case, much more expensive. Appraisal ClauseThe appraisal clause provides for a method of appraisal that is agreeably to both insurer and insured when there is disagreement of the value of a loss. In this procedure, both the insurer and the insured select an appraiser, then the 2 appraisers select an umpire. If the 2 appraisers agree on the value of the loss, then that is the value that is binding on both parties. If there is a disagreement, then the umpire decides which value accurately represents the loss. Mortgage ClauseThe mortgage clause protects the lender for the property. Most people borrow money to buy property, but the property must be insured before the loan is approved, with the mortgagee (lender) named in the policy. In the event of a loss, the mortgagee will be compensated to the extent of its insurable interest, even if the policy is violated by the mortgagor (borrower). Other ProvisionsThere are several other provisions in this section; many are common to all insurance contracts, such as nullifying coverage because of fraud or concealment, who is paid in the event of a loss, and a stipulation that any legal action commence within 2 years of the loss, and after all requirements of the policy have been complied with. Other common provisions include allowing the insurer to repair or replace property at its option, which it will often do for personal property because its bargaining power allows it to buy many things for a lower price than most consumers could get it for. Also, the insured does not have the option to abandon the property by leaving it to the insurer for the full value of the loss. In cases of total destruction, the insurer can pay the insured for his loss, or it can pay for the full value of the property and take possession of it, but the choice is the insurer's, not the insured's. Section 2 — Liability CoverageSection 2 details the personal liability coverage provided by the HO-3 policy. Coverage E: Personal LiabilityIn cases that lead to litigation for personal liability of the insured, the insurer will pay for the defense of the insured and any claim imposed by the court on the insured, up to the policy limit. This coverage, does not cover business liability or liability arising from the use of a motor vehicle, which should be covered by separate insurance policies specific for that coverage. The minimum liability coverage is $100,000 per occurrence, defined as a single accident, or damage resulting from a prolonged exposure to the same set of conditions. Note that personal liability is covered regardless of where it occurs. For instance, if you break an antique at a shop, your homeowner's insurance will cover you. Coverage F: Medical Payments to OthersCoverage F covers people other than the insured, and regardless of whether the insured is legally liable for the injury. The insurer will pay reasonable medical expenses for other people who are on the insured's location, or by the activities of the insured, resident employees of the insured, or animals owned or in the care of the insured. For instance, if your dog runs away and bites someone, then you would be covered. In fact, dog bites account for 1/3 of the claims. Another example under Coverage F: If your child and a neighbor's child are playing in your yard, and they are both injured, the neighbor's child would be covered, but not your child. Section 2 ExclusionsMost of the exclusions under Section 2 are commonsensical. The 1st section applies to both Coverage E and Coverage F. There is no coverage for activities that should be covered by other, more specific policies. For instance, motor vehicles are generally not covered, nor is watercraft, aircraft, and hovercraft liability covered, except under specific conditions. Intentional torts are not covered. Liability for business activities and professional services are generally not covered. Other specific exclusions include war; communicable diseases; sexual molestation, corporal punishment, or physical or mental abuse; and liability arising from controlled substances. Exclusions specific to Coverage E include:
Exclusions for Coverage F include injuries to resident employees outside of insured locations, and injuries to people who regularly reside at the residence but who are not resident employees. Section 2 Additional CoverageClaim ExpensesMost expenses related to litigation for personal liability are covered, and is over and above the policy limits for personal liability damages, including:
Damage to Property of OthersAny accidental property damage caused by the insured will be paid by the insurer for replacement cost, up to $1,000 per occurrence, even if the insured is not legally liable for the damage — to preserve good neighborly relationships. Thus, if you break something at a neighbor's party, you'll be covered. However, the damage will not be covered if the cost exceeds $1,000 unless the insured is legally liable for the damage. There are many exclusions to this section, which can be classified as damage that should be covered by other insurance, such as business liability, or damage that is covered by another part of this policy. Any intentional damage caused by an insured who is older than 12 is not covered under this section. Other ExpensesOther expenses that are covered are first-aid expenses for a covered injury, and special loss assessments, such as what may be imposed on the insured by the insured's homeowners association. Sections 1 and 2 ConditionsThis section contains many conditions that are common to most insurance contracts: waiver or change-of-policy provisions, cancellation, nonrenewal of the policy, assignment of the policy, assigning subrogation rights to the insurer, liberalization clause, and what happens if the named insured or spouse dies. How to File a Homeowners Insurance ClaimTo Start
Prepare for the Adjuster
Document All Your Transactions
Public Adjusters
External Links
Which of the following is a general exclusion under Section I of the homeowners 3 policy?Which of the following is a general exclusion under Section I of the Homeowners 3 policy? Losses due to the failure of the insured to use all reasonable means to save and preserve property after the time of a loss.
Which of the following is a section I exclusion in the homeowners policy?Which of the following is a Section I exclusion in the Homeowner policy? A Governmental action is the destruction, confiscation, or seizure of covered property by order of the government and is excluded in the Homeowner policy.
What are examples of Section 1 Additional coverages?Perils insured against are Fire, Lightning, Explosion, Aircraft, Riot, Vehicles, Vandalism and Theft.
Which of the following perils is covered by an HO 3 Special homeowners policy form?This type of coverage is referred to as open perils coverage, with a peril defined as any risk or cause of loss to your home. Damage to your personal property, on the other hand, is only covered on a named perils basis with an HO-3.
...
HO-3 coverage features.. |