What Does Typical Homeowner's Insurance Cover?

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A typical homeowner's insurance policy tends to cover a few key categories of items. Learn about what a typical homeowner's insurance policy actually covers with help from an assistant professor of insurance at The American College in this free video clip.

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Video Transcript

Hello, I'm Kevin Lynch, Assistant Professor of Insurance here at The American College in Bryn Mawr, Pennsylvania. Right now I'm going to talk about what does a typical homeowner's insurance policy cover. There are a number of standard homeowner policies available in the United States. However, because all insurance in the United States is regulated at the state level, there are going to be slight differences in these policies depending upon which state you live in. However, all of the policies have the same basic structure. There are six major coverages provided in the typical homeowner's policy. They include Coverage A - Dwelling Coverage. Dwelling Coverage covers the house itself, the sticks and the bricks. Coverage B - Other Structures. This could be your fence, your pool, your detached garage, or an out building. Coverage C - Household Contents and Personal Property. All of the stuff that you have in your house is covered under Coverage C. Coverage D - Loss of Use. If you suffer a loss, say for example your home burns, while it's being repaired, you can't live there, you have to live somewhere else. All of the expenses that you will incur for those costs would be covered under loss of use. Coverage E - Personal Liability. Somebody walks up on your sidewalk and you didn't shovel the snow and they slip and fall, you're protected from the lawsuit by your personal liability. And Coverage F - Medical Payments to Others. This covers any medical payments that you have to spend to care for someone injured on your property. Now, this doesn't include you or your family members, it's people who don't live in your home. Now, all of the coverages, A, B, C and D are a function of Coverage A. What do I mean by that? Well, say for example you're dwelling coverage is $300,000 on your home. There are percentages that are found in standard policies which will dictate the value of the other coverages. If your Coverage A is $300,000, coverage B - Other Structures is usually going to be ten percent. So, therefore, you'd have $30,000 in coverage for other structures. Coverage C is normally going to be 60 percent. So, you'd have, on a $300,000 home, a $180,000 in coverage for C. D - Loss of Use is usually 20 percent, so there you would have $60,000 worth of coverage. Those four coverages area all a function of the amount of your dwelling. Liability and medical payments are different; liability is normally available in an amount from 0 up to $300,000 and medical payments are normally a $1,000 to $2,000 amount, but many companies will allow purchase up to $10,000. Now, that covers the different coverages on a standard policy. Now, let's look at some other aspects of your policy. In addition to understanding the coverages that are provided on your policy, it's important to know in the event you have a claim how that is going to be determine as well. So, let's consider the kinds of things you're insured for. Insurance terminology calls these perils and there are two types; open peril policies and named peril policies. Open parallels simply mean this, your policy covers you for everything except this list of items that we exclude. That's open perils. The alternative is named peril. There, we give you a list; these are the things you're covered for, if it's not on the list, you're not covered. So, which of those two would you prefer? Most people would like to have an open peril policy. Now, in the event that there's a claim, how are claims going to be adjusted? Once again, there's two methods. Method number one, Actual Cash Value, ACV, Actual Cash Value. What does that mean? That means that we're going to reimburse you for the actual value of the lost item on the day it was lost. So, if you had a five year old television, we're going to reimburse you for a television that's five years old. The alternative is full replacement cost. For full replacement cost coverage, we're going to replace your old item with the same item new. So, again, which would most people prefer? Full replacement cost, open peril policies. And in 49 of the 50 states in the United States, that policy is called an HO3 policy and it is the most common homeowner's policy in the United States. I'm Kevin Lynch with The American College in Bryn Mawr, Pennsylvania. We've just talked about what a typical homeowner's policy covers. For more information, go to www.theamericancollege.edu. Thank you.


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