Home Insurance Basics

Are all homeowners policies the same? No! There are 3 types of insurance, and it's important to understand the general characteristics of each before purchasing your policy.

Dwelling policies are also called fire policies, dwelling fire policies, and Texas Dwelling policies depending on the carrier. This is the most basic property policy available.
-It is an actual cash value policy and only covers the property if it is damaged by a fire
-The fire can be caused by a number of things including: electrical short, gas leak, cooking-related fire, flammable object, lightening,
-Since it only covers damage by fire, there is no coverage for hail, wind, water, etc. This category is almost never used on a persons primary home but is found on some types of rental property

Actual cash value policies are a very common offering from various carriers and offer more coverage than a fire policy. They are typically referred to as a named perils policy in that they cover only the perils that are named in the policy including:
-fire & smoke
-theft
-vandalism & malicious mischief
-wind & hail
-and potentially more if added optionally (referred to as "endorsed")
-Claims are paid on a depreciated basis.

Replacement cost policies offer the homeowner more protection in the event of a loss.
-Claims are paid on what it would cost to replace a specific loss such as a roof, furniture, the home, etc.
-Replacement cost can apply to the home, the contents or both
-The amount of replacement cost is limited to the amount of coverage applied to the dwelling and/or contents

This is different from what many people refer to as guaranteed replacement cost where the home can be replaced even if the cost to rebuild it exceeds the amount the home is covered for. Most carriers have changed their policies to limit the amount of replacement cost to the amount of coverage applied to the home and/or its contents.

Each of these categories of homeowners have their place depending on the coverage that is wanted & needed. How much the buyer wants to spend may also influence that decision, as well as the requirements of the mortgage company.

The bottom line is to know what you're buying and what coverage you need or have. No one wants to be surprised after they submit a claim!

Source/More Information:  Ed Wise, Liberty Mutual Insurance