Speaking the Homeowners Insurance Lingo

Speaking the Homeowners Insurance Lingo

Don’t be afraid to ask questions before you sign on the dotted line.

Have you ever actually tried to sit down and read your homeowners insurance policy? No, I’m not just talking about skimming through while your insurance agent fills in the blanks. I’m talking about actually taking the time to read through each part of your homeowners insurance policy to figure out what, exactly, is included in your coverage.

Chances are if the answer to that question is yes you probably ended up throwing it down in disgust five minutes later after figuring out that it in no way, shape or form resembled English.

Believe it or not, most homeowners have no idea what their insurance policy says. They only know what their insurance agent has told them, because they don’t want to have to take the time to sit down and figure out the fine print on their policy-or translate the large print into ordinary English rather than insurance-ese. This can come back to haunt them, however, when the time comes for them to file their first homeowners insurance claim.

If you don’t know what your homeowners insurance policy says you have no way of knowing what’s covered by your policy and what’s not, and you may find yourself paying for thousands of dollars in bills that you might not have been responsible for otherwise. Here are the basics of your homeowners insurance policy broken down into clear, simple English:

a) Actual Cash Value vs. Replacement Cost-There are several different methods

Most companies have six to eight standard types of homeowners insurance, usually labeled as HO-1 through HO-8. Before signing on the dotted line for your homeowners insurance policy be sure you know what type of coverage you have and what, exactly, is included.

homeowners insurance providers use to figure out how much they’re going to pay you for your loss after your property has been damaged or stolen. Most homeowners prefer to use replacement cost rather than actual cash value. Why? Think about how much your television cost six years ago. Now think about what it would cast to walk into a store and buy a similar one today.

Replacement cost doesn’t take factors like wear and tear into consideration, allowing you to replace your property with ease. Actual cash value, on the other hand, takes depreciation into consideration and may reimburse you far less than you paid for whatever you lost in the first place. Replacement cost may come with a slightly higher premium, but it’s usually worth it in the long run.

b) Premiums vs. Deductibles-Your insurance policy premium is the amount you pay to your insurer monthly or annually to maintain your insurance, your deductible is the amount you will pay in the event of a loss before your insurance company will reimburse you. A higher deductible usually equals a lower premium, and vice versa.

c) Named Perils vs. All Perils-Many homeowners insurance buyers are confused about the difference between named perils and all perils. In a named perils policy the homeowner is protected only against the hazards named in their policy (i.e. wildfire, hurricane, etc.). If anything happens that’s not on that list, you’re going to be left holding the bill. All perils, on the other hand, protects you from all perils except those specifically stated in your policy (a list that usually includes flood and earthquake damages and any damage to your home you inflict yourself).

d) Non-renewal vs. Cancellation-A non-renewal of your homeowners insurance policy is simply the company’s refusal to renew your policy when it has expired and doesn’t usually carry any penalties. A cancellation, on the other hand, occurs when either you or your insurance company stops coverage before the policy’s expiration date and may, in fact, include some form of penalty.

If we went through all of the terms you’d need to know to read through your insurance policy we’d be here all day (which is why they make dictionaries for that sort of thing!) but these will help you get started. Remember, when it comes to your homeowners insurance policy ignorance is definitely not bliss. The last thing you want to do is find yourself holding the bag for thousands of dollars worth of repair bills you shouldn’t have to pay because you didn’t take the time to figure out the ins and outs of your insurance policy before signing on the dotted line.

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