Finer Points Homeowners Insurance Policy
We Offer All Types of Insurance
You purchased a policy and now have peace of mind in knowing that your home is insured. Emergencies do happen and you are prepared…. but do you really understand the policy that you will rely on if your home or property is damaged or stolen?
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Types of Coverage
There are two types of coverage used to cover a loss to your property. The first is All Risk, also known as an Open Perils policy. The other is the Named Risk, or Specified/Named Perils policy.
The Named Risk policy only covers the risks outlined in the policy. No other damages or claims are covered except those specifically listed. This is also called a Specified or Named Perils policy.
The All Risk policy covers all risks, just as the name implies. Any exclusion of coverages must be spelled out in writing in the policy. It is also called an Open Peril policy. It is up to the insurance company to prove that the perils are not covered in the policy.t
If we compare these two policies we understand that the All Risk policy covers a broader list of perils. Yet there are still items that would not be covered. However, those things that the All Risk policy does not cover must be specifically listed in the policy. The Named Risk policy is written to only cover specified perils. If a peril is not listed in the Named Risk policy, it is not covered.
Now let’s talk about Replacement Cost vs Actual Cash Value. If you ever need to file a claim, you will find these terms very important. To understand these two value terms you must first understand what depreciation is so let’s start there.
The Texas Department of Insurance’s (TDI) website defines depreciation as the:
Decrease in the value of property over time due to use or wear and tear.
Defined by TDI is :
Pays the dollar amount needed to replace the structure or damaged personal property without deducting for depreciation but limited by the policy’s maximum dollar amount.
Actual Cash Value (ACV)
(Replacement Cost – Depreciation). The Office of Public Insurance Counsel defined ACV as:
Actual Cash Value coverage factors in depreciation costs to your claim and pays you the costs to replace or repair the damaged property, less this depreciation and less any applicable deductible amount.
Think of how it relates to real life. Teresa purchased a 20 year old house 5 years ago. The roof has never been replaced and she purchased an ACV homeowners policy because it was the cheapest insurance. Under the ACV policy, if a storm occurs and the roof is destroyed, the insurance company would not pay Teresa for a new roof. At 20 years old the roof has little to no value left. Subtract the depreciation and the deductible, the insurance has no reason to send a check for the claim.
If, on the other hand, the same event occurs, and the policy covers replacement cost, Teresa would get her roof replaced, assuming the deductible is satisfied. These examples were simplified for explanation purposes, but each claim must go through the claim process to determine liability.
During the hail storms of 2016 in San Antonio, many customers found out the hard way that their policies were different than they thought, when they needed to file their claims. Many customers with ACV policies received partial payments to replace their roofs. Several received no settlement checks due to the age of their roof.
This is an important feature of your policy that you need to be aware of. The deductible is the amount the homeowner is financially responsible for before the insurance begins to cover the loss. A common deductible amount is 1% of the dwelling amount. Most lenders prefer to see this amount as a deductible.
Let’s say for example, a hail storm has sweeps through the city and leaves damage on your roof. Your home insurance policy shows the dwelling amount as $250,000 with a 1 % deductible. This means $2500 comes out of pocket first before the insurance company writes a check for the damages. If damages are below $2500 the insurance will not pay out on the claim.
The amount of your deductible affects your premium. If you have a high deductible your premium will be much lower. If you choose a smaller deductible, be prepared to pay a higher premium.