Different Types of Homeowners Insurance

As a homeowner you need to have either homeowner’s and/or dwelling fire insurance policy.  What is the difference between the two types of policies? Homeowner policy is a package policy that covers physical damage to property and legal responsibility for injury that occurs on the property. This type of policy offers three levels of coverage: actual cash value, replacement cost, and guarantee/extended replacement cost. These policies do not include coverage for flooding, earthquakes and poor maintenance.  A dwelling fire policy covers the structure of a property against damage from specific perils, like fire, wind, or hail, but typically not contents.  Homeowners who have multiple properties or have more than one house on their property need a dwelling fire policy to provide coverage for houses that they own but do not live in. This includes vacation homes, cottages, cabins, or investment homes like rentals.  Dwelling coverage policy will cover the costs of repairs or rebuilding when damage occurs and protects attached structures like decks, porches, and attached garages.  Dwelling fire policy does not provide liability coverage or contents coverage inside the home.  Homeowner policy provides coverage for unexpected losses to home, property, coverage to repair and rebuild the property, replace contents within the home, cover accidents that happen to homeowner or visitor while on the property, and living expenses from a covered incident when forced to live elsewhere temporarily.  Homeowners who are buying a home and need a mortgage to purchase the property will be required to have homeowners’ insurance policy.  Homeowner who owns the home out right is not required to have insurance. In this situation, the homeowner is considered self-insured.  If you own multi-properties, the only way to protect your valuable assets both inside and outside is to have both dwelling fire and homeowner insurance. Homeowners’ insurance has 2 ways to reimburse if there is a loss: First, actual cash value represents the amount equal to the replacement cost minus depreciation of a damaged or stolen property at the time of the loss.  Second, replacement policy the insurer will reimburse the insured the money needed to repair or replace the item with like kind using today’s cost.  In addition, insured is required to have a certain level of coverage before full replacement coverage kicks in.  The premium amount may be paid on a monthly, quarterly or annual basis.  Buyers with a mortgage often have their premium deducted monthly from their escrow account.  The amount of premium is impacted based on several factors, such as credit history, age of house, square footage and distance from fire hydrant.  Policy holder needs to know how to determine what perils your homeowner’s policy covers and what it does not cover.  There are 4 sections to insurance policy.  It can be remembered by remembering the word DICE.  D refers to the declaration which defines the premium and high-level coverages covered in the policy.  I refer to inclusions, reading this section the peril may indicate it is covered and now you think you have your coverage for that peril.  That is not necessarily true.  C refers to the procedure that must be followed when handling the claim between the policy holder and insurance company. E refers to exclusions, this is the most important section. If the peril is mentioned in this section, the peril is not covered by your insurance policy even though it is mentioned in section I.