Understand your home insurance policy | Stop overpaying

Warren Oberholser
Warren Oberholser
Published on May 6, 2021

Hi, I’m Warren Oberholser. I’m a realtor in the East Bay Tri-Valley area in Northern California. My goal is to help both buyers and sellers get maximum results for one of their biggest investments, their home.

Understanding your homeowner’s insurance policy can save you stress and money

Understanding your homeowner’s insurance policy. In this BLOG, I’m going to break everything down so you have a thorough understanding, what’s in your homeowner’s insurance policy. And most important, so you can decide if your current policy is right for you.

Reading a policy for the first time can seem like its a different language

Do you feel like you’re reading a foreign language when you’re looking at your homeowner’s insurance policy? Well, don’t worry. You’re not alone. Where simple language that’s easy for the layperson to understand will suffice, the typical homeowner’s insurance policy is loaded with industry jargon. So grab a cup of your favorite coffee and your policy. We’re going to look through it and make some sense of it.

So, I need to point out I’m a licensed realtor, not a licensed insurance agent. Therefore, any specific questions, please reach out to the appropriate parties who can best address your needs and questions.

Pay close attention to the ‘condition clause in your policy

Deciphering Insurance-ese

We’re going to start with Deciphering Insurance-ese. Pay very close attention to the condition clause in your policy. This sets forth your obligations and duties. It may be the most important clause in the entire contract, for if these conditions are not met, your claim may be denied. One of the most common terms found in most homeowner’s insurance policies is the actual cash value. This number reflects the amount the company will pay in the event of a disaster. It is typically equal to what it would cost to replace the home, minus depreciation. Many homeowners confuse actual cash value with replacement value, which is the amount the company will pay without the depreciation deduction, yet still subject to the policy limits.

You’ll find a description of how your company arrived at this figure under the portion of your policy for the claims’ settlement provision. Now, the section in your policy for functional replacement costs describes the determination of replacement value.

Co-insurance can be confusing

We’ll pay, but so will you

The next item we’re going to look at is, “We’ll pay, but so will you.” Co-insurance is a term that not only confuses those in the market for homeowner’s insurance, but also health insurance. In a homeowner’s policy, you may find this concept listed as insurance devalue. The first thing to understand about co-insurance is that it only comes into play in the event of a partial loss. Now, under this section in your policy, you’ll see a percentage. This provision defines the amount of the total damage that the company will cover. Some insurance companies recommend, if you don’t want to be insured at full value, then you should at least obtain a policy with 80% coverage.

So in this case, the homeowner insurance policy will pay up to 80% of the loss and the homeowner pays 20%. Now, to add a little more confusion, this clause only comes into play when the loss and the policy limit fall below the co-insurance percentage. So your policy’s deductible is the amount you pay in the event of a disaster. This amount may be listed as a specific dollar amount or a percentage of the home’s insured value. Before I leave this section, it’s important to understand, the deductible amount determines the premium or the amount you pay for your insurance policy. So if the deductible goes up, the cost of your insurance goes down. And in reverse, if your deductible goes down, the cost of your policy will go up.

What happens if your home is so badly damaged, you no longer can live in it until it is repaired or replaced? The loss of use portion in your policy will spell this out. It’ll explain how much you’ll be reimbursed for expenses occurred to find additional shelter during this time.

Endorsements

To be properly advise you may want to consult with an insurance rep or an attorney

Endorsements are only good in politics. Attached to your policy are endorsements. These forms modify the term of your policy in some manner. This is the toughest part of the insurance policy to understand for most homeowners. Keep in mind, some of these endorsements may negate policy clauses or place conditions on them. If you have any questions on this part of your homeowner’s policy, consult with your insurance rep or an attorney.

Perils addresses theft and fire losses

Perils

The perils in your insurance policy. As you read through your insurance policy, you may notice a reference to perils. The term perils are then classified as either open or named. And this is where the jargon takes a turn towards the ridiculous.

Now follow me on this. The peril is the event that caused the loss, such as a fire or a theft. If your policy provides for open perils, it will name which ones are excluded from the coverage. Now, on the other hand, if you own a named perils policy, the policy will list every one of the perils that are covered. If you have concerns about the replacement of your personal possessions in your home, pay close attention to this part of the policy. You may have an open perils clause for your home and a name parallels clause for its content. So this is why updating your coverage as you acquire new possessions is so important.

You may need additional coverage for floods and earthquakes

Additional Coverage

Something to keep in mind, if you live in an earthquake country or in a flood zone, you’ll need to purchase an additional policy to cover these. You may not be able to purchase this type of policy on the open market if you live in a high-risk area, but there are government-mandated insurance plans available. So, check with your state’s insurance commissioner for details on these types of plans.

Now, if you live in an area of high risk for hurricane activity, your insurance choices may become even more confusing. While most policies cover damage or loss from the hurricane, they won’t cover any damage from the ensuing flood. Policies offered in hurricane-prone regions are definitely a mixed bag, with some offering limited coverage and others requiring a higher deductible. With homeowners in earthquake-prone regions as we have in California, check with your state’s insurance commissioner about the government-mandated insurance plans that provide coverage, that can’t be obtained on the open market.

Always best to do your own due diligence

Due Diligence

The last area I want to discuss for your homeowner’s insurance policy is make sure you do your own due diligence. It’s important to take your time when purchasing a homeowner’s insurance policy and to never make assumptions based on the word of the insurance agent. Learn how to read your insurance policy and change it immediately, if it doesn’t meet your needs. According to the experts at United Policy Holders, when shopping for insurance, make sure you have enough insurance to replace your home, not the land at full value.

Also, make sure you’re protected against regional risks, such as earthquake and floods, and that you’ve shopped around for the best price and have received all the discounts, which you’re entitled to. In a nutshell, although not all homeowner insurance policies are the same, and they do vary in coverage, a policy typically covers the house and other structures on the property. Keep in mind, personal possessions inside your home are covered, although price, your items may require additional coverage as with your liability coverage in the event someone is injured on your property. And one last point, earthquake and flood damage is usually not covered. And you’ll usually need to buy separate coverage for these events.

Well, that wraps up this video. Hopefully this review helps you better understand your homeowner’s insurance policy. Again, for any specific questions, please reach out to somebody who’s qualified on this subject.

I hope you enjoyed this article. Please let me know if you have any questions. Warren

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Hello…I work with both buyers and sellers in the Tri-Valley area of Northern California. The Tri-Valley is comprised of 6 cities: Pleasanton, Livermore, Dublin, San Ramon, Danville, and Alamo. To better understand what each city has to offer, I have created a Pros and Cons video and BLOG for each – (Pros & Cons for Pleasanton, Pros & Cons for Livermore, Pros & Cons for Dublin, Pros & Cons for San Ramon, Pros & Cons for Danville and Pros & Cons for Alamo). If you are thinking about purchasing or selling a home, please reach out to me by text, phone, or email. If it is convenient, I can schedule a Zoom chat so we can discuss your home goals. Wishing you all the best on your home journey. Cheers!

Warren Oberholser

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Warren Oberholser

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ALL MATERIAL PRESENTED HEREIN IS INTENDED FOR INFORMATIONAL PURPOSES ONLY. THE INFORMATION CONTAINED HEREIN HAS BEEN OBTAINED THROUGH SOURCES DEEMED RELIABLE BUT CANNOT BE GUARANTEED AS TO ITS ACCURACY. SUBJECT MATERIAL MAY HAVE ERRORS, OMISSIONS, CHANGES OR WITHDRAWAL WITHOUT NOTICE. ANY INFORMATION OF SPECIAL INTEREST SHOULD BE OBTAINED THROUGH INDEPENDENT VERIFICATION.

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