by R W Owen

Created on: July 06, 2009   Last Updated: July 28, 2009

Homeowners' policies contain three preliminary sections (a declarations page, a general agreement, and the definitions section), and two coverage sections (Section I - Property Coverages and Section II - Liability Coverages).

The declarations page lists the coverage purchased (including limits and deductibles), the premium charged for that coverage, and the coverage period. When a covered loss occurs, the insured pays the deductible before insurance begins. Higher deductibles mean lower premiums, but increase the money the insured needs to keep available. The declaration page also indicates the policy number and identifies the insurer, insured, and property insured. Endorsements, indicated on the declarations page, allow customized coverage for specific needs.

The General Agreement makes the coverage listed on the declarations page dependent upon the policyholder's payment of premium due and compliance with policy provisions. The Definitions section defines key words and phrases.

Each homeowner's policy also contains two coverage sections explaining the terms of the coverage listed on the declarations page. The first of these sections, Section I, explains property coverages, and consists of:

Coverage A - Dwelling covers the insured's home, attached fixtures, such as built-in appliances, and structures attached to the home, such as a garage. Coverage A excludes damage to land and to structures separated from the home by a clear space, such as sheds. On the declaration page, the Coverage A limit represents the money available, in the event of a loss, to replace or restore the insured home. This limit does not represent the home's purchase price, current market value, or any outstanding mortgage debt. Instead, it should represent 100% of the cost to replace the home; any coverage shortfall, when a loss occurs, becomes the insured's responsibility. Since the land will remain to build upon, it is not considered in this limit's calculation.

Homeowners' policies consider the potential for losses over many years and future inflation can make the initial coverage limits of the policy insufficient for the coverage of future losses. Because of this, many insureds elect the inflation guard endorsement, which indexes coverage limits to inflation indexes in order to ensure that limits are sufficient to replace the home in the case of loss.

Coverage B - Other Structures covers losses to other structures on the insured premises, including

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