by Pamela Grundy

Created on: November 17, 2007

Homeowner's insurance limits are not difficult to understand, but they do not represent what you might think at first glance. A homeowner's policy is divided into two basic sections: property coverage and liability coverage.

Property coverage is what most people think of first when they think of homeowner's insurance, and is referred to as Part One. Property coverage is divided into four basic parts labeled A, B, C, and D. Coverage A is coverage for the actual structure of your home. If you were to pick up your home and shake it so that all the contents fell out, Coverage A would cover what was left: the frame, the roof, the walls, the floor, the cabinets and window hardware, anything attached to the home permanently. The only part of your home not covered here is the foundation, although most companies do allow you to purchase some limited coverage for basement water damage. The limit Coverage A is typically much higher than what you could get for your home on the real estate market, a fact which often upsets people and makes them feel they are being ripped off. It shouldn't. Coverage A does not represent your home's fair market value, but rather the estimated cost of removing debris and rebuilding your home in the event of a total loss. Skimping on this coverage is a bad idea, and most reputable insurance companies will not all you to do it. More rarely, for people who live in very popular areas around resorts or on the oceanfront, the Coverage A limit will actually be less than the home's real estate value. This is because Coverage A is only meant to restore your home to what it was before the damage, not garner you a profit. A very few states require companies to actually pay out the exact amount of Coverage A to the homeowner, that is, if you are insured for $100,000 and your home is destroyed they have to cut you a check for $100,000, no more, no less. But in most states this number is flexible, and companies will only pay out what it costs to rebuild, even if it is bit less or a bit more.

Coverage B limits are usually 10% of whatever the Coverage A limit is. This part of your policy is for any structure that is separate from the home itself, such as a garage, a gazebo, or a shed. Most states require that companies provide at least 10% of the home coverage on the policy whether you have a garage or separate structure or not. If you have a structure on your property that is worth more than 10% of your home coverage, by all means ask to increase the limit

• 1
• 2
• Next Page >>