Policy Limits Explained
Wednesday, October 3, 2018
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Declarations Page:
Homeowner policy dollar limits are important to understand. The Declarations Page on the front of the homeowner’s policy shows how much coverage is available to the homeowner. The payable limits are listed as Coverage A through F. Each Coverage section stated limit, controls the maximum dollar amount the insurance company will be required to pay out.
Coverage A states the payable dollar limit payable on the dwelling structure-the home itself;
Coverage B states the payable dollar limit available on a structure not attached to the home such as a guest-house or detached garage;
Coverage C states the payable dollar limit for personal property contained in Coverage A and B structures;
Coverage D states the payable dollar limit available when Coverage A and/or B structures cannot be used;
Coverage E states the payable dollar restriction for private damage springing up to third individuals because of the homeowner’s personal member of the family’s or puppy’s acts which reason damage.
Coverage F states the payable dollar limit to third persons for medical treatment resulting from injury on the homeowner’s property.
By way of example, a standard insurance policy, (a policy without a Guaranteed Replacement Endorsement), in which the declarations page states the home is insured for $300,000.00, will only require the insurance company to pay the homeowner a maximum dollar amount of $300,000.00 should the home be destroyed. This will be the case even if it would cost more to replace the home. Given the rising cost of housing, labor and materials, the homeowner should regularly update the dollar limits stated on the Declarations Page with the insurance company agent or representative.
Arriving at Limits in the Standard Homeowner’s Insurance Policy:
There are many coverage limits depending on the type of homeowners insurance purchased by the homeowner. In order to explain typical homeowner’s policy limits, this article will use the Insurance Services Office's standard HO-3 policy, for this section only, to explain how policy limits work. Given the estimation that over 84.2 percent of insurance policies in the United States are HO-3 policies, it is appropriate to use the HO-3 policy for this explanation. The reader should be warned that other types of policies may have different limits and applications and he should consult his insurance agent or company if questions arise.
In the standard HO-3 policy, the Coverage B limit will usually be equal to 10% of the policy limit on Coverage A. The HO-3 Coverage C limit, which covers losses to personal property on a "named perils" basis only, will be 50% of the policy limit of Coverage A. The HO-3 Coverage D limit, covering extra expenses incurred when the primary residence cannot be used due to an insured loss, is equal to 20% of the policy limit on Coverage A. The HO-3 Coverage E limit, covering personal liability to third persons for injuries occurring on the property, is determined at the time the policy is purchased through the agent’s recommendations and homeowner’s preferences, subject to the insurance company’s home office approval. The limit on HO-3 Coverage F, which provides medical payments to others that are injured on the insured property, is usually set at $1000 per injured person.
Special Rules for Personal Property/Coverage C
HO-3 Coverage C insures personal property, not specifically excluded, against damage or loss from named perils, anywhere in the world! For example, suppose you travel to Italy , and purchase a piece of Italian furniture. While the furniture is being shipped back to the United States , it is destroyed by one of the 17 named perils. An HO-3 homeowners policy, which does not specifically exclude that exact piece of furniture, would provide coverage for it while it is in transit. This coverage applies to personal property even though it has never been in the home.
O-3 policies may also cover loss or stolen credit cards or contain additional insurance coverage for recreational craft. The homeowner should assess his or her personal needs determining what additional protection the purchased policy provides before purchasing additional endorsement coverage.
Homeowner policy dollar limits are important to understand. The Declarations Page on the front of the homeowner’s policy shows how much coverage is available to the homeowner. The payable limits are listed as Coverage A through F. Each Coverage section stated limit, controls the maximum dollar amount the insurance company will be required to pay out.
Coverage A states the payable dollar limit payable on the dwelling structure-the home itself;
Coverage B states the payable dollar limit available on a structure not attached to the home such as a guest-house or detached garage;
Coverage C states the payable dollar limit for personal property contained in Coverage A and B structures;
Coverage D states the payable dollar limit available when Coverage A and/or B structures cannot be used;
Coverage E states the payable dollar restriction for private damage springing up to third individuals because of the homeowner’s personal member of the family’s or puppy’s acts which reason damage.
Coverage F states the payable dollar limit to third persons for medical treatment resulting from injury on the homeowner’s property.
By way of example, a standard insurance policy, (a policy without a Guaranteed Replacement Endorsement), in which the declarations page states the home is insured for $300,000.00, will only require the insurance company to pay the homeowner a maximum dollar amount of $300,000.00 should the home be destroyed. This will be the case even if it would cost more to replace the home. Given the rising cost of housing, labor and materials, the homeowner should regularly update the dollar limits stated on the Declarations Page with the insurance company agent or representative.
Arriving at Limits in the Standard Homeowner’s Insurance Policy:
There are many coverage limits depending on the type of homeowners insurance purchased by the homeowner. In order to explain typical homeowner’s policy limits, this article will use the Insurance Services Office's standard HO-3 policy, for this section only, to explain how policy limits work. Given the estimation that over 84.2 percent of insurance policies in the United States are HO-3 policies, it is appropriate to use the HO-3 policy for this explanation. The reader should be warned that other types of policies may have different limits and applications and he should consult his insurance agent or company if questions arise.
In the standard HO-3 policy, the Coverage B limit will usually be equal to 10% of the policy limit on Coverage A. The HO-3 Coverage C limit, which covers losses to personal property on a "named perils" basis only, will be 50% of the policy limit of Coverage A. The HO-3 Coverage D limit, covering extra expenses incurred when the primary residence cannot be used due to an insured loss, is equal to 20% of the policy limit on Coverage A. The HO-3 Coverage E limit, covering personal liability to third persons for injuries occurring on the property, is determined at the time the policy is purchased through the agent’s recommendations and homeowner’s preferences, subject to the insurance company’s home office approval. The limit on HO-3 Coverage F, which provides medical payments to others that are injured on the insured property, is usually set at $1000 per injured person.
Special Rules for Personal Property/Coverage C
HO-3 Coverage C insures personal property, not specifically excluded, against damage or loss from named perils, anywhere in the world! For example, suppose you travel to Italy , and purchase a piece of Italian furniture. While the furniture is being shipped back to the United States , it is destroyed by one of the 17 named perils. An HO-3 homeowners policy, which does not specifically exclude that exact piece of furniture, would provide coverage for it while it is in transit. This coverage applies to personal property even though it has never been in the home.
O-3 policies may also cover loss or stolen credit cards or contain additional insurance coverage for recreational craft. The homeowner should assess his or her personal needs determining what additional protection the purchased policy provides before purchasing additional endorsement coverage.