Understanding The Home Insurance Policy

The 7 Parts of the Typical Home Policy – DDICCEE

Understanding the home insurance policy and how and why it is constructed in the way that it is will help you get the best home insurance protection from the coverage you buy.  A home insurance policy is a legal agreement.  Your home insurance policy is a contract between you and the insurance company.  You expect certain things from the coverage you buy and your insurance company expects things from you in return.  We could spend hours going through the typical home insurance policy but just understanding the major parts that exist in all home insurance policies will help you understand your property insurance better.  The acronym DDICCEE are the first initials of the major sections found in your home insurance policy.  This general description of home policy construction applies whether you are an owner occupant of a home, a condo unit owner, a tenant, or a landlord with a dwelling occupied by others. I’ll explain the coverage construction in detail in the following outline but they are not necessarily in the order you may find them in your home insurance policy (but it should be close).

D – Declaration Page (sometimes called the Dec Page)

The declaration page is a part of your policy.  If it were not for the declaration page, there would be now way to know your policy from that of the next customer.  You see, the declaration page personalizes the coverage provided by your property insurance for your specific requirements.  That is why we could say that every policy is about the same for everyone except what is different for each of us.  Those different things include:

• Policy number
• Coverage start and end dates
• The name of the first named insured (you, includes your spouse when needed)
• The address of the first named insured (your mailing address)
• The property address (when it is different than the mailing address)
• Recitation of your selected coverage limits
• List of endorsements and policy provisions and versions that apply
• List of discounts that you have earned or qualify for on your policy
• Lender or Lessor’s interests are shown giving the name of the security interest in your home or property.
• Summary of the premium charged, showing any credits or discounts, and total premium for the home policy

There may be other information that is included on your home insurance declaration.  Most companies include some of the specific rating information about the property like its type of construction, fire protection grade, premium and rating groups, to further distinguish the policy as applying directly to you.

D – Definitions – The important language and words in the policy are defined as they apply to the home policy.

Many words have meanings that are slightly different in a policy than they have in other circumstances and situations.  Since your home insurance is a legal document, if there is a meaning for a word that the company is relying upon, they will show the word or term in the definitions of the policy.  In many insurance policies, when a word that is specifically defined is used in the policy language, that word appears in bold text so you know that special meaning applies to that word.  This is not a universal convention in policy writing but is a feature of many policies you may encounter.

I – Insuring Agreement – These are the Mutual Promises

An insuring agreement might read like this:  “In return for your timely payment of premium and your compliance with all the provisions of this policy, we agree to provide the home coverage you have purchased.”  OK, this is not quite what a policy says but it is the gist of the “agreement” in principle.  That said, here is what actually constitutes the “Insuring Agreement” as found in the ISO HO 00 03 02 03 version of the homeowner 3 policy form.  There may be different “insuring agreements” for different parts of your coverage and not all companies use the ISO (Insurance Services Office) base homeowner policy form but his is common.

1. “We will provide the insurance described in this policy in return for the premium and compliance with all applicable provisions of this policy:”  Pretty straightforward.  Since the company is making the important promises you are paying for, most of what follows these words describes the coverage and terms you have bought on your homeowners 3 insurance policy.

C – Coverage – These are indicated on the declaration page.  This is the coverage you have purchased.

Understanding The Home Insurance Policy starts with understanding the coverage you have chosen.  These choices are specified on your declaration page.  While the coverage may be reported differently from company to company, your coverage is always listed on the declaration and, if it isn’t listed you probably don’t have the coverage.  Some coverage may appear on your policy as endorsements rather than in the declaration page but you should be able to find all the coverage you have bought listed on the declaration page. Here are the common coverage parts for a homeowner property policy form:

• Section I – Property Coverage
• Coverage A – Dwelling Amount
• Coverage B – Additional Structures – 10% of coverage “A”
• Coverage C – Contents and Personal Property – Minimum 50% of coverage “A”
• Coverage D – Additional Living Expense – Minimum of 20% of coverage “A”
• Section II – Liability and Medical Payments
• Coverage E – Personal Liability Coverage – $100,000 is minimum with most companies
• Coverage F – Premises Medical Payment – $1,000 is minimum with most companies

There are differences between the variety of homeowner policies so understanding your home insurance policy requires also that we explain the differences between a owner occupied dwelling, a condo, and a tenant policy. They are all Homeowner policies.  Landlord dwellings are similar in construction.

• HO2– Broadform Homeowner Policy – Increasingly rare to find
• HO3– Special Form Homeowner Policy – The predominately policy used
• HO4– Broadform Insurance for Tenants (renting) – Insures the renter and their property
•             Doesn’t need coverage A or B because the home is not owned
• HO5– Accidental Direct Physical Loss Homeowner policy – Best policy coverage available
•             Same as HO3 described above with special form on personal property also
• HO6– Condo Owner Homeowner Policy – Flexible HO3 coverage for unit owner occupant
•             Coverage B is not necessarily automatic as it is on an HO3.
• HO8– Modified Valuation Home Insurance Policy – Provides functional replacement cost
•             Same structure as the HO3 policy designed for older homes with unique value

If your home insurance declaration page doesn’t show a premium for the coverage you still may have the coverage you expect. A premium for the Coverage “A” may be all that shows unless you have bought more coverage than the standard included amount.  While that is a general statement it is a reminder to never assume and ask your agent if something doesn’t appear as expected. Also, additional coverage options should have a premium amount shown since they are in addition to the basic home policy coverage. If in doubt that the coverage is included check in the endorsement listings to see that the coverage endorsement is included in your coverage.

C -Conditions – These might be considered the Rules.  Includes your “duties” as part of the coverage.

Conditions can be considered the mutual expectation of performance under the policy but they mostly lay out how you and the insurance company might enforce the policy upon the other when there is disagreement.  Common areas inside the Condition’s section of the policy include Abandonment, Appraisal, Arbitration, Subrogation, sets and pairs, other insurance, your obligations after a loss to protect the property from further loss, Other insurance, when a lawsuit against the company can be justified, What to do when losses happen, and your obligations to the insurance company after a loss.  These are but a few of the conditions, or rules, that you’ll find in the home insurance policy.

E – Exclusions – What type of property we cannot cover, or what kind of perils (causes of loss) we are not including.  There may also be limitations in addition to exclusions.

Examples of exclusions include an exclusion for “wear and tear”, intentional acts, Nuclear damages, and Earth movement.  On your home insurance policy a carrier may permit you to buy back an exclusion for an additional premium.  That same provision may hold true to limitations that are built into standard coverage.  A good example of this is coverage for the “Backup of Sewer and Drains” which can be endorsed back onto your homeowner insurance for a premium.

E – Endorsements – Endorsements May add or Subtract or Amend the policy and coverage it provides.  Sometimes referred to as a “Rider”.

An Endorsement is ubiquitous as a part of the home insurance policy.  The large insurance companies may use the same standard policy form in many states and then use “amendatory endorsements” to bring it into compliance with state law.  Endorsements may be added to a standard policy to amends a stock limit in a policy.  Say for example, you need to buy special coverage for jewelry after purchasing a ring for the wife.  The company can “endorse” the jewelry coverage onto the policy.  In another instance, the presence of a trampoline on your property may prompt the underwriter to insist upon an exclusion endorsement removing coverage for the trampoline.  Or say you have a dog of a certain breed!  The company may use a “dog bite” exclusion endorsement to eliminate exposure to the claims of your dog biting the neighbors and the postman.  As mentioned in the Exclusions section, when you buy back “Backup of Sewer And Drain” coverage your policy will be endorsed to include the coverage.

S – Summary – This paragraph sums up the descriptions and concludes this document.

Nearly all policies are constructed with these essential parts:  Declaration page, Definitions, Insuring Agreements, Coverage, Conditions, Exclusions, and Endorsements.  The fact that there are thousands of insurance companies doesn’t change the basic statement that the latter items in some form, or in some manner of organization, appear in almost every policy.  Understanding The Home Insurance Policy is made easier when you know these essential parts.  Expect to see them and recognize them as important parts of the language creating your coverage.  Even if your insurance company may label the essential parts with slightly different language you will find these same ingredients in the recipe used to make your home insurance coverage.

Insurance is a contact business.  If you never pick your policy up and give it a good reading you won’t pick it up, I mean, you won’t understand how to help yourself get the coverage you expect.  Having a basic understanding of your coverage and a good agent who understands your insurance at the root level is great extra ingredients to having the coverage you need at the exact moment you need it.  It doesn’t matter what you pay if you don’t have the protection you expect.  I hope this summary has helped you be a better insurance consumer. And of course, call if you want great personal attention to your insurance needs.