It is January and the time has come to pay our income taxes.  Why do we pay more attention to our taxes than we do our property insurance coverage? Not having the right coverage may be more costly than you think.  Here are a few helpful tips on decoding your policy.

Property Insurance comes in many forms, depending on the type of dwelling you aim to insure.  HO3, or homeowners insurance coverage, is specifically designed for owner occupied single family dwellings on a primary, secondary, or seasonal basis.  Owners of townhouses, villas, or certain condominiums may opt for this coverage as well if their associations do no cover the roof and the outside of the buildings.

Homeowners insurance policies are laid out in a coded pattern to detail coverage.  An example of this coverage would be:

Dwelling Coverage  A: $200,000.                                               All other Perils Deductible: $1,000. 

Other Structures    B: $20,000.                                                  Hurricane/other wind ded 2%

Contents  Cov       C: $100,000.

Loss of Use            D: $40,000.

Family Liability        E: $300,000.

Medical Payments  F: $2,500.

Your dwelling coverage is comprised of everything that is permanently attached to the inside and outside of your house, ie the garage, cabinets, flooring, bathroom fixtures, etc.. How do you figure out how much dwelling coverage you need?  Excellent question my friend.  Total Insurable Replacement Cost is determined by taking all of the details about the house including the year built, the square footage under air, the number and quality of bathrooms, and kitchen(s), bedrooms, screened in patio or porch, pool, the texture and quality of the flooring in your home, the shape of the roof, presence of an actively monitored alarm system, and putting all of these details into a big calculator, often found on insurance carrier websites.  Most common are the MSB and the ISO replacement cost estimators.

The end result of these calculations is your TIRC-Total Insurable Replacement Cost. You really want to stay at this number as most carriers, not to mention your mortgage company insist that all homes be insured to value at 100%.  So, you want to make sure the replacement cost estimator is correct and accurate.

The second value is the Other Structures Coverage, which is generally presented as 10% of the total dwelling coverage.  Other structures are those which are adjacent to but not permanently attached to, your home.  Fences, sheds, gazebos and cabanas all fall into the category of Other Structures.  In the State of Florida, many carriers will allow endorsements raising this number to allow for more coverage, higher than the 10% total.  You may not have any structures on your property beyond the home itself, and if this is the case, you may choose to exclude other structures coverage, by endorsement.

Contents coverage on a Florida Homeowners policy is expressed at 50% of your dwelling coverage.  Many carriers require that this coverage remain at 50% in order for you to retain Replacement Cost on Contents. Here is where things get sticky.  I have had many clients ask how much is the difference in price if you reduce the contents to a lower number and thus eliminate replacement cost on contents, changing it instead to Actual Cash Value.  

The danger of insuring your personal belongings at Actual Cash Value is that at claim time, the adjuster can and will depreciate every item in your home that was damaged, depending on when you bought it and what the condition was of each item at the time it was destroyed or damaged.  I will give you an example.  You have a small house fire that is centralized in the living room, and the $2,000. buttery leather sofa that you bought from Carl's Furniture six months ago, is now worth maybe $900. if that. Although, it may look like it was in perfect condition at the time of the fire, the adjuster will depreciate according to the carrier's calculator, as is his job, and you may end up with less than $400. for a piece of furniture you bought for $2,000.  Why do that to yourself?  It costs you less to insure properly than it does to nickel and dime yourself now only to have an expensive claim later.

Loss of use coverage is meant to help you find and pay for another place to live as you begin to make repairs to your home in the event of a claim in which your home was determined to be at least 51% uninhabitable.  Depending on your carrier and the state in which you live, the loss of use coverage generally is paid out across a 12 month period, or until you are able to live in your home again, whichever comes first.

Family Liability Coverage protects you in the event that are you sued for an accident that occurs on your property.  This coverage goes hand in hand with your Medical Payments coverage, as Med Pay is a voluntary coverage that allows you, as the homeowner, to get medical treatment for the person injured on your property who is not a dependant or resident relative of yours and who does not live in your house.

Medical payments is a "Make the Hurt person happy so they don't sue  you" coverage. Depending on the circumstances surrounding the accident, this may not always be the case.  You may use your Medical Payments coverage for a neighbor who comes over and slips on your wet floor, thereby breaking her arm.  She may decide to sue you anyway.

This is where Family Liability Coverage comes into play. Family Liability Coverage doesn't just "pay out" to the person sueing you.  The money contained within your limit of coverage is used to defend you, to investigate the situation, to hire legal counsel, all on the insurance company's dime.  I recommend purchasing the higher limit of coverage because it makes more sense to spend the extra $20-$40/year to go from $100,000 in coverage for liability to $300,000 or even $500,000. In the State of Florida, the limit of $100,000 per occurrence is included in the homeowners insurance policy, with higher limits available upon request. 

Also present on your homeowners insurnace declarations page are your deductibles.  In the State of Florida, there may be two or even three deductibles on your policy.  An all other perils deductible is generally applicable as a flat dollar figure that applies per loss for perils that do not involve wind or sinkhole, such as $1,000. or $2,500., although higher deductibles may be available.

Wind Deductibles in Florida are expressed as a percentage of your dwelling coverage.  A 2% wind deductible on a $200,000. homeowners insurance policy is $4,000. This is because the 2% comes off the dwelling not the loss.  This client would need to have had at least $4,000 worth of hurricane or other wind damage to their home in order to put in a claim and not have that claim be under the deductible.  There may also be a separate deductible for Sinkhole loss coverage or Catastrophic Ground Collapse. Depending on the carrier and the state in which you live, the deductible for sinkhole may be the same as your all other perils deductible.

Sinkholes, although more common in North and Central Florida than down in the Tri County area of Broward, Dade and Palm Beach Counties, do exist at various points in the Sunshine State.  Sinkholes are defined as holes in the ground which may fill up with water and therefore begin to suck your house either a little at a time or all at once, down into the ground.  It is important to remember that the sooner your report the claim to your agent and the insurance company, the easier it will be for you to stay informed throughout the claims process and keep your agent and carrier informed as well.

In addition to the coverages outlined above, there are also optional coverages and additional coverages.  What is the difference between an optional coverage and an additional coverage?  Optional coverages are generally exclusions that can be bought back onto the policy by endorsement, such as Water Back up and Sump Pump overflow, Equipment Breakdown, Extended Replacement

Cost, Animal Liability, and Scheduled Personal Property.

Additional Coverages are covered as part of the homeowners insurance package, but only up to a certain limit. Examples of this may include Law and Ordinance Coverage, which in the State of Florida means that if you have a claim, it will pay you up to an extra 25% of your dwelling coverage so that your home is rebult up to the standards of your state's building code.

It is important for you to read the homeowners insurance package you receive from your carrier in total so you know exactly what is covered and what is not.  If you don't understand the grey areas of your policy, you may want to contact your agent and have him or her explain it to you. You should review your policy every year to be sure that the coverage you have still suits your needs. If you have doubts about your coverage, reading this article should help you open a helpful dialogue with an agent to make sure you are properly insured.

-Julie A Martin, Licensed Agent

Licensed as a General Lines Insurance Agent in the State of Florida, I have written several articles on topics ranging from insurance to human interest stories.  I attended several years of college before deciding on a career in insurance.