Be honest: Have you ever clicked "Accept" on a "Terms & Conditions" agreement without reading every word? If you're like most people, you're probably guilty of skimming the main points and hoping for the best after signing. After all, that's a lot of fine print for a busy person to digest before having to make a decision!
But homeowners insurance is simply too important to purchase without fully understanding what your policy entails. Why? No one wants to be left scratching their head in the aftermath of a disaster—like a fire, windstorm, or robbery. The only way to make sure you have the appropriate level of coverage is to fully understand your policy. It's just as important to know what it covers as what it excludes. Even standard homeowners insurance policies differ in their specific offerings. Factors like the age and condition of your home and its location all play a role in determining your insurance needs.
One main distinction is that some homeowners carry "open perils" coverage, while some have "named perils" coverage. Let's take a closer look at the implications of each type of policy.
Open perils coverage "insures against loss to covered property from all causes except those that are specifically excluded." A peril is, of course, simply the cause of damage or loss. People may choose an open perils policy because of its comprehensive coverage. However, this type of coverage also tends to be costlier because of its extensive protection.
Named perils coverage, on the other hand, means your policy will cover only those risks explicitly named within it. Anything outside of the perils listed is excluded, which could lead to homeowners having to pay out of pocket. However, the premiums tend to be lower on policies featuring named perils. Homeowners can also elect to add extra endorsements to a named peril policy to fill in specific protection gaps.
The property protection within a standard homeowners insurance policy typically insures two things: structures and personal belongings. But policies may actually cover these two components differently. The policy treats the dwelling differently than its contents.
For instance, it's common to see a dwelling covered on an open-perils basis, but its contents protected on a named-perils basis. As the Federal Alliance for Safe Homes points out, named-perils policies "are generally more restrictive." What does this mean for homeowners? They may be able to file a claim for the value of their home's structure after a wider range of disasters. Their possessions, on the other hand, would only be protected against losses caused by specific events.
Every policy is different. The moral of the story is that it's up to homeowners to do their research and understand their homeowners insurance coverage. Otherwise, a policyholder may mistakenly believe they're covered, only to have their claim rejected by their carrier.
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