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Homeowners Insurance FAQs

How Much Of A Loss Will A Homeowners Policy Pay?

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The amount of a claim that your policy will pay depends on your deductible, coinsurance, and how your policy defines what is covered.

Deductible 

The deductible is the amount of a loss that you are responsible for before an insurance company will start to pay any part of a claim.  For example, if you have a $5,000 covered loss, and your deductible is $500, the insurance company will pay $4,500 ($5,000 loss less $500 deductible).

Coinsurance

Perhaps the best way to understand a coinsurance clause is to understand the reason for it. Insurance companies found that people realized that a building seldom burns to the ground, so people only purchased insurance for a small percentage of the value of their premises. In order to make the system more fair, the companies instituted a "coinsurance" clause which penalizes people who do not insure their premises for at least that percentage of the market value of the property. For example, if you have a 90% co-insurance clause, if your property is worth $100,000, you are expected to purchase insurance for at least 90% of the value or $90,000. If you buy insurance for less than $90,000, and you have a loss, you will only receive a percentage of the loss, not the entire amount.

Actual cash value coverage

Generally a Homeowners policy will pay based on how much it would cost to replace your property minus the amount the property depreciated physically since it was built or purchased.  This type of coverage can be costly in the long run since you generally won't receive enough from the insurance company to replace or restore your property. This problem can be solved with "replacement cost" coverage, as described in the next section.

Replacement cost basis

A Homeowners policy can be written on a replacement cost basis. Replacement cost means that the amount you receive for a claim will be based on how much it costs to replace your home or repair the damages to your home. The amount you receive will also reflect the coinsurance amount, and the deductible (see above.). 

Personal Property

Most types of personal property are generally covered. However, there is a low limit on the amount of money that will be paid on certain property such as jewelry and fine arts. Full coverage on those items can be obtained in a Personal Article Floater, described in the next section.


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