HE-0666, Reprinted October 1998. Fred Waddell, Extension Family Resource Management Specialist, Associate Professor, Human Development and Family Studies, Auburn University. Originally prepared by Josephine Turner, Extension Program Specialist, Professor, Human Development and Family Studies, Auburn University.

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Reading Your Homeowner's Insurance Policy

An insurance policy is a legal document that spells out your agreement with the insurance company. The insurer (insurance company) agrees to pay your legitimate claims, represent you in court, and perform related services as stated or implied. You agree to pay your premium on time, give honest and accurate information, follow the steps explained in the policy when making a claim, and go by the conditions of the policy.

An insurance policy can be hard to read, but it's important that you know and understand what is in your policy. The standard homeowner's property/liability policy contains four parts:

1. The declarations page names the policyholder (you), describes the property or liability covered, and states the kind of coverage, the limits of the liability, and the premiums.
2. The insuring agreement states the responsibilities of the insurance company and of the policyholder.
3. The conditions of the policy section gives requirements you must meet before the insurance company will pay a claim.
4. The exclusions section lists the types of property and the kinds of losses that are not covered. Sometimes the exclusions are listed in the insuring agreement, along with descriptions of coverage.

Every insurance policy has a section defining the terms used in the policy. Check these definitions often as you read your policy. The definition of a word or phrase can be important in determining your coverage. In newer policies, defined words or phrases are printed in boldface type or italics throughout the policy.

With homeowners' insurance, more than with any other insurance, people assume they know about their coverage. Don't assume your policy covers specific perils. Doing so can cost you money. Too often, people try to collect for damages, but find they don't have enough coverage or aren't covered at all.

Read your policy. Then, if you have questions or don't understand something, have your agent explain it. Remember, your homeowner's insurance is a major investment. You have the right to know what you have bought.

Buying Insurance

Although basic homeowners' policies are more standard today, companies still vary greatly in premiums and services. The following tips will help you when buying homeowner's insurance.

• Shop carefully to find a low-cost insurance company with a good reputation for claims service.
• Ask about a "package" policy on your home and auto. You could save money buying such a package.
• Ask about rate discounts for property in low-risk areas.
• Some companies offer special rates to non-smokers and to homeowners whose property has burglar alarms, smoke detectors, and fire extinguishers. Discounts might be available if your house is built with fire-resistant materials. These same discounts can apply to rental structures.
• Compare coverage offered by three or more companies to save money on your premiums.
• When you shop, compare the amount of coverage on the structure and the amount of content coverage that you need. Ask about replacement coverage compared with cash value coverage on the contents. Also ask about the cost of any floaters you need for special items such as furs, antique furniture, art, jewelry, stamps, or coins.
• Have a higher deductible written into your policy. Deductibles usually are $50 to $100, but can go as high as $500 or more. The higher the deductible, the lower your premium.
• It could save you money to cover only the big risks with insurance. The smaller risks could be taken care of from savings.
• Be sure your policy covers at least 80 percent of the replacement value of your home, but don't get too much insurance. Policy premiums increase with policy limits according to a set ratio.

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Filing A Claim

Many people don't know how to file a claim when they have damages covered by their homeowner's insurance. These guidelines will help you.

• Report any burglary or theft to the police. Call your insurance agent or company right away, and be sure to ask questions. See if you are covered for the loss, and if the claim is more than your deductible. Ask how long it will take to process your claim and what other steps you should take to get payment for the loss.
• Advice from a good agent can help. However, you should still read your policy yourself and take the steps outlined there. Most insurance companies require that claims be in writing and made promptly to the agent. Even if this is not stated clearly in your policy, it is smart to follow up a telephone call to your agent with a written explanation of what happened.
• Your agent may tell you to make temporary repairs or take other steps to protect your property from further damage. Save the receipts for what you spend and give these to your insurance company for reimbursement. If you have to live somewhere else while your property is being repaired, keep all receipts for expenses such as food or hotel bills.
• Make a list of lost or damaged items. Give the information to the insurance representative handling your claim. Keep a copy for your files.
• There is a time limit for settlement of claims, as well as for reporting of claims. Keep your claim active and call often to find out its status. Follow up telephone calls to your agent or the insurance company with letters confirming the calls. Keep a copy of each letter or item you send.
• Keep a written record each time you talk to your insurer. Write down the date and time of the call, the name of the person you talked to, and a summary of the conversation. These records help you track the progress of your claim, and will help iron out any problems or misunderstandings.
• If you have trouble settling a claim or if you aren't happy with the settlement offer, talk to your agent. Check your policy to see what settlement steps are outlined. If you are still not satisfied, contact the State Commissioner of Insurance, 64 North Union Street, Montgomery, AL 36130. When you write the commissioner's office, give your name and address, the name and address of your company and agent, the policy type and number, and the details of your problem.

Another option is to use arbitration as a way to settle your dispute with the insurer. This could cost you money, but it might be cheaper than getting involved with litigation (lawsuits). As a last resort you may want to get advice from a lawyer.

For other questions about insurance, call the Insurance Information Institute Consumer Hotline toll-free at 1-800-221-4954. You can also write to the National Insurance Consumer Organization, 121 N. Payne St., Alexandria, VA 22314.

For more information, contact your county Extension office. Look in your telephone directory under your county's name to find the number.

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For more information, contact your county Extension office. Visit http://www.aces.edu/counties/ or look in your telephone directory under your county's name to find contact information.

Issued in furtherance of Cooperative Extension work in agriculture and home economics, Acts of May 8 and June 30, 1914, and other related acts, in cooperation with the U.S. Department of Agriculture. The Alabama Cooperative Extension System (Alabama A&M University and Auburn University) offers educational programs, materials, and equal opportunity employment to all people without regard to race, color, national origin, religion, sex, age, veteran status, or disability. For more information, please visit the Alabama Cooperative Extension System online at http://www.aces.edu or contact your local county Extension agent.