The Basics of Homeowners’ and Fire Insurance

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jun 19, 2018

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Simply put, homeowners’ insurance is a contract between a homeowner and an insurance company that protects homeowners (and mortgage companies) from damage done to a home in exchange for the payment of premiums. When a home is damaged or destroyed, a homeowner will notify his or her insurance company by submitting a claim. Depending upon the type of policy in place, the insurance company will verify the claim, put a value on the damage and pay the homeowner that amount to repair the damage or rebuild his or her home.

It’s obviously a bit more complicated than that, but that’s the general theory. The details are explained below.

Policy types. The insurance industry, as a whole, has come up with several variations of homeowners’ policies that have been standardized. Most homeowners will have an HO-2 (Broad form) or HO-3 (Special form) policy that protects their home and any structures from most risks – including fire.

Homeowners that don’t own a traditional home may have one of the following policies:

  • Condominium Owners Policy (HO-6). This form provides broad form (HO-2) coverages similar to a tenant’s policy (see below) for the personal property of a unit owner. It provides no coverage for the condominium structure itself, since the structure is covered under a Special Condominium policy available only through a condominium association. It also provides personal liability protection when people injure themselves or suffer property damage in the insured unit.
  • Mobile Homeowner’s Policy (HO-2 or HO-3). Due to the special characteristics of mobile houses, special forms of the broad form (HO-2) and the special form (HO-3) are packaged with the mobile homeowner specifically in mind. They are not as standardized as other policies.
  • Renters’ or Tenants Policy (HO-4). This form insures household contents and personal belongings, but not the building, of renters against the same perils detailed in the Broad HO-2 form.

If you do not have one of these policies, make sure that fire damage is a covered ‘peril’ in whatever policy you have.

Policy language. Just as insurance forms have been standardized, so has much of the language in the forms. The following are basic definitions of what’s included in a homeowners’ policy:

  • Insuring agreements: Specify what the insurance company has agreed to pay for or to provide in exchange for the premium.
  • Declarations page: The declarations or “dec” page is usually the first page of the policy. It summarizes key information specific to the policy. The dec page shows the insured’s name and address, the policy dates, a brief description of the home, coverages provided, coverage limits, premiums and the forms applicable to the policy.
  • Definitions: These are how the insurance company defines the terms of the policy. These are very important as covered items may be restricted by the way they are defined.
  • Covered perils: Anything that is covered by the policy.
  • Exclusions: Anything that is excluded from coverage by the policy.
  • Conditions: Conditions within an insurance policy qualify the various promises made by the insurance company. So, something must happen before the insurance company will pay your claim.
  • Policy limits: The maximum amounts that an insurance company will pay.
  • Deductibles: The amount that a homeowner must pay out of pocket before an insurance company will pay.
  • Depreciation: The loss of value on an item due to age, wear and tear. Depreciation is usually very subjective and can be negotiated.
  • Loss of use: Basically, the same as additional living expenses.
  • Additional living expenses: Reimburses costs of residing in a temporary location until the insured’s home can be made whole again.
  • Proof of loss: A sworn statement that a policyholder submits to an insurance company before any loss under a policy can be paid. It usually includes the date and description of the occurrence and the amount of loss.
  • Scope of loss: A document that provides the raw counts and measurements needed to calculate quantities for the estimate to repair or rebuild a home.

Fire Insurance Bad Faith equals unreasonable claims handling. Insurance companies have a duty to deal with their policyholders fairly and in good faith. When that doesn’t happen, policyholders can sue their insurance companies for acting in ‘bad faith’ for not acting reasonably. Examples of bad faith might include not responding to a claim in a reasonable time or denying a claim without proper investigation.

Fire Insurance Claim Manual for Homeowners

  1. Fire Insurance Claims Manual Forward
  2. The Basics of Homeowners’ and Fire Insurance
  3. How Fire Insurance Policies Work
  4. The Fire Insurance Claims Process: A Step by Step Review
  5. Identifying and Overcoming Fire Insurance Claims Obstacles
  6. Tips to Make the Fire Insurance Claims Process Work Smoothly
  7. Fire Insurance Lawyer – How to Hire

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