Understanding Your Policy
Coverage A – Dwelling
Coverage A, or the “dwelling limit,” protects your home, as well as any structures permanently attached to it (garage, carpet, deck, etc.) on an “all risk” basis. “All risk” means that unless a loss is specifically excluded in the policy, it is covered. Losses are paid based on “replacement cost,” meaning depreciation is not taken into account (i.e. if a windstorm destroys your ten-year old roof, you get paid the cost of a new roof rather than the depreciated value of your old roof). Coverage A and market value often have little or no correlation to each other because Coverage A is the cost to rebuild the home brand new and does not include the value of the lot or the many other factors that affect market value. Coverage A is calculated using current building costs provided by the construction industry. The calculation is based on square footage, number of stories, number of bathrooms, quality of materials, and other features of the home.
Some commonly excluded causes of loss in a homeowner’s policy are flood, earthquake or earth movement, water that seeps into a basement, insects and rodents, and wear and tear.
Coverage B – Other Structures
Coverage B protects structures not permanently attached to your home (fence, shed, detached garage, swimming pool, etc.). The amount of coverage is standardized at 10% of Coverage A but can be increased if necessary. Coverage B is “all risk” and claims are settled at “replacement cost,” just like Coverage A.
Coverage C – Personal Property
Coverage C protects your personal property (clothes, furniture, electronics, etc.) on a “named peril” basis while it is anywhere in the world. “Named peril” means the cause of loss must be listed in the policy to be covered. A few of the “named perils” listed in most policies are fire, lightning, windstorm, hail, explosion, damage caused by a vehicle, vandalism, and theft. The automatic Coverage C amount is 50% of Coverage A (but oftentimes more, depending on the company) and can be increased if necessary. Claims are settled at “actual cash value” by default, meaning depreciation is taken into consideration (i.e. if your five-year old TV is stolen, you get paid the depreciated value of your used TV, not the cost of a brand new one). However, most policies are upgraded to “replacement cost” (like Coverage A) for a small additional premium. In order to keep premiums affordable, there are coverage limitations for certain types of property, especially in regard to theft. A few of the most common theft limitations are:
$1,000 for jewelry (including watches, stones, etc.)
$2,000 for firearms
$2,500 for silverware
Many people choose to “schedule” expensive property separately on their policy. Scheduling an item is an inexpensive way to provide broader coverage, eliminate the theft limitation, and in most cases decrease the deductible to zero for losses to the scheduled property.
Coverage D – Loss of Use
Coverage D pays your increased living expenses (i.e. staying in a hotel, eating out, etc.) if your home is damaged by a covered loss and not fit to live in.
Coverage E – Personal Liability
Liability coverage is not required by law (like it is on an auto policy) but it is crucial to everyone, especially homeowners. Fortunately, liability coverage is included in every homeowner’s policy. Coverage E is very broad; it will pay for your liability arising out of things like a neighbor slipping on your icy sidewalk, your dog biting someone, and damage to a neighbor’s garage caused by cutting down one of your trees. It also covers you for many personal activities that take place away from home such as hitting someone with a golf ball or having a fire that destroys an RV in the adjacent campsite.
When you purchase liability insurance (via your homeowners policy), the insurance company agrees to pay your defense costs and, up to the limit in the policy, any judgment against you if you were to be sued for any scenario to which Coverage E applies. If the judgment exceeds the Coverage E limit, your assets (home, cars, savings, etc.) and future earnings will be used to satisfy the difference.
Although Coverage E is very broad, there are some liability risks that are excluded in a homeowner’s policy. For instance, Coverage E generally does not cover business activities or your liability arising from the use of an automobile, recreational vehicle, and most types of watercraft. Coverage may be available by endorsement to the homeowner’s policy or on a separate policy.
Coverage F – Medical Payments to Others
Coverage F pays the medical expenses of someone (other than a family member) who is injured at your home or by your actions away from the home. It is designed to deter lawsuits and does not require you to actually be liable for the injury.
Example: Your neighbor slips and falls down your stairs. Coverage F will pay, up to its limit, to fix her broken arm.
The deductible on your homeowner’s policy is used to keep your premium affordable by requiring you to cover the first portion of the loss. Therefore, a higher deductible results in a lower premium. The deductible only applies per “occurrence,” not per coverage. Therefore, if a fire damages part of your home and some of its contents, your deductible would apply only once (even though two or more different coverages would be used).
Michigan Auto Policy
Michigan’s No-Fault law was implemented in 1973 to provide substantial benefits to all Michigan drivers by minimizing the time and legal fees incurred to determine the at-fault driver in an auto accident. “No-fault” means that each driver must insure their own vehicle against damage, regardless of who causes it. Additionally, each driver collects medical and wage loss benefits under their own policy regardless of who causes the accident. However, an at-fault party may be sued for causing serious injury or death.
Part A – Liability Coverages
Liability coverage is the most important coverage on an auto policy but is overlooked by many drivers. If you’re involved in a car accident that results in injuries to another person, your liability coverage pays for the costs to defend you in a lawsuit and for the judgment against you. Most policies include “split limits”… one limit for each person injured and a second limit for all parties injured in the accident. For example, limits of $250,000/$500,000 would cover up to $250,000 per person injured and up to $500,000 total for all parties injured in the accident. Michigan’s No-Fault law allows someone to bring a lawsuit for auto accident injuries only if they have suffered death or serious injury. Therefore, the lawsuits that arise are usually large and financially crippling to the at-fault party if they do not have sufficient liability insurance, which is why it’s so important to protect your assets and future earnings with high limits of liability insurance.
Property Protection Insurance
Property Protection Insurance (PPI) pays for damage you do to other people’s property with your vehicle (ex. fences, houses, and parked vehicles). However, as part of the No-Fault law, PPI specifically excludes damage you cause to moving vehicles and it only applies to accidents which occur in the state of Michigan. Our No-Fault law requires every driver to carry $1,000,000 of this coverage.
Property Damage applies only to accidents that occur outside the state of Michigan. This is similar to PPI, except that Property Damage also covers damage done to other vehicles. Also, instead of $1,000,000 of coverage by default, each driver chooses their Property Damage coverage amount.
Part B – Personal Injury Protection
Personal Injury Protection (PIP) pays for unlimited medical and rehabilitation expenses resulting from an auto accident. This coverage is either on a primary or excess/coordinated basis. It can be made excess/coordinated if the driver has health insurance that would pay for medical expenses incurred because of an auto accident. In that case, PIP would provide coverage when the health insurance is exhausted. PIP will also pay coinsurance and co-payments not covered by the underlying health insurance. PIP also pays to replace lost wages, subject to a monthly maximum, for up to 3 years if the insured is unable to work due to a car accident. Additionally, it provides $20/day for replacement services for up to 3 years for things such as lawn care, laundry, daycare, etc.
Part C – Uninsured/Underinsured Motorist Coverage
Uninsured Motorist coverage protects your right to collect in a lawsuit against someone who drives a vehicle with no auto policy. If someone without an auto policy were to cause you bodily injury or death in an auto accident, the Uninsured Motorist coverage on your policy would pay you what the uninsured driver is liable for. This prevents you from being financially penalized because someone illegally drove their vehicle with no liability coverage. Uninsured Motorist coverage is crucial because it is estimated that up to 30% of all drivers are uninsured.
In addition to Uninsured Motorist coverage, most auto policies have a coverage called Underinsured Motorist. It is very similar to Uninsured Motorist coverage, except that it protects you from a driver who does have an auto policy but does not have sufficient limits to cover the judgment they are liable to you for.
Part D: Damage to Your Auto
As discussed earlier, the No-Fault law prohibits you from suing somebody for damage they caused to your vehicle. Therefore, if you care to protect the value of your vehicle, you must purchase coverages referred to as “comprehensive” and “collision.”
1. “Collision” coverage pays for damages to your vehicle from impact with another vehicle or object. There are multiple collision options available but the most common are broad and standard (often referred to as regular or basic). Standard collision means the insured always pays their deductible, regardless of who is at-fault. Broad collision means the insured only pays their deductible if they are more than 50% at-fault.
2. “Other than Collision” coverage (often referred to as “Comprehensive”) pays for damages to your vehicle from things like falling objects, fire, hail, water, theft, vandalism, breakage of glass, and contact with a bird or animal.
Just like on a homeowner’s policy, the deductible on your auto policy is used to keep your premium affordable by minimizing the amount of small claims and requiring you to cover the first portion of larger claims. There are many deductible options because everyone’s risk tolerance and financial situation is different. The deductible only applies per “occurrence,” not per coverage. Therefore, if you hit a deer and then veer into a guard rail, you would only be subject to one deductible (even though you used comprehensive and then collision coverages).
Please Note: This summary is not a comprehensive description of coverages or exclusions and is not intended to be used as insurance advice. This summary is based on the typical policy in our office, which may not reasonably represent the coverages, conditions, limitations, and exclusions in your specific policy. Insurance policies are complex legal documents that should be reviewed carefully. Please consult any of us at Boer Insurance Group regarding how your specific coverages apply to you and your family.