Thanks to the Waldo Canyon fire, people who might otherwise never have done so have been trying to read their homeowners insurance policies. This can be a daunting task, but despite what you might initially think, these policies are reasonably well organized and use terms that are actually meant to be understood. Here are a few thoughts that might help you understand your policy.

Homeowners insurance has two basic parts — liability insurance and casualty insurance.  Liability insurance comes into play when you are sued (or threatened with suit) for an alleged legal wrong.  Casualty insurance comes into play when your home and/or the contents of your home suffer some unhappy fate.

When attempting to read your policy, a good place to start is the summary disclosure form that comes with the policy. Although this summary isn’t a part of the policy, it will help you understand what the policy itself is talking about. Then, before reading the detailed terms of the policy, take some time to study how the policy is organized. You might even want to make an outline of the section and subsection headings.

Next, work through the definitions. These are critical to an understanding of the policy.

Finally, read the policy one section at a time (taking frequent breaks for fresh air, exercise, heavily caffeinated beverages, etc.) When reading your policy, pay particular attention to language describing exclusions and limitations, since that’s where you’ll find the minefield.

On the liability side of the policy, for example, you will see that suits brought against you for intentional acts are not covered, nor are suits related to your business. Also, in the absence of a special endorsement, suits against you for legal wrongs not involving bodily injury or property damage, such as libel and slander, won’t be covered.On the casualty side of the policy, typical exclusions include losses caused by war, faulty design, movement of the earth, flood, sewer backups, ground water intrusion, power failures or your children. Damage to your home or its contents caused by your pets is not covered (nor are the pets themselves covered). Damage caused by vermin is similarly excluded. In addition to outright exclusions, your policy will have coverage amount limits for such things as jewelry and computers.

Some of the risks otherwise excluded in your policy can be covered with an endorsement and the payment of an additional premium. Earthquake and sewer backup are good examples. Other risks, however, cannot be insured against, no matter what. The biggest such risks are structural problems resulting from expansive soils, mine shaft subsidence or poor foundation drainage.  

You can also increase the amount of coverage for important personal property items such as jewelry, computers, silverware, baseball card collections, etc. by paying an additional premium. 

Even after you have read and think you understand your policy, a review of your coverage with a knowledgeable insurance agent will likely be time well spent.