It’s a catchy title but we’re guilty as charged. We shamelessly ripped off the brand. Sue us!

Self-deprecating humor aside we’ve put together a quick and dirty summary of the major components of an HO policy to help decipher the oftentimes cryptic declaration pages (which we all read, right?).

PART A (Dwelling)

  • protects the physical home and directly attached structures
  • paid up to policy limit (e.g. $250,000) regardless of actual loss
  • typically 80% co-insurance required (i.e. underreporting home value can penalize homeowner in event of loss)
  • common homeowner mistake is insuring for FMV instead of full replacement cost

PART B (Other Structures)

  • covers structures such as detached garages and storage sheds not directly attached to the home
  • typically 10% of the limit in Part A (Dwelling)
  • higher coverage amounts available
  • considerations include Actual Cash Value (depreciation!) vs. Replacement Cost

PART C (Contents)

  • insures personal items such as clothing and furniture
  • typically 50% of the limit in Part A (Dwelling)
  • higher coverage amounts available
  • specific coverage available for particularly valuable items such as jewelry, art and collectibles

PART D (Loss of Use)

  • covers additional expenses incurred while unable to live in the damaged home (e.g. rent, hotel, meals)
  • typically 20% of the limit in Part A (Dwelling)
  • unlimited coverage is a smart enhancement (you won’t find this in an “off the rack” policy)

PART E (Liability)

  • pays court judgments up to the dollar amount stated in the policy
  • pays legal/defense costs
  • common for “off the rack” policies to combine limit for legal/defense costs and court judgments reducing amount available for payout
  • common homeowner mistake is having insufficient coverage relative to underlying minimum of an excess liability policy (i.e. “umbrella”)

PART F (Medical Payments)

  • pays medical bills for anyone injured on your property
  • pays medical bills for anyone injured by a family member independent of whether the event occurs on your property
  • relatively inexpensive coverage so smart to opt for maximum available policy limit

While not an exhaustive list the above covers the major topics. Now that you understand your policy the obvious question is…do you have the “right” coverage?

Right is a proverbial four-letter word. If you believe TV (advertisers wouldn’t deceive us, would they?) the “right” coverage is the least expensive coverage. Nonsense! Any company can offer an inexpensive policy. All they have to do is gut it – eliminate the important benefits. The “right” HO policy isn’t the cheapest – it’s the one that covers the risk and only then does cost become a consideration.

Does your (insert favorite “off the rack” company here) agent explain this to you? Does s/he care? Does s/he even know? The majors such as Allstate, Progressive, State Farm and the like have one goal and only one goal – sell you a policy. Their agents aren’t advisors. They are salespeople. Period. Don’t expect them to stay on top of your life changes. Don’t expect them to tell you your coverage is or isn’t “right” for you. Simply expect them to take your premium check.

Sadly we spend so much time obsessing about making money (why can’t I beat the S&P 500?…when will my boss give me a raise?) we forget the importance of protecting it. What good is outperforming some arbitrary index when the “excess profits” and more might be frittered away in the event of a casualty or liability loss? What real value is there to a lousy insurance policy with few real benefits? Flo from Progressive and Jake from State Farm are laughing all the way to the bank. At least their commercials are entertaining.

Most of us are blind to the risks we’ve assumed in our quest for a cheap policy. How do you know if you have the “right” coverage? How do you ensure there aren’t holes in your coverage?

Give us a call. Send us an e-mail. Let us put our experience to work for you.

NOTE: Apollo Wealth Management, Ltd. does NOT sell insurance. We provide insurance consulting and advisory services as part of our financial planning service.