How to Read Your Insurance Policy

An insurance policy is a contract between the insured (first party) and the insurance company (second party). The policy has 4 parts:

1. The Declarations Pages

The first part is the Declarations page. We call them the DEC pages. That is very important because that is one part of the policy that is tailored to you. It has your name on it, any other insureds, and in the upper right hand corner, it has the policy period and policy number. It also contains your coverage limits. Coverage A, that’s your dwelling. Coverage B would be other structures such as fences, garages, and sheds. C is always going to be your personal property; and D is additional living expense. It also contains your liability coverage.

There are also special coverages you should know about:

  • Additional Living Expense (ALE) –aka Loss of Use. This is supposed to be available if your dwelling is not livable/usable – due to either governmental authority (condemnation or evacuation) or conditions.
  • Loss Assessment – This covers community association special assessments imposed due to a covered loss. This is always stated as a defined limit and is usually handled as a separate claim without a deductible.
  • Carports – is a carport part of the dwelling or an “other structure”? This separate coverage sets a certain limit on carports.

The most important part of the policy is on the DEC page toward the bottom, which is your deductibles. You’ll have an “all other perils” deductible which is usually $1,000 or $2,500 or a round number, and then a hurricane deductible if you have hurricane coverage; and that’s going to be a percentage of your dwelling coverage. People are very surprised to find out that they have a much higher deductible for their hurricane claims or their windstorm claims than on any other kind of claims. The other thing it has is your lien holders. Those are usually your mortgage companies. If you change mortgage companies or you pay off, you need to tell your insurance agent so that they can amend your policy.

2. The Forms

The second part of a policy are the Forms.  They are usually written by ISO and have been approved by the insurance regulator.

Forms are those parts of the policy that we call the fine print. They are consistent throughout the industry. So an HO3 at one company is going to look pretty much like an HO3 at another company. If you don’t live in your house, you’re going to have a DP policy which has less coverage. If you have a condominium, you’ll have an HO6; and renters, HO8. They all have different coverages.

Some basic forms are:

  • HO3 – the deluxe all perils homeowners policy
  • HO2 – seldom used named perils homeowners policy
  • HO6 – Condominium policy (paint in!)
  • HO8 – Renters policy (contents and liability only)
  • DP – dwelling property – used for non-owner occupied residential property
  • DF – dwelling fire – basic bare-bones coverage

Surplus lines companies are insurers who are not admitted to write insurance in Florida but are allowed to write policies where no state licensed insurer is willing to bind coverage. These companies can have creative and deceptive forms.

3. The Endorsements

The third part of a policy are the Endorsements. Endorsements are critical to understand because they tend to take away coverage that is promised to you in the Forms. More rarely they add coverage. Since the Forms are industry-wide, each insurance company is allowed to add Endorsements that change the policy, usually in a way that is bad for you.

All endorsements have a code name and must be listed on the Declarations pages.  Unless you have all the endorsements, you really don’t know what the policy provides.  Many carriers have “Florida only” endorsements which are designed to take away coverage where we need it the most – hurricanes and mold.

Hurricane Deductibles

Hurricane deductibles are “declared” in the Declarations pages.  It is usually stated as both an amount and a percentage of the Coverage A Dwelling limits.  However, non-standard carriers can state them as the lesser of two things or as separate deductibles for each category of coverage (particularly in commercial and community association policies).

4. Summaries

The fourth part of an insurance policy is called the Summary. Under Florida law, insurers have to provide you with a summary of coverages that’s supposed to be readable and easily-understood English. Usually they use check boxes to show you that you have “this” and you don’t have “that”. The first thing it says in bold on the Summary, though, is that it this is not binding on either party. These are merely summaries and they can’t be used against or in favor of either party to add or reduce coverage. In other words, Florida law considers the summaries as explanatory but not enforceable and an insurance company cannot reduce coverage by putting something in a summary.  It’s good to know that it’s there, but be aware that it’s not really a part of the policy and it’s just to help you.

So those are the four parts of an insurance policy, but let’s not stop there. There are additional policies which you should know about. 

Flood Policies

More people are purchasing flood policies.  You don’t have to be in a flood zone to need flood insurance.  All flood policies are issued by FEMA and administered by the private insurance company.  The insured is provided only with a Declarations Page and a handbook.  The policy itself is online and does not vary from company to company.

Flood policies provide property coverage, contents coverage or both.  They are subject to large deductibles and do not provide coverage for additional living expense (ALE) of mold.

Sinkhole Policies

These are popular in central and north Florida.  They usually have a 10% deductible and special provisions for settling claims.  These are always catastrophic claims and should be handled by an attorney.

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