The home policy is a package policy that combines two separate coverages (property and liability insurance) into a single policy. So, if the home suffers a fire loss, for example, the home policy provides coverage for the fire damage. In addition, if a guest falls down the stairs of the home and sues the owner, the home policy provides liability coverage including any defense costs. To be eligible for a home policy the owner must reside in the home. Most home policies are written on an open peril or all-risk basis. This provides the broadest coverage and does not list the covered perils but instead lists what perils are not covered. Within these 2 sections are several subsections.
Section I-Property – Any claims that are covered under this section are subject to the policy deductible. For a loss to be paid it must exceed the deductible and the insured is responsible for paying the deductible.
Dwelling – The dwelling refers to the home, itself. The limit of coverage for the home is noted on the declarations page. The home is usually insured on a replacement cost basis.
Replacement Cost – To determine the replacement cost, the features of the home along with the specific location, soft costs, building code issues, and architectural variables are taken into consideration. The replacement cost can vary by carrier and should not to be confused with the market value or the purchase price of a home. Replacement cost does not include the value of the land but does include demolition and debris removal.