Check Your Policy: Homeowners Insurance a Mixed Bag

NEW YORK (MainStreet) -- A homeowners insurance policy replaces the home if it burns, covers possessions that are stolen from the home, protects you if the neighbor falls on your icy walk – it’s all pretty straightforward.

Except that it’s not. A new study by a University of Minnesota Law School professor Daniel Schwarcz details the wide differences among available policies on the insurance market. To make matters worse, Schwarcz notes that even if you know policies can differ, it is devilishly difficult to make apples-to-apples comparisons among them.

“Despite this substantial variability in policy terms, even informed and vigilant consumers are currently unable to comparison shop among carriers on the basis of differences in coverage,” Schwarcz writes.

Years ago, states typically required that policies be virtually standardized. But those rules have faded, allowing wide differences in the details, but states have not responded by demanding more transparency, says Schwarcz.

Among the types of possible differences, one policy might pay $1,000 for each item destroyed, while another would pay that much for all items together. Provisions for wind and flooding damage can also vary. Though wind damage may be covered, an exclusion for flood damage may kick in even if the flood is caused by wind.

Policies can also employ language so complex that it’s virtually impossible to know what is covered and what isn’t, leaving policy holders subject to the insurance company’s interpretation. In some cases, for instance, a claim may be denied if the damage to a home was exacerbated by faulty construction.

In some policies, claims can be denied if, in the insurance adjuster’s view, the policy holder’s negligence contributed to the loss. Negligence is be a loose term subject to various interpretations: Alcohol consumption might count as negligence in some policies for example, and not in others.

So, if comparison shopping is so difficult, what’s the homeowner to do?

Clearly, it would be unwise to shop on price alone, as the less expensive policy may be less comprehensive, but neither would it make sense to assume the more expensive policy buys better coverage.

Using a trusted insurance agent is probably the best course of action for most homeowners. An agent who studies policies every day is in a better position to know how they vary, and will know what the terminology really means.

As with any contract, it pays to read a homeowners insurance policy from start to finish. Keep in mind that if you need to file a claim someday, the contract will determine what you receive, regardless of what an agent or salesman told you when you bought the policy.

Many homeowners settle on a policy when they buy their homes, then automatically renew it year after year. Because policies can vary so widely, it can pay to review yours every year, and see what the competition has to offer.

Homeowners insurance is only one policy you should review periodically, so check out MainStreet’s look at six insurance tips to save for the holidays and see where else you can find some extra cash!

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