Does my home insurance coverage pay the ‘limit’ listed on the policy or a different amount?
UPDATED: Nov 5, 2012
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Asked November 5, 2012
The limits set in a homeowners insurance policy are in regard to the maximum value paid for that type of claim. If a disaster wipes out your home and everything it contains, the limits of your policy are the maximum amounts the policy will pay for each part of the policy. The reason that a single homeowners policy has multiple limits is because each segment of the coverage has a different limit value as well.
Personal property is often neglected in a homeowners policy. The average family has many thousand dollars in accumulated property, ranging from appliances to the wardrobe of every family member. Personal property limits are typically around 10% of the total policy value, and any amount over that limit will be an out of pocket cost for you.
If your home is destroyed, the policy will pay up to the limit written into the policy for the dwelling. In some policies, the payout is for actual cash value and only pays a depreciated value. The alternative to this is to get full replacement cost coverage, which costs a little more but will restore your home to its previous condition regardless of the costs involved.
If your damages are less than the policy limits, you will only receive a settlement for the value of your loss, not for the total policy value. It wouldn't make sense to pay out thousands of dollars on a claim where the damages only amounted to several hundred, and insurance companies use adjusters to evaluate claims and determine what the actual payout for each claim will be. The purpose of insurance is to protect you against loss, not provide you with a potentially profitable windfall.
Answered November 5, 2012 by Anonymous