Homeowners Insurance Basics

Your home may or may not look like a castle. Whatever the case, that old saying is true: your home is your most valuable and expensive asset and should be protected. Homeowners Insurance (also called Home Insurance or Hazard Insurance) offers financial and liability protection of your home and possessions. You can also come across an abbreviation of HOI, which stands for Homeowners Insurance in the real estate industry. Basically, HOI is the type of Property Insurance that covers private homes.

You need Homeowners Insurance to cover the structure of your home, your personal belongings, the cost of living expenses in case your home gets damaged and you have to move to some other place for the repair works period. It also covers liability claims and health costs that result from property loss and injury caused to other people.

Purchasing enough Homeowners Insurance provides sufficient coverage necessary in the event of a total loss of your house and its contents due to disasters. It is also important that you are insured in case someone gets injured on your premises and sues you, or in case you or your family members cause damage to other people’s property. Some policies also include damage caused by household pets.

Homes should be insured for 100% of its value so that in the insured event your insurance company will pay you the exact amount your house costs to rebuild it. If you don’t have enough Home Insurance, you will be paid only some portion of your house’s values, which may be insufficient for replacing or repairing lost or damaged property. The rule of 100% insurance replaced the earlier recommendation to insure one’s house to cover 80% of the costs. While former statistics showed that the total destruction of a house was unlikely, recent statistical data of weather disasters and its devastating results demonstrates quite another picture. Note that your home’s worth should be determined by the cost of replacing the structures and the contents inside the house.

Types of Homeowners Insurance Coverage

There are basically four types of Homeowners Coverage found in a standard Homeowners Insurance policy:

1. Coverage for the Home’s Structure (Coverage A – Dwelling Coverage) and coverage for unattached structures such as garages, sheds and barns (Coverage B – Other Structures Coverage)

This coverage insures the structure of your home and other unattached structures on your premises from such perils as fire, lightning, explosions, theft, vandalism, snow, ice, smoke, accidental water overflow from your plumbing, damage from vehicles, falling objects and some other mishaps. Pay attention to possible coverage exclusions that might require additional endorsements or an additional policy to cover.

2. Individual Property Coverage (Coverage C – Personal Property Coverage) This coverage protects your personal possessions from the same perils as the coverage for the home’s structure. Policyholders should make an inventory of their belongings, which implies recording of the serial numbers, dates and costs of purchases for the furnishings, jewelry, artwork, household appliances and other things. Inventories should be stored either in an incombustible safe or on a computer outside the building. The total value of the insurer’s belongings is normally established at half cost of the home structure’s coverage.

The cash value of the insured personal belongings in the event of property loss is the original cost of the property item, minus devaluation. If you bought most of your possessions a few years ago, their current depreciated value will be much less than the total sum it would take to replace them. Bearing this in mind, it could be wise to obtain an extra endorsement (Guaranteed Replacement Coverage), which can significantly increase this coverage. You may also need additional coverage in case you own expensive jewelry, fine artwork, antiques, collectibles, firearms, musical instruments, some costly equipment, and other items, which cost more to replace than the limits of your Specific Personal Property coverage allow.

3. Legal Responsibility (Coverage E – Personal Liability Coverage)

This coverage offers compensation for legal expenses and medical costs when you are found liable for damages or injuries to others on your property.

Insurance companies usually recommend $300,000 of the combined legal and medical expenses for a single occurrence. You can also choose to buy more liability coverage in the form of a Personal Umbrella Liability policy. Some insurance companies can include a Medical Payment Coverage section as well. For example, if a visitor suffers minor injury on your premises, Medical Payments Coverage would cover minor medical costs, such as exams and X-rays.

4. Coverage for Temporary Living Expenses (Coverage D – Loss of Use Coverage)

This type of coverage insures you for temporary living expenses, restaurant meals, car storage and even pet kennel expenses, for a certain period of time while your damaged home is being repaired or rebuilt. This coverage tends to pay up to 20% of the sum your home’s structure is insured for.

Types of Homeowners Policy

There are several commonly used standard forms (policies) for Homeowners coverage:

HO-1 or Basic Coverage, is the type of packaged Homeowners Insurance policy meant for protection of home, detached structures, and personal property from losses caused by the following disasters and perils: fire or lightning, wind or hail, explosion, riot or civil unrest, aircraft, vehicles, volcanic eruptions, smoke, theft, vandalism or malicious mischief and self-damaging instances (e.g. damage by glass material that is part of the building, a part of the building falling, etc).

HO-2, or Broad Coverage, includes the disaster circumstances of HO-1, and adds some more specific disasters, like snow, falling objects, freezing of or accidental discharge of water from plumbing, heating, air-conditioning, or from within a household appliance, and electrical surge damage.

HO-3, or Special Form, is the most commonly purchased Homeowners coverage. It protects your home and unattached structures from loss or damage due to any peril except for specifically excluded ones. The only perils this form does not cover you for are flood, earthquake, war, and nuclear accident. Carefully read your policy to understand the exclusions. You may also wish to cover exclusions with additional endorsements.

HO-4, or Tenant’s (Renter’s) policy, insures your household contents and personal possessions (but not the building) against the risks of the HO-2 policy. It also offers additional living expenses coverage, medical payments, and liability protection. Renters do not own the building they live in, therefore they have no need to insure it.

HO-6, or Condominium Coverage, is similar to the Tenant’s policy and offers broad coverage and liability protection for the insured condominium unit. This coverage is designed for condominium unit-owners willing to insure items not covered by the association policy. It does not cover the condominium structure itself, as the structure should be covered under a Special Condominium policy through a condominium association.

HO-8, or Older Home policy, is offered for older homes with historic value. Basic coverage from disasters is limited to repairs or cash values of the insured items. This policy does not cover rebuilding or replacement costs, since some parts of the home bearing historic significance can make these costs higher than their current market value.

The above-named policies can have variations. For instance, special policies are used to cover mobile homes. Besides Renter’s Insurance that covers the renter’s property within the building, there is Landlord Insurance that covers the dwelling itself, but not the property.

Explaining Homeowners Insurance Application

Get ready to provide your insurance company with all sorts of personal information when applying for Homeowners Insurance, i.e. the date of birth and marital status, previous addresses, your Social Security number, current occupation and employment history, etc. The insurance company will be interested in your credit, criminal and insurance history, as well as your “loss history” to determine what home insurance claims you have already made.

Then, many factors determine how much you will have to pay for your Homeowners policy, i.e. the amount of premium. Everything is important: the age of your home, its general condition, location, the square footage, the number of rooms, the number of people living in your house, what heating system is used, the proximity of your house to fire station, etc. If your house is located in a high risk area, such as a coastline, you will have to pay more. The owners of pools or trampolines should also expect to be charged more. In case you intend to rent a part of your house, or use your home for some business purposes, your liability will increase.

Along with cost-increasing factors, there are things you could do to save money. Everything that helps make your house safer belongs to cash savers in this case: removing trees and other objects from striking distance of your house, equipping your home with alarm systems, smoke detectors, deadbolt locks, etc.

The Homeowners Insurance policy is an extended and quite complicated document that requires an elaborate study and thorough understanding. The awareness of the protection your Home Insurance provides and exclusions it contains is a part of responsibility you take as a home owner.

An insurance professional will offer you assistance in determining your individual insurance needs. Co-operating, you will work out what type of Homeowners Insurance you need, what items will be covered and what will be excluded on your policy, the deductible and premiums you will pay for the coverage, how much it would cost to replace your home and belongings, and whether you need some special coverage added to the basic policy.