About Homeowner’s Hazard Insurance

By Matt Unangst, 23 Jan 00:36

• Covers your home from damage or destruction
• Only certain disasters are covered
• Some policies cover possessions
• Some policies pay living expenses while house is being rebuilt or repaired
• Provides liability coverage for anyone injured on your property
• Differences in how reimbursement is calculated – actual cash value vs. replacement cost
• Replacement cost coverage is more expensive
• Required in most states
• 5 main types: HO-1, HO-2, HO-3, HO-4, HO-6
• Assorted amendments can be added to increase coverage
• Premium based on replacement cost of house
• Don’t just buy the cheapest policy – make sure you are well-covered
• Start looking for coverage ahead of time
• Calculate costs on your own to insure you are getting a good rate – building costs vary from area to area, so find out information for your area
• Don’t insure your land if money is an issue, just your home and its contents
• Make a home inventory and store it at someone else’s house
• Include receipts for expensive items with the home inventory
• Report any remodels or upgrades to your insurance company, as they could affect coverage

A disaster which destroys or damages your home can be one of the worst experiences in life. To insure that the damage done does not destroy you financially, most states require you to have homeowner’s insurance coverage. Homeowner’s insurance covers damage to your home and possessions from disasters.

Each homeowner’s insurance policy is different in the coverage it provides. Some policies not only provide for repairs and replacement, but also pay for your living expenses if you have to live elsewhere while your home is being repaired or rebuilt. Homeowner’s insurance begins to cover your home as soon as your transaction closes.

There are five types of homeowner’s insurance most commonly found. They are called HO, followed by a dash and a number. Here is a brief description of each type:

• HO-1 Limited Coverage
HO-1 covers your home from damage caused by fire or lightning, windstorms or hail, explosions, riots or civil commotions, smoke, theft, vandalism, and vehicles, including airplanes. However, HO-1 coverage only covers the structure of a home, not the things inside. Many states are now discontinuing HO-1 coverage because of this lack of coverage for possessions and some disasters.

• HO-2 Broad Policy
HO-2 coverage includes everything covered by HO-1, as well as providing you coverage for damage from falling objects; the weight of ice, snow, or sleet; frozen plumbing, heating, air-conditioning, fire sprinkler systems, or appliances; sudden accidental bursting of heating, air conditioning, water heater, or fire sprinkler systems; and from damage caused by artificially generated electrical currents. HO-2 coverage sometimes covers personal possessions, sometimes not. Check with insurers before purchasing HO-2 coverage.

• HO-3 Special Policy
An HO-3 insurance policy provides coverage for all damage except for exceptions explicitly listed in the policy. It includes liability protection and living expense coverage. HO-3 policies are the most common and cover both your home’s structure and your possessions.

• HO-4 Renter
HO-4 insurance is for people renting their home. It covers their possessions, but not the structure. Included in HO-4 coverage is liability protection and living expenses coverage.

• HO-6 Condo or Co-op
People living in condominiums do not require personal insurance for the shared areas of their buildings, which are covered by a housing association “master policy.” HO-6 insurance covers the personally owned part of the condo as well as personal possessions. It provides liability protection and living expenses coverage.

Included in every homeowner’s insurance policy will be a list of disasters that are not covered by the insurance. The disaster most frequently left uncovered are floods, earthquakes, mudslides, damage from animals, settling of the home’s structure, lack of maintenance, and mold damage. If you are particularly worried about any of these things, you can get extra coverage to cover particular disasters.

Liability coverage is an essential part of your homeowner’s insurance. If someone were to be injured or have their property damaged by you, a member of your family, or one of your pets on your property, your homeowner’s insurance would cover your court costs and medical bills for whomever was injured.

There are limitations on what an insurance company will pay you if something is damaged, destroyed, or stolen. Items that are frequently theft targets, such as laptops and jewelry, have low limits for what the insurance company will pay.

There are vast differences in how different insurance policies calculate replacement for items. The two normal means of calculation are actual cash value and replacement value. Actual cash value will reimburse your for what the current cash value of the item in question. Depreciation is taken into account, so your old television may now have almost no cash value, meaning that whatever you are paid out is not nearly enough to replace the television. Replacement value coverage is more expensive (usually by about 10%), but your home and/or possessions will be replaced without deducting any amount because of depreciation.

Homeowner’s insurance often will not cover something you feel is important. You can get amendments to your coverage to give you the security you need. In addition to the previously mentioned coverage for replacement value and for specific disasters, there are a number of other amendments. Riders are additions to your coverage to insure a specific item or disaster. Many people have riders for their jewelry, hi-tech equipment, or other extremely valuable items. Riders are also available to provide extra liability coverage for a home business, which may have higher risk of damages with people frequently coming and going. Extra liability coverage is common for those without home businesses as well. Experts recommend that you carry liability insurance for twice the value of your assets. Since standard homeowner’s insurance policies provide just $300,000 worth of liability coverage, many people buy liability umbrellas to make up the rest of the recommended amount. Liability umbrellas cover any extra liability beyond the $300,000 limit. If your home does not meet current building codes, you can purchase special building code coverage, which will pay to bring your home up to code if it needs to be rebuilt.

Homeowner’s insurance costs vary widely from home to home. The cost of a homeowner’s insurance premium is based on the cost of replacing the home. The factors that go into determining home value are:
• your property’s appraised value
• what your home is made of – wood, brick, etc.
• how old your home is
• natural hazards near your home
• value of your possessions (if they are to be covered)
• extra coverage that you have requested, such as riders or replacement value

Begin your search for homeowner’s insurance early. The more time you spend shopping around, the better rate you will get.

Take local costs into account when calculating coverage costs. Talk to some builders in the area to figure out what it would cost to rebuild your home. Base your search for coverage on this amount, not on your mortgage amount or purchase price. Recalculate replacement cost regularly and make sure that your coverage will still cover what you need. If it doesn’t, talk to your insurance agent about more coverage. You should also report any remodeling or significant life events, such as marriage or birth, in your household, as these may affect the coverage you need.

Just because a particular insurer offers a cheaper rate, don’t necessarily choose that insurer. Be certain that the coverage you are getting covers everything you want it to. Ask questions to find out exactly what your insurance covers. Another thing to ask about is response time on claims. You should know how quickly a claims adjuster will arrive after a disaster occurs.

There are some ways to lower insurance costs while still getting the coverage you need. Some insurers provide special discounts to people who have multiple policies with them, so you can often save money by having the same car and homeowner’s insurance company. If you ask for a higher deductible, your premium will be less than otherwise.

There is also a possibility of a reduction in cost due to added safety in your home. Installing deadbolts, alarms, smoke detectors, storm shutters, or fire-retardant roofing can lower your premium. If your house is smoke-free, tell your insurer, as it may lower your costs.

Seniors can sometimes get discounts on homeowner’s insurance.

Don’t insure your land, just your home and possessions. Including your land in the valuation of your coverage will probably leave you over insured.

IMPORTANT TIP: Make an inventory of your home’ contents. Include with this inventory some photographs or a video of your possessions and any receipts for expensive items you have bought or been given, as well as any receipts for home remodeling. Keep this inventory at a friend or relative’s house in a safe deposit box. An inventory will help you to get everything replaced should a disaster occur.

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SEE ALSO: About Home Warranty Insurance, About Title Insurance, Title Insurance: Where Does Your Dollar Go, Insuring Home Ownership

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