The Basics of Homeowners Insurance Policies

Understanding the Basics of Homeowners Insurance Policies Does anybody really like dealing with insurance policies? They’re often confusing to understand and it’s another expense you have to worry about. But if you ever need it, you’ll be very glad to have it! Your home is one of the most significant investments you’ll ever make and it’s very important to protect it with a good homeowners insurance policy.

Shopping around for a new homeowners insurance policy? Don’t let yourself get overwhelmed. Let us help you make sense of some of the most important things you need to know.

What’s Your Policy?

Homeowners insurance policies come in varying degrees of coverage. HO-1 plans offer very basic coverage against damage caused by things like fire, lightning, theft, vandalism, explosions, vehicles, aircraft, and windstorms. However, the the coverage HO-1 plans offer is so minimal that there are some circumstances where homeowners are required to have HO-2 coverage instead. HO-2 plans offer the same amount of coverage as HO-1 plans, but have additional coverage if your home gets damaged by things like a falling object, the weight of snow or ice, flooding caused by an appliance or your plumbing system, or in the event of a sudden collapse.

HO-3 homeowners insurance policies offer the highest level of coverage. With a HO-3 plan, you’re covered for damage caused by all types of accidents and disasters unless it is specifically excluded in your plan.

If you live in a condo or a co-op, a HO-6 plan offers similar coverage to a HO-2 plan, but is tailored for your housing situation. HO-4 insurance plans are for people who rent apartments or houses and are commonly referred to as renters insurance. HO-8 homeowner insurance policies are very similar to HO-1 plans, but are most commonly used in in older homes that aren’t able to get covered by a HO-3 plan. These plans only cover the cash value of the home, not the replacement cost.

In addition to the specific types of damages covered by your insurance plan, different policies will offer different levels of compensation for damages. If your plan offers actual cash value coverage, this means the insurance company will pay you for the depreciated value of your home and/or belongings. A policy that offers replacement cost coverage will provide you with compensation for the amount it would cost to replace something, but within a certain limit. Guaranteed or extended replacement cost coverage covers the replacement value of the damage, even if the costs go beyond your policy limit.

What’s Covered?

Homeowners insurance policies cover more than just the structure of your home. Other structures on your property, such as garages, sheds, and barns, are also included. You’re also covered if the landscaping or fences on your property are damaged by a disaster that’s included in your policy.

Your personal belongings are also protected by your homeowners insurance. If your belongings are lost, damaged, or stolen, even if they weren’t on your property at the time of the incident, your homeowners insurance should cover it. So if you bring your laptop with you on vacation and it gets lost or stolen, your insurance policy should cover the damages.

Some types of damage to your home will make it impossible for you to live there while it’s being repaired. If this happens to you, homeowners insurance policies will typically cover the costs of staying in a hotel while your home is being repaired.

Lawsuits aren’t something many people plan ahead for, but if you ever end up facing one, your homeowners insurance policy may help you out. This is known as liability coverage. It commonly provides coverage for medical bills and other expenses caused if someone is injured on your property. It also protects you if you, or another member of your family, damages something or injures another person off your property. For example, if your dog bites a neighbor, your insurance will typically cover the person’s medical bills, even if the bite happened off your property.

What Isn’t Covered?

No matter what level of insurance policy you have, some types of damages are specifically excluded from virtually all types of homeowners insurance policies. Many homeowners realize too late that their insurance doesn’t cover damage caused by flooding, hurricanes, earthquakes, or sump pump failure. If you want coverage for these sorts of damages, you’ll probably have to purchase separate insurance. Damage caused by wars, landslides, sinkholes, and mudslides are also very commonly excluded from homeowners insurance policies.

Do you have any exceptionally valuable belongings like high-end jewelry, fine art, or rare antiques? If so, you may need to get separate coverage for those things if they go beyond the personal property limits of your policy. You may also need to purchase special coverage if you run a business based out of your home.  

Although finding the right homeowners insurance policy can be overwhelming, taking the time to deal with it can be one of the most important things you do as a homeowner. When disaster strikes, you certainly don’t want to be without it!