Home Insurance Basics
Homeowners insurance is the kind of insurance that covers both damages to property and liability. This means that your home insurance policy would cover for any injuries and property damage that may have resulted from policyholders or their families. A home insurance policy may also include damage or injury caused by any household pets.
A home insurance policy usually covers damages caused by most disasters but one should look at the details of coverages as there are limits and in most cases many exceptions too.
For example, a standard home insurance policy does not cover earthquakes or flooding. If you wish to get your home covered for damages related to floods or earthquakes, you are required to purchase additional coverages.
At a high level, coverages for a standard homeowners insurance policy can be identified into four different categories:
1. Structure of the home
Coverage for the structure of your home is for insurance policy payments towards the repair or rebuilding a home in the event it is damaged or destroyed due to an incident covered as per your policy.
For example, fire, hurricane, hail, lightning or other disaster listed in your home insurance policy. In the event, if structural damage is caused by an earthquake or flood then it will be covered only if you have additional coverages for earthquake and flood.
Most standard home insurance policies do not cover regular maintenance related issues or damaged but they do cover structures that are not attached to a home-like gazebo or a garage.
2. Personal belongings in your home
Personal items such as furniture, jewelry, electronics, clothes, sports equipment, and other personal items are covered if they are stolen or destroyed due to an incident covered under your insurance policy such as fire, hurricane or other insured disasters.
Another important point to note here is “off-premises coverage”, which is generally included in the policy, unless the policyholder has decided to exclude off-premises coverage. This coverage in policy means that policyholder’s belongings are covered anywhere in the world.
Expensive items like paintings, jewelry, furs, and other collectibles are covered, but usually, there are limits in terms of the amount if they are stolen. To ensure your personal belongings to their full value, policyholders are required to get them appraised and can purchase a special personal property endorsement or floater for its appraised value.
Additionally, within a standard home insurance policy, for a limited amount, generally $500 each, trees, plants, and shrubs are also covered.
3. Liability protection
In the event policyholders or family members are found to have caused bodily injury or property damage to others then liability protection covers against such lawsuits and also pays for damages caused by pets.
This part of the coverage within your home insurance policy pays for both, the legal cost in court and any amount that the court awards—up to the limit as defined within the home insurance policy. Another important point to note here is that it not only covers for home but also extends it to anywhere in the world.
4. Living expenses
This part of the home insurance policy pays the additional costs of living in the event a house is inhabitable due to damage from a fire, storm or other insured disasters. It typically covers hotel bills, food costs like restaurant meals and other living expenses incurred while the property is being repaired or rebuilt.
Various types of Home Insurance Policies within the United States
Generally speaking, various types of home insurance policies are pretty standard throughout the country. However, some insurance companies or states may offer policies that are slightly different. Having said that state of Texas is an exception, where policies vary from other states.
For detailed information on the state of Texas, homeowners should carefully review details on The Texas Insurance Department (http://www.tdi.state.tx.us)
Generally for people who live in the home that they own, have the most popular policy called “HO-3”, though a homeowner has options to choose from various other types of policies. It usually provides the broadest coverage and protection against the following 16 disasters or perils.
- Damage from an aircraft
- Damage from any vehicles
- Damage from ice, snow or sleet
- Damage of hot water heating system, an air conditioning or automatic fire-protective system
- Damage from electrical current
- Falling object
- Freezing of a plumbing, heating, air conditioning or of a household appliance
- Riot or civil commotion
- Volcanic eruption
- Windstorm or hail
- Water damages from a plumbing, heating, air conditioning, or automatic fire-protective sprinkler system, or a
- household appliance
Some of the other types of home insurance policies are:
This type of home insurance (HO-3) policy is generally for homeowners of multifamily to cover the risks associated with having renters live in their houses.
This type of home insurance (HO-2) policy provides more limited coverage. Please check the coverages and other details on your policy. A version of the HO-2 type of policy is also available for mobile homes.
It is a bare-bones policy mostly providing minimum or least possible coverages and limits on coverages. and is not widely available.
This type of home insurance (HO-8) policy is designed for older homes.
This type of home insurance (HO-4) policy is designed for those who rent the home they live in.
This type of home insurance (HO-6) policy is designed for owners of condominium and cooperative units.
Levels of Coverage
There are three coverage options:
1. Actual Cash Value
This type of coverage on a home insurance policy pays to replace the home or possessions after subtracting a depreciation amount.
2. Replacement Cost
This type of coverage on a home insurance policy pays the cost of rebuilding or repairing the home or possessions without accounting for any depreciation-related cost.
3. Guaranteed/Extended Replacement Cost
This type of coverage on a home insurance policy offers the highest level of protection. A guaranteed replacement cost policy pays whatever it costs to rebuild the home as it was before the fire or other disasters—even if it exceeds the policy limit.