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Homeowner’s Insurance: The Basics

Posted by Johnine Larsen on May 8, 2017
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Homeowner’s insurance covers four things:

1. Your Home
If your home is damaged by fire, hail, lightning, hurricane, or another disaster, homeowner’s insurance will give you money to repair or rebuild. This coverage also extends to other structures on your property, like a shed or garage.

Exclusions: General homeowner’s insurance does NOT cover damage caused by flood, sewer backups, earthquakes, or age/use—if you want protection from those, you’ll need designated flood, sewer, or earthquake insurance.


2. Your Stuff
In the event of fire, lightning, vandalism, riot, theft, explosion, falling aircraft (seriously), hurricane, or most other disasters, homeowner’s insurance will replace your lost/damaged belongings. Unless you’ve rejected “off-premises coverage,” insurance will pay even if the damage/loss did not happen in your home.

Exclusions: Max payout is usually capped around 50 to 70 percent of the value of your home; valuable single items (jewelry, antiques, furs, etc) have a dollar limit; and trees, scrubs, and other plants are only covered for about $500/plant (and excludes damage caused by wind or disease).


3. Your Guests
If someone or someone’s stuff gets hurt/damaged in your home, or if you (or your pet) hurt/damage someone anywhere, homeowner’s insurance steps in and pays to defend you in court. It also covers whatever damage you caused. You can get an umbrella policy to expand your protection to include things like libel and slander.

Exclusions: You still have a limit, which usually starts around $100,000.


4. Additional living expenses

If you can’t live in your home because it’s too damaged or still being repaired, homeowner’s insurance pays for you to live somewhere else. It pays for a hotel stay, eating out, and other living expenses.

Exclusions: The house must have been rendered uninhabitable by a fire, storm, or other insured disaster. What qualifies as a covered living expenses varies from company to company.

Homeowner’s insurance has three coverage levels:

1. Cash
You’ll get cash to replace your home or possessions—minus a deduction for depreciation.
2. Replacement
Insurance will pay the bill for rebuilding or repairing your home, or the bill for replacing your possessions. There is NOT a deduction for depreciation.
3. Guaranteed/Extended Replacement Cost
This is the highest level of protection. Insurance will pay whatever it costs to rebuild your home as it was before the disaster damaged it, even if that costs is higher than your policy limit.

Homeowner’s Insurance fits various living situations

HO0 – Dwelling Fire Form
Coverage on a home against fire, smoke, windstorm, hail, lightning, explosion, vehicles, and civil unrest. It does NOT cover personal property, personal liability, or medical expenses. It is the type of policy a mortgage lender will buy for a borrower if the borrower’s homeowner policy lapses.
HO1 – Basic Form
Coverage on a home against 11 possible disasters, including fire or lightning, windstorm or hail, vandalism or malicious mischief, theft, damage from vehicles and aircraft, explosion, riot or civil commotion, glass breakage, smoke, volcanic eruption, and personal liability. Does NOT include floods, earthquakes. Most states no longer offer this type of coverage.
HO2 – Broad Form
Coverage on a home against 16 listed possible disasters (including all 11 on the HO1). The coverage is usually a “named perils” policy, which lists the events that would be covered.
HO3 – Special Form
The typical, most comprehensive form used for single-family homes. The policy provides “all risk” coverage on the home with some perils excluded, such as earthquake and flood. Contents are covered on a named-peril basis.
HO4 – Contents Broad Form
For renters. It covers personal property against the same possible disasters as the contents portion of the HO2 or HO3. It generally also includes liability coverage for personal injury or property damage inflicted on others.
HO5 – Comprehensive Form
Covers the same as HO3, plus more possible disasters. On this policy the contents are covered on an open peril basis, therefore as long as the cause of loss is not specifically excluded in the policy it will be covered for that cause of loss.
HO6 – Unit-Owners Form
For condominium owners. It insures personal property, walls, floors, and ceiling against all of the possible disasters in HO4. A separate policy purchased by the condo association covers the rest of the building.
HO8 – Modified Coverage Form
For owner-occupied older homes whose replacement cost far exceeds the property’s market value.

Tip: Every so often, take a camera, document everything in your home, and save the photos to the cloud or somewhere else off-site. This way, if you make a claim, you have proof of ownership.