What is Homeowner's insurance?

 

About the Insurance

The cost of this insurance usually depends on how much it would cost to replace your home and what other damages are covered in the policy. The policy itself is often a lengthy contract that specifies what is and is not covered. Usually, claims levied because of acts of nature (earthquakes, floods, or Acts of God) are excluded. Different insurance can be bought to cover these events. Home insruance policies require the current value of the home and often an appraisal paid by the insurance company will be used to determine the cost of coverage.

The policy is usually a contract that is effect for a fixed time period. The payment the buyer makes to the

insurance company is called the premium. The buyer must pay the insurer at designated intervals (usually monthly). Insurers charge less if the home is unlikely to be damaged or destroyed.   For example, if the house is situated next to a fire station, or if the house is equipped with fire sprinklers and fire alarms there is a reduced risk of fire damage. Perpetual insurance (home insurance without a fixed term) can also be purchased from some companies.

In the America, most home owners borrow money to purchase a house and lender requires that the buyer purchase homeowners insurance to obtain the loan.  This way the bank is protected in case the home is destroyed. In some cases the lender will remove the need for homeowner's insurance if the value of the loan is small compared to the property. In the event where a borrower takes out a $25,000 loan to help pay for a $100,000 home they can most likely pay back the loan even if the house is destroyed.

Types of Homeowners Insurance

Prior to the 1950s there were different policies for the different damages that could occur to a property. A homeowner would needed to buy different policies covering fire losses, storm damage, theft, etc. During the ‘50s, insurance groupings were developed, that allowed homeowners to buy all the insurance they needed under one policy. Unfortunately, these policies were all serviced by different insurance companies and were difficult to comprehend.

The need for a one stop shop became so pronounced that a company named "Insurance Services Office" was formed in New Jersey in 1971 to provide a simplified homeowners policy. These policies have been changed over the time and today the ISO has seven common homeowners insurance forms in popular use. Of these HO-3 is the most widespread policy followed by HO-4 and HO-6. Also, HO-1, HO-2, and HO-5 and are used, albeit less frequently. Each is detailed below:

HO-1

A limited policy that offers different degrees of coverage for items specifically outlined in a policy. These might be used to cover a valuable object found in the home, such as a sculpture.

HO-2

Similar to HO-1; this is a limited policy that covers specific portions of a house against loss. Often called a perils policy, it lists the events that would be covered. As above, these factors must be explicitly stated in a policy.

HO-3

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This policy is the most common for a homeowner and was created to cover all aspects of the home, and its contents as well as any liability occurring from regular use.  It also covers damages suffered by any visitors who may are injury on the premises. Coverage and limits of liability must be explicitly stated in the policy to insure proper coverage.

 

HO-4

This is often called renters insurance or renter's coverage. Similar to HO-6, this policy protects an apartment and its contents that are not covered in the blanket policy written for the complex. This can also cover liabilities arising from accidents suffered by guests as well as passers-by. Common coverage areas are events such as lightning, aircraft, riot, aircraft, vandalism, explosion, theft, smoke, hail, windstorm, falling objects, snow, volcanic eruption, and weight of ice.

HO-5

This policy, similar to HO-3, covers a home, its owner and his/her possessions as well as any liability that might arise from guests or passers-by. This differs from HO-3 because it covers a wider breadth and depth of incidents.

HO-6

This is supplemental homeowner's insurance, AKA Condominium Coverage, and its designed for the owners of condos. It covers the part of the building owned by the insured and the property therein. It was created to span the gap between what the homeowner's is responsible for and what the neighborhood is responsible for.  Typically the this covers liability for residents and their guests in addition to property. The liability coverage can protect agains incidents up to one hundred fifty feet from the property, and all valuables within the home from.

Also, a Dwelling Fire policy is offered for owners of rented houses.  It covers damage to the property and to any appliances or furnishings that belong to the owner. The owner's liability is extended from their own primary home insurance, and is not part of the Dwelling Fire policy.

 

 

Coverages

For each policy, there are usually six kinds of coverage. These are based on standard ISO or AAIS forms:

Coverage A - Dwelling

Covers the value of the dwelling itself but not the land it resides on. Usually, a clause states that as long as the dwelling is insured to 80% of value, it will be replaced. This is in place to guard against inflation. Renter's insurance usually has no Coverage A, although it has additional coverages for development.

Coverage B - Other Structures

This covers other construction around the property which is not used for business, (with the one exception being a private garage). This is usually limited to 10% of the Coverage A.

Coverage C - Personal Property

This covers personal property, with limits for the loss or theft of items that are difficult to prove theft of (cash and cash equivalents).

Coverage D - Loss of Use

Covers damages associated with additional living expense (rental expenses).

Additional Coverages

Covers a variety of damages such as: debris removal, damage to trees, fire department changes, credit card/identity theft, removal of property, loss assessment, landlord’s furnishing, collapse, and some building additions. These change depending upon the policy.

Exclusions

In an open perils policy, specific exclusions will be specified here. These usually include water damage, power failure, earth movement, neglect, nuclear hazard, and war.