A home is one of the most significant investments most of us make in our lifetime. Properties can cost hundreds of thousands of dollars to purchase and replace–much more than the average American family earns in a year. Homeowners insurance is a special class of coverage that protects the structure and contents of your home from accidental damage or theft. Insurers provide coverage in different ways, depending on the policy.
What Does a Homeowners Policy Provide?
The level of coverage depends on the policy and may be limited to the structure of your home or may also include personal belongings, liability, and other associated expenses with an insurable event. How and when your policy provides coverage also depends on the type of policy. For most common policies, coverage is excluded for things like construction defects, foundation problems, pet damage, intentional loss, etc.
Many homeowners may not realize their policies might exclude coverage for a flood, earthquake, or vandalism of a vacant home. Policy coverage and exclusions vary depending on typical situations for a given area. If you buy a home in a flood plain, you may be required to purchase additional insurance for that type of event. And similarly, if you live in a coastal area, you may need special coverage for hurricane damage.
There are also differences in how policies cover events. Some policies will pay the value of your current home while others will pay the replacement value of your home or current cost to rebuild, which is typically higher.
Types of Homeowners Insurance Coverage
There’s a lot of risks involved in homeownership. Storms can damage your roof, pipes can freeze and flood your home, guests can trip and fall, or maybe you hire someone to clean the gutters and they fall off a ladder sustaining a serious injury. Homeowners insurance provides a variety of coverage options to protect homeowners from various risks.
Liability Protection
One way homeowners insurance provides protection is to help with legal fees. If someone falls down your stairs and requires medical treatment, they may sue you to pay for it. Costs stemming from a covered loss on your property are paid in the event a lawsuit is filed.
Dwelling Coverage
Dwelling coverage will pay to repair or replace the physical structure of your homes, like the walls or roof.
Personal Property Coverage
Personal property coverage provides protection for all the things you keep in your home. Electronics such as your big screen TV and personal computers are obvious big-ticket items. But even the smaller items can add up if you are forced to replace everything.
Other Structures
Coverage for other structures includes detached garages, garden sheds, barns, and outbuildings on your property that are separate from the primary dwelling.
Guest Medical Protection
This type of medical protection coverage will pick up the tab on medical treatments required for guests who may be accidentally injured on your property. For example, if a neighbor is helping you put up Christmas lights and they cut their arm on a sharp protrusion on your gutter, guest medical protection coverage will pay for their ER visit and stitches.
Additional Living Expenses Protection
If you are displaced from your home by a covered event, like a home fire, the additional living expenses coverage will help you pay for short-term housing and other incurred costs from being relocated.
Coverage Levels
In addition to providing different types of coverage, homeowners insurance policies come in different levels of coverage designed for different situations. Coverage levels include:
HO-1 Perils Policy
HO-2 Broad Form
HO-3 Special Form
HO-4 Renters Insurance
HO-5 Comprehensive
HO-6 Condo and Coop Insurance
HO-7 Manufactured and Mobile Home Insurance
HO-8 High-Value Policy
HO-1 Perils Policy
A perils policy is limited to coverage for the structure of your home. It will cover an attached garage, as well as appliances and finishing materials like carpet. However, it does not provide any protection for your personal belongings. Additionally, these policies will only cover damage from specific conditions, such as if an airplane crashes into your home or there is an explosion, fire, or volcanic eruption. Due to the limitations, it’s not a popular choice for most homeowners.
HO-2 Broad Form
Broad form is a type of perils policy that provides more coverage to include your property and personal belongings. These policies tend to expand coverage to more events like damage from a falling object or the weight of snow and ice. They may or may not include liability coverage.
HO-3 Special Form
A more common type of homeowners insurance covers your home, belongings, liability, additional living expenses, and medical bills. These policies cover the most common causes of damage or theft but also tend to have extensive exclusion lists.
HO-4 Renters Insurance
If you rent your home instead of owning it, your personal belongings are not covered under the homeowner's insurance policy. A renters insurance policy covers personal property, liability, and additional living expenses if you’re displaced.
HO-5 Comprehensive
Similar to an HO-3, comprehensive policies cover everything that you might need, like your home, belongings, liability, medical, and more. These policies are typically written on an open perils policy instead of a named perils policy, providing the homeowner with coverage for more events.
HO-6 Condo Owners
The needs of condo owners are different than traditional single-family homes. Some condo owners have limited structural coverage based on their agreements, while the condo association carries separate insurance for common areas and features of the property.
HO-7 Mobile and Manufactured Homes
Coverage for non-permanent structures typically covers personal belongings and property differently. That means certain events may be excluded from one or the other, with more coverage typically available for the structure of the home.
HO-8 High-Value
Homeowners with high-value homes such as historical architecture or homes with high-value property like artwork often need more coverage than the typical homeowner. High-value coverage provides protection at an increased cost.
Actual Cash Value vs. Replacement Cost
How an insurance policy pays for a covered event depends on policy stipulations. The actual cash value (ACV) is the fair market value of your existing home (pre-event). Replacement cost (RC) covers the amount needed to repair or rebuild without depreciation. Guaranteed replacement cost/value pays the full replacement cost even when those costs exceed your policy limits.
Key Takeaways on the Types of Homeowners Insurance
Do you have enough protection for your home? It’s a great idea to review your policies annually and talk to your insurance advisor about changes that may impact your current policy coverage. Nobody wants to be left in the lurch when their homeowner’s insurance policy doesn’t provide adequate coverage. There’s a lot of differences from one policy to the next. Let Carolinas Insurance & Investment Group help you choose the right coverage for your situation. Get in touch with one of our knowledgeable agents today.