Home insurance is one of those expenses that most people pay each year without thinking about what it protects. While there are many different types of home insurance, most policies provide you with certain protections against a loss.
What is home insurance?
Homeowners insurance, or home insurance, compensates you for losses to your home and your possessions inside it, so purchasing a homeowners policy provides added security for your investment. Home insurance also protects you if you’re legally liable for someone’s injuries on your property, as well as from financial losses caused by storms, fire, theft and other events outlined in your policy.
There are seven varieties of home insurance for home owners and renters. HO-1 is a limited policy covering only the items specifically listed within the policy. HO-2 is a limited policy covering only specific damages to the home that occur due to certain events, these specifications are listed within the policy. The most common policy is HO-3; it covers everything about the home; the structure, contents, and injury liability. For renter’s there is the HO-4 policy, it covers items that are not covered by the landlord’s policy and can be upgraded to include injury liability. HO-5 is like HO-3 except that it is structured to accommodate higher dollar values and reimbursements. HO-6 is a bridge policy for condominium owners define what will be covered by the property owner and what will be covered by the condo owner. HO-8 is for people who own older homes allowing them to insure the home at market value as opposed to replacement cost.
What Do Home Insurance Policies Cover?
Home insurance is one of those expenses that most people pay each year without thinking about what it protects. While there are many different types of home insurance, most policies provide you with certain protections against a loss.
- The building
If you own a house, your insurance probably covers the cost to repair or rebuild the structure, if you experience a covered loss. The value on your policy must match how much it would cost to rebuild your home, not the value of the house if you sold it. If you own a condo or co-op, the policy will protect any improvements you make to the standard unit.
- Your stuff
Your home policy also includes coverage for all property that is in the house. This means all of your furniture, electronics, clothes, toys and anything else you own, with a few exceptions.
- Your garage, sheds and outbuildings
Your home policy also protects other buildings on your property, along with their contents (except for cars and motorized vehicles). Many policies even include coverage for your swimming pool and fences.
- Your jewelry and collectibles
Most policies cover the loss or theft of your jewelry, up to a limit stated in your policy. This may also protect your stamp collection, silverware, coins or art.
- Protection if you are sued
Every home insurance policy should include liability protection. This coverage steps in if you or a family member are sued for many different types of claims. Many policies also reimburse you for legal fees paid to defend yourself.
What other protections does my policy provide?
Homeowners policies regularly provide other types of coverage, including off-premises theft protection and unauthorized use of your credit cards. Make sure you understand which provisions are included in the standard coverage you elect to purchase and which might require supplemental premiums.
- Flood insurance
Homeowners policies do not cover flood damage. The National Flood Insurance Program (NFIP) offers flood insurance through home insurance companies nationwide.
If a mortgage lender determines your home is in a special flood hazard area, you might be required to purchase flood insurance.
- Earthquake insurance
If you are concerned about earthquakes, you can get earthquake insurance with a separate policy.
- Extra coverage (endorsements)
Home insurance policies contain exclusions and limitations for some types of personal property that are particularly susceptible to loss. Some policies place a specific dollar limit on certain property such as jewelry or antiques.
You might want more coverage for certain items than your policy provides. For an extra premium, you can buy endorsements that expand or increase the coverage on these items. Some of the most common endorsements cover jewelry, fine arts, camera equipment, coin or stamp collections, computer equipment, and radio and television satellite dishes and antennas.
Can I own a home without homeowners insurance?
Unlike driving a car, you can legally own a home without homeowners insurance. But, if you have bought your home and financed the purchase with a mortgage, your lender will most likely require you to get homeowners insurance coverage. That’s because lenders need to protect their investment in your home in case your house burns down or is badly damaged by a storm, tornado or other disaster.
If you live in an area that is likely to flood, the bank will also require you to purchase flood insurance. Some financial institutions may also require earthquake coverage if you live in a region vulnerable to earthquakes. If you buy a co-op or condominium, your board will probably require you to buy homeowners insurance. After your mortgage is paid off, no one will force you to buy homeowners insurance. But it is not advisable to cancel your policy and risk losing what you’ve invested in your home.
What’s the difference between canceling and nonrenewing a homeowners insurance policy?
Canceling a homeowners insurance policy and choosing not to renew it are two very different actions an insurance company can take.
Typically, insurance companies can only cancel an active policy if one or all of the following occurred:
- The policy has been in force less than 60 days
- You fail to pay the premium
- You commit fraud or made serious misrepresentations on your application
Nonrenewing a homeowners insurance policy is a decision you or your insurance company can make to discontinue coverage at the end of a policy term. Depending on your state, if your insurance company chooses to nonrenew your policy at the end of the policy term, it must notify you and provide an explanation within a specified time period. You can contact your company’s consumer affairs division if you disagree with the reason or want further explanation.
Analyzing your home
Many factors go into determining the premiums for a homeowners policy. The age of your home, the materials used to build it, where it’s located, the square footage and its distance from a fire hydrant all generally play a role in rates.
The insurer will be able to give you an estimate for rebuilding your house in the event of a total loss.
Where can I buy insurance?
You can buy insurance through your local insurance agent and through insurance companies that sell through their own employees, over the phone, by mail and over the Internet. Consult your state insurance department, the yellow pages of your phone book, and friends or relatives for the names of insurance companies doing business in your state.
In most states, there are dozens, sometimes hundreds of companies to choose from, depending on the type of insurance you’re looking for. You can go to our Find an Insurance Company tool for help.
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