Homeowners insurance is basically insurance that protects the owner from casualty losses or damages to the home or personal property and from liability damages to other people or property. Generally, homeowners insurance is required by the lending company and it may be included in the monthly mortgage payment.
The standard homeowners insurance policy will include four essential types of coverage including: coverage of the structure of your home, coverage of your personal belongings, liability protection, and additional living expenses in the case that you are unable to live in your home because of a fire or other uninsured disaster.
There are different types of policies other than the standard one. People who rent a home will more than likely have a different policy than someone who owns their own home. Throughout the country, policies generally follow the same principals. A few states may have a few variations on some policies. However, Texas is the exception. Their insurance policies greatly differ from those in other states. The Texas Insurance Department has listed detailed information on their policies at www.tdi.state.tx.us.
There are so many policies available, the HO-3 policy being the most popular. One policy called the HO-1: Limited Coverage Policy. This is pretty much the bare minimum policy offering you coverage against only 10 of many disasters which include: fire or lightning, windstorm or hail, explosion, riot or civil commotion, damage caused by aircraft, damage caused by vehicles, smoke, vandalism or malicious mischief, theft and volcanic eruption. This policy is no longer available in many states.
The HO-2: Basic Policy protects against the disasters listed above as well as falling objects, weight of ice, snow or sleet, accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning, or automatic fire-protective sprinkler system, or from a household appliance, sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioning or automatic fire-protective system, freezing of a plumbing, heating, air conditioning or automatic, fire-protective sprinkler system, or of a household appliance, and last but not least, sudden and accidental damage from artificially generated electrical current (does not include loss to a tube, transistor or similar electronic component). This policy covers the little things that could possibly happen to your home and which often do. This policy can also be designed for mobile homes as well.
The HO-3: Which is the most popular policy, covers all the things the HO-2 policy covers, but it also covers all perils except earthquake, flood, war, nuclear accident, landslide, sinkhole, and mudslide.
The HO-8: Older Home Policy is obviously designed for the coverage of older homes. This policy will usually reimburse you for damage done to your home on actual cash value basis, which means replacement cost less depreciation. Some older homes may not qualify for full replacement cost policies.
If you rent your home, you are on a different page than homeowners. There is a policy, HO-4 that is specifically designed for home renters. This policy protects your possessions and any parts of the apartment or house that you own (i.e. new kitchen cabinets you had installed) from all of the sixteen disasters that were listed above in the homeowners insurance.
Your level of coverage can vary as well as the policy you have. Regardless of whether you are a renter or a home owner you are still allotted one of these three options:
- Actual Cash Value- This policy pays to replace your home or belongings minus a deduction for depreciation.
- Replacement Cost- This policy will pay the cost of rebuilding or repairing your home or replacing your possessions without a deduction for deprecation.
- Guaranteed or Extended Replacement Cost- This policy offers the most and the highest level of protection. A guaranteed replacement cost policy will pay whatever it costs to rebuild your home before the damage was done, regardless of if the price exceeds the policy price. This policy gives you protection against the sudden increase of construction costs due to a shortage of building materials after a widespread disaster or any other unexpected situations. However, it generally won’t cover the cost to cover the upgrading of the house’s building codes. Again, there is always an exception to any rule. You can get an endorsement to your policy (or an addition) to help pay for these additional costs. A guaranteed replacement cost policy may not be available on all older homes.
Some insurance companies will offer an extended policy rather than a guaranteed replacement cost policy. With this policy, it covers a percentage over the limit to rebuild your home. Generally speaking, it will pay twenty to twenty-five percent more than the limit of the policy. For example, if you had taken out a policy for $100,000, you could get an extra $20,000 to $25,000 to rebuild your home in the case of a disaster.
Like I said at the beginning, unlike owning a car, you can legally own a home without having homeowners insurance. However, if you’ve bought your home and financed the purchase with a mortgage, the lender will more than likely require you to get homeowners insurance coverage. They require this because they need to protect the investment they’ve made in helping you purchase your home, in case of a natural disaster, fire or etc. Also, if you live in an area that frequently gets flooded the bank will require you to purchase flood insurance as well. The same goes for if you live in an area that is frequently vulnerable to earthquakes, they will require you to have coverage on your home for this as well. After you have paid off your mortgage you’re not required to keep your homeowners insurance, but is greatly advised to stick with it, for obvious reasons.
In the severe case that you did have to rely on your homeowners insurance in the emergency of a fire or flood, do you keep track of all the valuables and possessions you’ve gathered over the years? Having an up-to-date home inventory will help get your insurance claim settled quicker, verify losses for your income tax return and help you to purchase the correct amount of insurance. This might seem like a daunting and tedious task, but in the case of a major disaster you would be grateful for the time you spent keeping record of everything you own.
Start by making a list of your possessions and describe each item, noting where it was purchased, its make and model. It would also be helpful to keep close by your inventory any sales receipts, purchase contracts and appraisals you have. For your clothing, count all the items you own by category (i.e. pants, coats, shoes, shirts, etc.) and making note of those that are especially valuable. In the case of your major appliances (i.e. washing machines, clothing dryers, refrigerators, etc), keep record of their serial numbers which can usually be found on the back or the bottom of the appliance.
If you’re just starting a household, starting an inventory can be relatively simple then. If you’ve lived in the same house for years, however, the task of making an inventory list could be very daunting. It is still better to have a somewhat incomplete inventory list rather than none at all. It’s best to start with the most recent purchases and then try to remember as much as possible about your other possessions.
Start with your big ticket items such as valuable jewelry, art work and collectibles. These items may have increased in value since you’ve gotten them. Check with your insurance agent to see if you have the proper amount of insurance on your belongings. You may need to purchase separate insurance for valuable items because of their worth.
You can also take photographs of rooms and important individual items. On the back of the photos make note of what is in the photo and where you got it. Don’t forget things that are in drawers and closets!
You may be wondering where to store your inventory list once it’s completed. Simple. Regardless of how you make your list (written list, disk, photographs, etc.) keep your inventory along with all your receipts in your safe deposit box at the bank (which I suggest being the safest place to keep it) or at a friend or relatives home. This way if anything happens to your own home you will still have your list to show to your insurance agent. Another thing to keep in mind is once you’ve completed your inventory list keep it up-to-date by adding to it when you make any significant purchases. More on home owners Insurance