homeownersHomeowners insurance is fairly standardized by the insurance companies. Homeowners insurance policies are generally one of the following.

  • HO-1. This homeowners policy offers the basic coverage, insuring against personal liability, lightning, windstorm, fire, hail, theft, damage from vehicles and aircraft, vandalism, glass breakage, smoke, explosions, riots or civil commotion, and volcanic eruptions. It covers your home’s contents as long as you have made a list of each item.
  • HO-2. Called broad coverage, this policy includes everything in Ho-1, and adds other hazards such as rupture of steam or hot water heating systems, building collapse, freezing or discharge of water or steam from plumbing, heating, or air-conditioning systems, damage from the weight of ice, snow, or sleet, and falling objects.
  • HO-3. Your insurance agent may refer to this as “all risk” coverage, and it offers the most coverage (it also costs the most). Instead of listing specific hazards that it insures, as the policies above do, it lists only what it excludes, such as and earthquakes and floods. You can, however, purchase riders that will cover most excluded hazards. If you want flood insurance, you can get it from the government. Because it provides the broadest coverage, most homeowners purchase an Ho-3 policy.
  • HO-6. This policy is designed for co-op and condominium owners. It covers personal liability, the contents of your home, and can fill in gaps not insured by your or co-op’s or condo association’s insurance policy.
  • HO-8. This policy is devised for older homes whose old-fashioned building materials, such as and slate roofs and plaster walls can be more expensive to replace if the home is destroyed or damaged. This policy will insure your home’s market value, if replacing your home costs more. Modified replacement insurance will replace old-fashioned materials with modern counterparts such as dry wall instead of plaster, etc.

Before you decide on a homeowners policy, shop around, and get several quotes to find the most coverage for the lowest cost. Make sure you’re insuring for a sufficient amount. Pay close attention to your policy’s limits. These limits, which appear on your policy’s declarations page, sets the maximum that you’ll receive if your home is damaged or destroyed. For instance, you insure your two-bath, three-bedroom home for $200,000 (the price you paid for it). Several years later, fire destroys the home. Building costs have risen, and a now a new home with and two baths and three bedrooms costs $250,000. Your policy limit is $200,000, so your homeowners policy won’t pay more than that. You will have to make up the difference or settle for less when you replace your home. Ask your insurance agent about per square foot building costs to be sure you’re purcasing enough coverage to replace your home.

Insure the structure for guaranteed or extended replacement cost. If a fire destroys your home, these options make sure that you can rebuild a house that’s equivalent even if building costs have gone up. Extended replacement insurance covers the house’s insured value plus the actual building costs and covers a certain amount above the policy’s limit (generally 120 or 125 percent). Guaranteed replacement insurance is comparable but without a cap. These options increase the cost of your policy above ordinary replacement policies, but if your house is destroyed, you won’t find yourself living in a lesser home than what you had.

Insure your personal possessions for replacement cost. Most homeowners policies cover your personal possessions, generally for up to 40% of your home’s value. If your house is insured for $200,000, the insurance covers your possessions for up to $80,000. This coverage is typically actual value coverage, which factors depreciation into account. For example, if you bought a computer for $1,500 a few years ago and the computer is now worth $300, your insurance covers the computer’s loss for $300. For a bit more money, however, you can insure your personal possessions for replacement cost. With this type of policy, if something you own is stolen or damaged, the policy pays the cost to replace the article at current prices with no depreciation.

Be aware of exactly what items are covered. Although most homeowners policies cover the structure and contents of your house in case of damage from explosion, theft, fire, hail, and wind, the standard homeowners policy doesn’t protect against earthquake or flooding. If you need that type of coverage, you’ll need to bolster your standard policy with an addition (called a rider), which will cost you extra. Consider a high deductible. An insurance policy’s deductible amount is the money you must pay out of pocket first when you file a claim. You must pay the deductible before the insurance company pays. Increasing the amount of the deductible will lower your insurance premiums because it lowers the insurance company’s risk. Of course, choosing a higher deductible represents a risk. If calamity strikes and you file a claim, you’ll pay the higher deductible. However, for many homeowners, the savings through years of lower premium costs makes that gamble justifiable. If you choose a high deductible, check with your lender. Many banks limit the amount of the deductible.

Reduce the risk to your home. Install a security system, and smoke and carbon monoxide detectors. Perhaps you can talk the seller into doing this as a term of the sale. If not, take care of these improvements after you move into your home, then present your insurer with proff that you’ve done so. Be a good shopper. All insurance companies are not created equal. Once you settle on your insurance needs, check with at least 3 companies about the policies they provide and go for the best value. Bundle your policies. Many companies offer significant discounts if you carry more than one policy with them. If a company offers both car insurance as well as homeowners insurance, see if they will give you the better deal.

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