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Home Insurance

For most people, their home is their largest investment and as such should always be protected with home insurance. Whether you own, mortgage, or rent, homeowners insurance is available with various coverage options to offer you financial defense in the event of unforeseen incidents and damages. Home insurance is a relatively small investment that offers a potentially large return on your investment if you ever need it. Just as you can add options to your policy in order to cover additional incidentals, you can also reduce your home insurance rate by changing your coverage and adding discounts to the policy.

Types of Homeowners Insurance

If you are financing the purchase of your home, you will be obligated by your lender to purchase homeowners insurance. This is because the lender does not want to risk depreciation or loss of its investment. If you own your home outright then home insurance is certainly optional but it is highly recommended. There are various coverage options that can be suited to address your needs.

Certain factors need to be taken into consideration when deciding on how much home insurance coverage to purchase for your home. The age and value of your home will be one of the primary points in determining not just the amount of coverage but the type of coverage. Coverage is relatively standard and is set forth by ISO (Insurance Services Office). There are currently seven types of homeowners insurance.

The most basic coverage is HO-1, which would cover you in the event of fire or lightning. HO-2 offers broader coverage and includes theft and vandalism as well as hail damage or a collapsed building. HO-3 is a specialized insurance coverage that provides you with protection against most hazards. Any exceptions will be listed as exclusions on your policy. This is the most common policy purchased by homeowners with endorsements or riders being added to include the otherwise excluded coverage that may be needed.

HO-5 is deluxe coverage, which automatically includes protection for most items excluded by HO-3. For the older home, HO-8 insurance ensures that the homeowner will receive suitable replacement materials as available with current supplies. (For example, plaster may be replaced by drywall.)

If you own a condo, you still need homeowners insurance. However, since you most likely don’t own the land or any external structures, you need a different type of home insurance. The condo owner can purchase HO-6 home insurance which is intended for the condo owner and covers not only personal property but provides liability protection as well. Owners of mobile homes can obtain the HO-7 policy.

Many renters make the mistake of not obtaining renters insurance since they don’t own the apartment, condo, or house that they are renting. However, renters are still at risk for disaster, such as fire, and criminal activity. Therefore, renters are able to purchase HO-4 home insurance to protect their personal property against any events such as those covered in HO-2. Additionally, renters get personal liability insurance as part of their standard coverage.

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Homeowners Insurance Coverage

According to the ISO, there are six types of coverage that pertain to home insurance. The coverage classification specifies what is actually covered by the insurance policy and should be thoroughly reviewed and understood so that you know exactly what is covered. For example, if you have HO-1 for fire insurance but it only applies to Coverage A (your dwelling) and not Coverage B (other structures), then your garage will not be covered in the event of a fire.

Coverage A refers to the dwelling, which is the actual building but not the land. This coverage is typical in all home insurance policies except for HO-4, renters insurance, since the renter does not own the dwelling. Coverage B includes other structures that are on the property, such as a garage, but are only covered if they are for personal use and not business.

Personal property is protected under Coverage C and addresses your belongings. Depending on the type of insurance you have, your personal property can be covered from smoke damage or if they are stolen during a burglary. Some items are only covered up to a certain amount so you may need a special endorsement for items of greater value that exceeds the threshold limit. This is typical for furs, fine jewelry, coin collections, and sometimes electronic equipment.

Sometimes damage occurs to your home that displaces you during renovation. If you have Additional Living Expenses with Coverage D, you can receive reimbursement for costs associated with your new temporary living arrangements. This typically includes the cost of a hotel or apartment but does not usually include meals or entertainment. Coverage D also offers Loss of Use protection, which helps cover loss of rental expenses if you are unable to earn rental income while repairs are being done.

The fifth Coverage is classified as Additional and addresses many expenses that are not otherwise covered. These could include charges assessed by the fire department, debris removal, identity theft, and landscaping damage. The sixth classification is not related to coverage but rather Exclusions. Here is where you will find all of the perils that are not included with your home insurance. Earthquakes and water damage are common homeowners insurance exclusions as well as several others. It is very important to know what risks are being excluded so that you can consider purchasing optional endorsements for select coverage as needed. For example, if floods are not covered but you live in a flood zone, you may want to purchase flood insurance.

Premiums and Discounts for Home Insurance

Your premiums for your home insurance are based on several factors. The age and size of your home as well as the geographical location of your home will generally determine the base rate. Unlike auto insurance which charges higher rates for newer cars, in home insurance the newer houses usually get charged lower rates. This is because older houses tend to have outdated materials and technology (such as lead and old wiring) that can cause greater risks. If your home is located near a flood zone or in a high crime area, your rates will also be affected. While living in a flood zone can increase your home insurance premium, living in close proximity to a fire department can lower your rate.

Your credit history and FICO score can also impact the rate you get. It is common to authorize insurance companies to pull your credit report and a poor credit performance can impact the rate you are offered. If you have damaging credit try to repair it as soon as possible and then request a reassessment of your premium.
Once you determine the type of coverage you need, you can reduce your premium by increasing your deductible. The difference between replacement cost and actual cash value can also impact your cost. 100% replacement cost will be reflected by a higher premium but it will also provide a bigger benefit if there is a claim. Likewise, if you have older furniture and such, you may decide to save money on your insurance premium and select coverage that pays you the depreciated value of your loss in the event there is a payout.

Take advantage of discounts that you can earn on your home insurance through safety and security measures. Having a secured area for your guard dog could help with your personal liability insurance and installing burglar alarms and smoke detectors will almost always reduce your premium. If you have an auto, you can generally get a multi-policy discount by placing both your car and your home with the same insurance provider.

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Compared to auto insurance and health insurance, home insurance is one of the least expensive insurance policies you can buy. Ironically, it can also have the largest return on your investment. As with all insurance, you hope you never need it, but whether you have a leaky roof or a fire, knowing you are covered can ease a lot of the stress that naturally accompanies disaster. Use the insurance quote tool on this page now to shop for free home insurance quotes!

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