Homeowners Coverage
Homeowners insurance protects your home and possessions from damage and theft. It also offers liability protection if you accidentally damage another person’s property or if a visitor is injured while at your home. Your home may be your most valuable asset and most homeowner’s cannot afford to replace their home out of pocket, which is what makes homeowners insurance so critical.
FAQs
Types of homeowners insurance policies
There are several different forms of homeowners insurance, referred to as HO-1 through HO-8. These have become fairly standardized but can differ depending on the carrier and state. Each form offers varying levels of protection.
HO-1 is a bare-bones policy
HO-2 provides limited coverage
HO-3 is for people that own their home. This is the most commonly selected form and is the most likely to be required by a mortgage company.
HO-4 was created specifically for renters
HO-5 provides the broadest level of coverage. It is typically reserved for well-maintained homes in low risk areas.
HO-6 was designed for condominium owners
HO-7 is used for mobile homes
HO-8 is intended for older homes
What does homeowners insurance cover?
Homeowners coverage is customizable to suit your specific needs, but most homeowners policies include the standard elements listed below.
Dwelling
This covers the actual physical structure of your home and often includes attached structures, like garages and decks. It also covers built-in appliances like furnaces. Dwelling coverage pays to repair or replace your home if damaged or destroyed by a covered cause of loss. Trees, plants and shrubs are also covered by homeowners insurance against certain perils and with capped limits.
Example: An extreme windstorm uproots a tree, which falls onto your home causing extensive damage to your roof.
Other structures
This covers standalone structures that are on your property, like sheds and fencing, that are not connected to your home.
Example: A part of your fence collapses after a particularly heavy snowfall.
Personal property
This covers your personal belongings (sometimes called contents) and includes items such as clothing, furniture, appliances, sports equipment and electronics. Personal property coverage can help pay to repair or replace damaged or stolen items within your home. Your carrier may even offer off-premise coverage so your belongings are covered away from your home as well. Expensive items, such as antiques, jewelry and collectibles are usually included but coverage can be limited.
Example: A burglar breaks into your home and steals your computer.
Additional living expenses/loss of use
This coverage is designed to reimburse you for expenses incurred while you are unable to occupy your home due to a covered cause of loss. It can include temporary rentals, hotel rooms, meals and other costs you incur while your home is being repaired.
Example: After a fire destroys your home, rending it uninhabitable, you have to stay in a hotel while it is being repaired.
Liability
This coverage provides protection against lawsuits arising from bodily injury or property damage that you, your family members or your pets cause to other people. It includes legal costs as well, including defense, judgements and settlements.
Example: The mailman slips and falls on the steps leading up to your house, breaking his ankle. The mailman sues you for his medical bills and lost wages.
Medical payments
This coverage can help pay for the medical bills of someone injured on your property, regardless of fault.
Example: Your dog is overexcited and bites the hand of your house guest. The injury isn’t serious but your medical payments coverage pays for their stitches.
The types of perils covered by your policy, depends on the type of policy form you have. Covered perils can include: fire, lightning, windstorm, hail, explosion, riot, damage cause by aircraft, damage caused by vehicles, smoke, vandalism, theft, volcanic eruption, falling objects, weight of ice or snow and more.
Other Coverages
Homeowners insurance can be tailored to meet your unique needs. Oftentimes this is accomplished by adding endorsements that provide additional coverage. Below are some of the more common additional coverages that carriers offer.
Building ordinance or law can help cover the cost of upgrading your home to meet current building codes.
Water backup pays for damage caused by backed-up sewer lines, drains and sump pumps.
Service line coverage can pay for damage to electric, water and other utility lines that you are responsible for.
Equipment breakdown offers protection for HVAC systems and other large appliances that fail for reasons other than wear and tear.
Identity fraud can reimburse you for expenses, like lost wages and legal fees, associated with identity theft.
What doesn’t homeowners insurance cover?
Even the most comprehensive homeowners policy won’t cover everything. Standard homeowners policies typically exclude the below causes of loss:
- Flood
- Earthquake
- Landslides and sinkholes
- Intentional damage
- Poor maintenance or neglect
- Wear and tear
- Vermin, rodent and insect infestations
- Nuclear hazard
- Government action, including war
Some of these exclusions can be covered by enhancements to your existing coverage or by purchasing a standalone insurance policy.
How much coverage do I need?
Ensuring you have homeowners insurance limits that are adequate to replace your home and possessions is imperative.
When determining how much dwelling coverage you need, the property tax assessment, what you paid for the home, how much you owe on your mortgage or what you could sell the home for are not relevant. Instead, you’ll need to calculate how much it would cost to rebuild your home from the ground up if it suffered a total loss. This is usually done by multiplying the total square footage of your home by a construction cost per square foot figure for your area.
When calculating how much personal property coverage you need, a good rule of thumb is to use 50% of your total dwelling value. So if your house has a value of $500,000, your personal property limit might be $250,000. The most accurate way to calculate your personal property value is to perform regular home inventories.
When determining adequate liability limits, you’ll need to consider your net worth. This includes the value of your assets, less your debts. You’ll also want to consider what activities, such as skiing or owning a swimming pool, you engage in that may put you at greater risk.
Valuation
There are various ways your homeowners insurance can value your home and your possessions.
Actual cash value is the replacement cost of your home and possessions less depreciation. Your TV would be valued at what it is currently worth, not what you originally paid of it. Actual cash value is mostly used for personal property and not the home itself.
Replacement cost covers the cost to replace your home and possessions with like kind and quality. Your TV would be valued at what it would cost to replace it with a similar TV.
Functional replacement cost pays to repair or replace your home with similar materials that are less expensive.
Extended replacement cost will pay to replace your home for a certain specified percentage (often 20% to 25%) beyond your limit. Having extended replacement cost is a good way to account for inflation and increased materials and construction costs after a widespread disaster or due to fluctuations in the economy.
Guaranteed replacement cost covers the full cost to replace your home, even if that cost is more than your limit. This option isn’t always available from insurance carriers due to how broad it is.
Deductibles
Like many other kinds of insurance, homeowners coverage will almost always be subject to a deductible. A deductible is the amount you are responsible for paying after a loss before your insurance carrier will pay. Your property deductible could be a flat dollar amount (like $1,000) or a percentage (like 2%) of your home’s insured value. Some policies will include separate (usually higher) deductibles for certain types of losses, like hail. Selecting higher deductibles can help lower your insurance premium. Most homeowners insurance policies do not include a liability deductible.
Is homeowners insurance required?
Even though homeowners insurance isn’t required by law, virtually all mortgage companies require borrowers to have this coverage to protect their investment. Obtaining a loan or financing a residential real estate transaction would be nearly impossible without proof of insurance. Even if you don’t have a mortgage, homeowners insurance is almost always a smart purchase.
What does homeowners coverage cost?
There are a great number of factors that are considered when an insurance carrier determines the rate for your homeowners coverage. Below are some of the common factors insurance carriers take into consideration.
- Location of the home
- Crime rate in the area
- Type of construction
- Features of the home
- Your claims history
- Condition of the home
- Your credit rating
- Age of the home
- Type of roof
- Type of heating system
- Proximity to bodies of water
- Amenities (like swimming pools and trampolines)
- Presence of safety and security systems
- If you have dogs and what type of breed they are
- Proximity to wildfire prone areas
You may be eligible for discounts if you bundle multiple types of coverage with the same carrier. Some carriers offer discounts for loyalty.