Homeowners Insurance is something all homeowners or buyers must think about, as it is usually a requirement for one’s mortgage. Home insurance protects the insured from losses incurred from property damage – to the building or belongings inside it – and, in most cases, from liability if someone is injured due to the homeowner’s negligence, on or off the property. Many policies also cover living expenses in the case of a natural disaster.
When purchasing homeowner’s insurance, it is important to consider the factors which will affect the premium: for example, the square footage of the home, building costs in the area, local crime rates and emergency services, the condition of the home, any high-risk features such as a pool, as well as the purchaser’s credit and claim history.
In the event that a claim must be filed, the insurance may be paid out in one of two ways – replacement cost or actual cash value. Replacement cost means the amount of money required to rebuild or replace any losses with comparable materials. Actual cash value pays the market value of the lost item(s) minus any depreciation.
There are several main types of home insurance, including HO-1, HO-2, HO-3, and HO-5. (HO-4 and HO-6 refer to renter’s and condominium insurance.) HO-1 and HO-2 protect against damage to the building, but not personal belongings. Each variety covers a particular list of perils, HO-2 being the more thorough. In both cases the insurance policy will list which kinds of perils (such as fire or theft) are covered.
HO-3 insures belongings in the home, but not for every kind of peril. It protects the home against all perils except those not listed in the policy. Finally, HO-5 insures belongings and the building against all perils except those not listed.
The homeowner should be sure to create a documented inventory of all insured items, and examine it yearly to be sure it is up-to-date. In some cases, it will be worth considering umbrella or floater coverage, an add-on to the policy which covers specific items of high value.