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Homeowners Insurance

Homeowners Insurance

Homeowner's Insurance is purchased to protect your home and its contents in the event of damage or loss. Buying a home is one of the biggest investments you will make, so it makes sense to protect that investment. If a home buyer is purchasing a house with a loan, the lender will require a homeowner's insurance policy. The home serves as the collateral for the loan, so the lender/mortgage company has a vested interest in maintaining the home and its value.

There Are Different Types of Homeowner's Insurance

There are two important distinctions a home buyer needs to know before purchasing homeowner's insurance--the difference between replacement cost insurance and actual cash value insurance. Replacement cost insurance pays the cost of restoring the home to its pre-claim condition or to build you a new home and contents of equal value. There is no deduction for depreciation of the home. The second, and less desirable, insurance is actual cash value that will pay you an amount equal to the replacement value of the damaged property minus depreciation. In essence, you won't get your whole home back with the second type of insurance.

What Your Homeowner's Policy Covers

There are eight different kinds of insurance referred to as homeowner's insurance but for most people, there are three essential concerns: protect your home, protect your personal property and provide liability coverage. Most homeowners purchase a policy referred to as HO-3 which covers damage to a home from fire and lightning, windstorms, ice, snow, sleet and hail, explosions, theft and vandalism (if the home hasn't been unoccupied for more than 30 days), smoke damage, things (like trees) falling on your home, most plumbing and heating system damage, and personal property and liability, whether on or off property.

Exclusions

HO-3 policies stipulate specific damages that are not covered; these are referred to as exclusions. Most all of these policies exclude the land under your house, floods, earthquakes, war, nuclear accidents, intentional damage, sewer backups and overflow, damage to cars, trucks and motorboats, theft from houses under construction, frozen pipes in unoccupied or under-construction homes, weather damage to fences, pavements, patios, swimming pools and docks and property belonging to tenants. Endorsements can be added at additional cost of the basic insurance policy for flooding, earthquakes, areas of the home that may be used for a home business and houses under construction.

Actual Cash Value Insurance

This kind of insurance covers pretty much the same things as those covered in an HO-3 policy minus the depreciation.   For instance your home and itscontents could be worth $1 million but after it's been adjusted for depreciation, the insurance companymay reimburse the policy holder substantially less.  An adjuster will make the determination and reimburse the homeowner the depreciated amount. This type of policy is less desirable due to the fact that no one wants partial coverage, or reimbursement for part of a home if it is damaged.

Exceptions to Replacement Cost Endorsements

A replacement cost policy won't cover valuables expected to increase in value. Things like antiques, jewelry (although the first $10,000 may be covered), gun collections and other valuables collected for their eventual increase in value can be covered under additional endorsements at additional cost.  However personal property that is damaged or stolen, for instance from your car is covered by homeowner's insurance. But beware of making small claims against a homeowner's policy because it can increase rates beyond the cost of replacement of small items.




These coverages can be expanded with Endorsements to your Homeowners Insurance policy.

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