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The Basics of Homeowners Insurance

Homeowners insurance provides financial protection for your home and its contents in case of damage or loss from covered events, such as fire, theft, or natural disasters.

Home insurance typically includes coverage for the the home, belongings, and accident liability, and additional living expenses if your home becomes uninhabitable. Customers than pay a monthly premium to the home insurance company in exchange for protection.


What Homeowners Insurance Covers


Dwelling Coverage: Protection for the structure of your home, including the roof, walls, floors, and built-in appliances, against covered perils such as fire, windstorm, or vandalism.


Personal Property Coverage: Reimbursement for personal belongings like furniture, clothing, and electronics if they are damaged, destroyed, or stolen, usually within certain limits and subject to a deductible.


Liability Coverage: Financial protection if you are found legally responsible for someone else's injuries or property damage, covering legal expenses and damages up to the policy limit.


Additional Living Expenses (ALE) or Loss of Use: Coverage for extra costs if you need to live elsewhere temporarily due to a covered event, such as hotel bills or rental expenses.


Other Structures Coverage: Protection for structures on your property that are not part of your main dwelling, such as a detached garage or a shed.


Medical Payments to Others: Coverage for medical expenses if a guest is injured on your property, regardless of who is at fault.

It's important to note that policies may vary, and certain events or types of property may not be covered by a standard policy. Homeowners often need to purchase additional coverage or endorsements for high-value items like jewelry or art.


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Types of Homeowners Insurance


HO-1: Basic Form 


HO-1 insurance, also known as “basic form homeowners insurance,” is the most basic form of homeowners insurance out there. If you have an HO-1 policy, your home will typically be covered at its actual cash value.  


What it covers: HO-1 policies typically provide coverage only for damage or loss caused by 10 specific types of perils: 

  • Fire or lightning 
  • Windstorm or hail 
  • Explosion 
  • Riot or civil commotion 
  • Aircraft 
  • Vehicles 
  • Smoke 
  • Vandalism and mischief 
  • Theft 
  • Volcanic eruptions 

While that might seem like a lot, it really leaves your home vulnerable to a myriad of potential perils that aren’t specified. And if it’s not specified, it’s not covered.   

 

HO-2: Broad Form 


HO-2 insurance is also known as “broad form homeowners insurance” because it provides coverage for a broader variety of perils compared to an HO-1 policy. HO-2 policies will typically cover your home at its replacement cost, while personal property will be covered at its cash value. 


What it covers: An HO-2 policy will typically cover everything that is covered by an HO-1 policy, plus additional coverage for perils such as: 

  • Freezing 
  • Falling objects 
  • The weight of ice or snow on a structure 
  • The accidental overflow or discharge of water or steam 
  • Cracking or bulging caused by a sudden and accidental event 
  • Accidental discharge from an artificially generated electrical current (i.e., a power surge) 

 

HO-3: Special Form 


HO-3 coverage, also known as “special form coverage,” is the most common type of homeowners insurance. Under HO-3 insurance, your home will typically be covered at its replacement cost, while your personal property will be covered up to its cash value. An endorsement can, in most cases, be added to your policy to provide replacement coverage for your personal property for an additional cost. 


What it covers: While HO-1 and HO-2 policies only provide coverage against certain named perils, an HO-3 policy will provide coverage for your home against damages caused by any peril except for those specifically excluded in the policy. Some perils commonly excluded from an HO-3 policy include: 

  • Earthquake 
  • Flood 
  • Landslide/mudslide 
  • Nuclear Accident 
  • Sinkhole 
  • Neglect 
  • Act of war or government action 

Depending on where you live, these are fortunately less common perils, and therefore, HO-3 offers pretty comprehensive coverage for the average homeowner.  

 

HO-4: Renter’s Insurance 


HO-4 is more commonly known as renter’s insurance. As such, HO-4 policies are specifically designed for those who are renting or leasing an apartment, home, or condo. 


What it covers: Renter’s insurance essentially covers a renter’s personal property (at its replacement cost) against the same named perils found in an HO-3 policy. Renter’s insurance will also typically cover your living expenses if your rented home becomes unlivable due to damage caused by a named peril — for example, a fire — and you need to find a new place to stay. It’s important to note that an HO-4 policy may or may not provide liability coverage. 

HO-5: Comprehensive Form 


HO-5 insurance, or a comprehensive policy, is often considered to offer the highest level of coverage for single-family homes. It is in many ways like an HO-3 policy, but with added protection and a few key differences. 


What it covers: Under an HO-3, only your home is insured at its replacement cost, while your personal belongings will be covered at their cash value. An HO-5 covers both your home and personal belongings at their replacement cost (which is typically higher than cash value). 

Additionally, while an HO-3 limits coverage for personal belongings to only named perils, under an HO-5 your personal belongings (such as art, jewelry, and electronics) will be covered for all the same perils as your home is. Because of the higher coverage limits offered by an HO-5 policy, this is a good choice if you have a lot of high-value personal property in your home. 

 

HO-6: Unit-owners Form 


An HO-6, also known as condo insurance or unit-owners insurance, is a special type of policy designed for those who live in either a co-op or condominium. 


What it covers: In most cases, the condo association will hold HOA insurance, which will typically cover the condo building itself and certain shared areas. While each HOA policy will vary in exactly how much (and what) it covers, you as the unit owner will need to purchase coverage for anything that the HOA does not insure. This will often include coverage for: 

  • Any renovations, upgrades, or improvements made to the unit after you purchased it 
  • The walls, floor, and ceiling of the unit 
  • Personal property 
  • Personal liability 

Because HOA policies can vary so significantly, it’s crucial that you understand exactly what is covered by the master policy so that you can purchase adequate coverage for your own unit. 

 

HO-7: Mobile Home Form 


An HO-7 is essentially designed to provide the same coverage offered by an HO-3 policy, but for a mobile home. As such, these policies are also known as mobile home policies (MHP). 


It is important to note that, in most cases, mobile home policies will only cover the home while it is stationary. It doesn’t typically cover damages or loss caused while the home is in transit. Keep in mind that depending on your state, there might not be any law requiring homeowners insurance, but lenders typically demand it for a mortgage.  

 

HO-8: Modified Coverage Form 


HO-8 policies are specifically meant to provide coverage for homes that otherwise don’t meet the insurer’s standards for other types of coverage. In most cases, this means that the home is at high risk of loss or damage, or has a replacement cost that is higher than the actual cash value of the home. 


What it covers: HO-8 policies typically provide coverage against the same named perils as an HO-1 (based on the home’s actual cash value and not its replacement cost). Very often, this type of policy is held by older with factors that would need to be corrected or replaced to qualify for other forms of coverage. If you can’t afford to undergo these updates, or else don’t want to (as might be the case for homes which are historical landmarks) then purchasing an HO-8 policy allows you to purchase coverage for your home even without undergoing these expensive updates. 


Home Insurance Quotes


Finding a good homeowner insurance with great coverage could be tricky. There are many factors that dictate homeowner insurance premiums, the types of policies that exist, and the variety of coverage you can get.


Comparing different personalized offers from providers can be a great way to check how you can get the best price. Compare Homeowners Insurance Quotes with JG Wentworth.