Home > Basics: Homeowners
The following gives an overview of the different types of basic home insurance policies. Some of them apply to renters or condominium owners only.
This is a basic homeowners policy covering your house against 11 different perils.
This is a broad homeowners policy covering a further 6 perils on top of the 11 in HO-1. Premiums are between 5 and 10 percent higher than for an HO-1 policy.
This is a special homeowners policy covering all possible perils except for those explicitly excluded by the policy. Premiums are between 10 and 15 percent higher than for an HO-1 policy.
This policy is for renters. It covers 17 perils and includes liability coverage, though it does not insure the dwelling itself. That is left up to the owners.
This is an extensive homeowners policy covering everything except for earthquakes, wars, and floods.
This policy is for owners of condominiums or co-ops. It provides personal property coverage, liability coverage, and coverage of explicitly stated improvements to the owner's unit. The owners' association usually provides insurance covering most of the actual structure.
This is a policy for older homes. It covers the same perils as HO-1 but will only pay for repairs or actual cash value. Replacement cost could make the policy costly, if included.
The above policies are standard for all states except for Texas. The state insurance board of Texas specifies three types of policies as described below.
This policy covers your home and possessions against specifically named perils. You are covered for the actual cash value only.
This policy covers the home the all perils other than explicitly stated ones. The house is covered for replacement costs up to the policy limits, and the contents are covered for the actual cash value unless you purchase more coverage.
This policy covers your home and contents against all risks but the ones specifically excluded by the policy. The house is covered for replacement costs up to the policy limits, and the contents are covered for the actual cash value unless you purchase more coverage.
For Texans, here are further variations on these policies. Landlords can purchase coverage that insures only the building and not your personal property, which your renters policy would cover.
If you have an alarm system, smoke detectors, or deadbolt locks equipped in your home, you could save money on your home insurance. Because these items make your home safer, you can be eligible for discounts. On the other hand, if your home has a swimming pool or trampoline, you may end up paying more on your premiums. If you live in a higher-risk area, like a coastline, you can also expect to pay more.
Your household contents are automatically covered under your homeowner policy; up to 40 percent of the amount your house is insured for. So, if your home is insured for $100,000, the contents are insured for up to $40,000. If you want more coverage, you can get it by paying a higher premium.
Replacement Cost vs. Actual Cash Value
In the descriptions above, the terms replacement cost and actual cash value have come up numerous times. Before buying home insurance, you should understand the difference between the two. Most homeowner policies have replacement cost coverage on the structure itself and actual cash value coverage on personal property.
The replacement cost of an item is the amount you would expect to pay to replace it with an identical or similar item. The actual cash value of an item is the replacement cost minus depreciation.
A policy that uses replacement cost gives you more protection than one using actual cash value coverage. Insurance companies will generally require proof that you've replaced an item before reimbursing you, or they will offer to replace the items themselves.
Depending on where you live and what you own, you may decide that you need to enhance your policy with some extra coverage.
Flood damage is not covered by homeowners policies. You can get flood insurance from the National Flood Insurance Program (NFIP). Call them at 1-800-427-4661 for more information.
Earthquakes are also rarely covered by homeowners policies. You can get coverage for earthquakes with a separate policy.
If you have some expensive items, you may be able to get endorsements that increase the coverage. Most commonly, this is done for jewelry, fine art, computer equipment, and coin or stamp collections.