For most people, a home is the most valuable asset and therefore requires adequate protection for worst-case scenarios.
Homeowners insurance is vital as it prevents you from financial challenges if someone gets injured on your property and sues you or you suffer a home-related loss.
Although this insurance is not a legal requirement, it’s mandatory for anyone applying for a mortgage. Either way, a homeowners insurance policy is an excellent idea to protect you and your home.
This article explores homeowners insurance policies while providing guidelines to help you choose the right policy.
Homeowners Insurance Policies
Before choosing a homeowners insurance policy, it’s essential to understand what it covers and doesn’t.
Generally, any home insurance policy includes the following standard coverage:
- Building code coverage – Involves the cost of rebuilding your home up to code after damage caused by a peril that is under the policy
- Dwelling coverage – Includes damage to the house and its structure
- Liability coverage – Safeguards you from medical costs and related expenses if a visitor gets injured on your property
- Loss of use coverage or additional living expenses insurance (ALE)- Pays back the costs incurred when your home is uninhabitable, such as meals and hotel stays.
- Other structure coverage – It includes other structures or buildings within your property, such as tool sheds, guest houses, and fences
Homeowners insurance covers most common perils that cause damage, including:
- Household fires
- Rainwater that enters the house directly
- Damage due to extreme cold spells, like burst pipes
The standard deductible for the insurance policy or the amount you pay annually covers these common perils. However, less common dangers require different coverage.
Most insurance providers do not cover perils such as:
- Wildfires
- Damage from windstorms and hail
- Hurricanes exceeding a certain intensity
These perils require a higher deductible, often totaling thousands of dollars.
Choosing a Homeowners Insurance Policy
When you acquire homeowners insurance, the insurance provider issues the policy as a monoline or package.
Monoline policies have only one coverage type, such as liability insurance. On the other hand, package policies have various kinds of coverage, like liability insurance and property insurance.
Generally, a monoline policy is more expensive because you need to purchase every coverage separately.
§ Package Policies
Standard homeowner policies available in New York come as package policies. They include medical payments, theft, liability, and property coverage.
These policies include basic packages and more extensive packages. Comprehensive packages cost more but offer broader coverage for your personal belongings and home.
As a homeowner, it’s essential to understand the particular losses or perils that every policy type covers.
You can buy an extra premium if a policy excludes particular coverage, such as power disruption. To lower your premium, you can also exclude some coverage indicated on a policy, like off-premises theft.
However, tenant and homeowners policies exclude particular coverage like flood insurance. The only option to acquire this policy is via government insurance programs.
Let’s compare standard policies and their coverage to help you determine the right one.
1. HO-1 or Basic Homeowners Policy
This policy protects your home and personal belongings in case of the following perils:
- Bodily harm
- Smoke, lightning, and fire damage
- Explosion
- Glass breakage
- Malicious mischief and vandalism
- Aircraft and vehicle damage
- Theft and burglary
- Hail and windstorm
- Damage to other peoples’ property
- Civil commotion and riot
- medical payments
- Additional living expenses if you need temporary accommodation
- Personal property at home and away
- civil judgments
This type of policy is uncommon as most providers offer more comprehensive policies like the Broad Form Policy.
2. HO-2 or Broad Form Policy
This policy safeguards your home and personal belongings against the above perils and additional ones, including:
- Freezing of plumbing systems
- Falling objects
- Electrical damage to home appliances
- Damage from accidental water and steam overflow or discharge within the plumbing, air conditioning, heating, or fire sprinkler system
- Weight of sleet, snow, and ice
3. HO-3 or Special Form Policy
The HO-3 policy is the most common among homeowners. It protects your home from all causes of physical loss, excluding the perils not covered by the policy, such as:
- Nuclear accident
- War
- Earthquake
- Flood
Most financial institutions and lenders require you to purchase an HO-3 policy as part of your mortgage agreement.
4. HO-5 or Comprehensive Form Policy
This policy offers protection against the perils covered by the HO-3, with additional protection for personal belongings. It protects the private property against all causes of physical loss except the excluded perils.
You can also get this extra protection through a Special Form Policy that includes an endorsement for Special Personal Property.
5. Market Value Policy
This policy is an advanced form of the Basic Policy. Generally, it offers replacement cost coverage, although the amount is within the necessary restoration costs.
This policy applies when the property’s replacement value exceeds the market value, like with older homes.
6. HO-4 or Tenants and Cooperative Policies
Tenants and cooperative policies protect against any damages to the contents of a rental unit. It also covers personal liability if someone sustains an injury or causes property damage in the insured unit.
7. HO-6 or Condominium Owners Policies
Condominium policies protect the contents and property in the insured unit against the following:
- Alterations
- Improvements
- Fixtures
- Appliances
- Interior walls
Ensure you confirm the excluded and covered perils in the policy you intend to buy. If damage to the home contents is not part of the policy, you should consider getting additional coverage.
Steps to Get the Right Homeowners Insurance
§ Determine What Requires Coverage
The first step is establishing your assets’ total value, the value of your personal belongings, and your home’s replacement cost.
If your home is in a high-risk area, you should consider getting earthquake or flood insurance and coverage for additional structures such as sheds or garages.
§ Calculate the Coverage You Need
The amount of coverage necessary depends on your home’s replacement cost. This replacement cost considers the size of your home and the local construction costs.
It would help if you considered your home’s interior and exterior features and other special features within your home, like a pool. You can hire an appraiser to help you estimate or calculate the costs using an online replacement cost calculator.
You should also conduct a home inventory detailing your possessions and highlighting expensive electronics or jewelry.
Your liability insurance should be enough to cover all your assets. Although most homeowners insurance policies offer a $100,000 minimum, your policy should provide about $300,000 to $500,000. If your assets are more valuable than this amount, you should purchase umbrella liability coverage.
§ Compare Home Insurance Policy Quotes.
It’s best to compare quotes from three or more insurance providers. You can ask for recommendations from relatives and friends, visit individual websites, or contact representatives for details.
You can also request complaint ratios and rates of major insurance providers from the state insurance department.
Compare the coverage amounts and deductibles on different policies to see what you can afford.
§ Check the Discounts You Qualify for
It’s not advisable to choose a lower rate on your insurance premium at the cost of your coverage. Instead, there are other ways to minimize expenses via discounts, such as:
- Claims-free discount- You can get a deal on your policy if you have a clean record on your homeowners insurance.
- Loyalty discount- Some insurance providers offer discounts if you use their services for several years
- Multi-policy discounts- You can get a discount if you combine your homeowners insurance policy with a different insurance product like auto insurance.
- Home safety discount- You may qualify for a discount by installing safety devices such as smoke detectors and burglar alarms
- A new home buyer or new home discounts- You may be eligible for a discount if you bought a newly-built home or it’s your first time buying a home. It’s up to the insurance provider to determine what they consider a new home.
- Home improvement discount- You may get a discount for enhancing the quality of your homes, such as by upgrading the plumbing, heating, electrical system, or roof.
- Smoke-free discount- Some insurance providers offer non-smokers a discount for maintaining a smoke-free home
§ Research the Authenticity of Every Company
Ultimately, the value of your homeowners insurance policy depends on the credibility of the insurance provider.
Independent agencies such as AM Best rate providers by their financial strengths. This information helps you assess whether they can afford to pay your insurance claim if need be.
AM Best uses grades A+ to F, and any company with a rating below B lacks the financial stability to pay claims reliably.
§ Finalizing your Policy
Once you identify the right policy, confirm the correct details before signing the documents.
Remember to confirm payment options and procedures for your insurance premiums. You can make payments to your mortgage lender or the insurance provider.
Premiums are recurrent, and the payment should always be in full. If the charges are through your mortgage lender, you may need to use an escrow account to pay the monthly premiums with mortgage payments.
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