Homeowners insurance operates as an inclusive policy, encompassing both property damage and liability for harm or property damages caused by the insured or their household, including pets.
While many hazards are covered, typical exceptions are floods, earthquakes, and regular wear and tear. Flood coverage is obtainable through the National Flood Insurance Program, while earthquake insurance can be added or separately acquired. Maintenance issues typically fall on the homeowner.
The cornerstone of homeowners insurance comprises four key coverages:
- Home Structure Coverage:
It compensates for damages to the home caused by named perils like fires and storms, excluding floods, earthquakes, and normal degradation. Outbuildings, like sheds, are also covered.
- Personal Possessions Coverage:
It protects items like furniture and clothing if they’re stolen or harmed by a covered peril. Coverage often ranges from 50-70% of the home structure’s insurance value. This section extends to worldwide protection unless opted out. High-value items have limited coverage but can be insured at full value with a personal property endorsement. Plants and shrubs have protection up to about $500 each from certain perils, but not from wind or diseases.
- Liability Protection:
This defends against lawsuits from injuries or damages caused by the insured. It includes legal fees and any awarded damages, up to the policy’s limit. This extends globally. Standard limits start at around $100,000, but broader coverage with higher limits can be added.
- Additional Living Expenses:
This caters for costs incurred if a home is uninhabitable due to a covered peril, like hotel and meal costs during home repairs. Coverage extents vary between insurers.
Homeowners Insurance Variants:
While homeowners insurance types are standardized, there are regional or company-specific variations. Texas, for instance, has unique policies. The most common policy, HO-3, is broad, covering home structure, personal belongings, and liability against 16 specific perils listed above. Multifamily homeowners often add endorsements for renter-associated risks. Other homeowner policies include HO-2, HO-1 (limited availability), and HO-8 for older homes. HO-2 versions exist for mobile homes.
Renters have the HO-4 policy, covering personal belongings against the 16 perils and liability. Condo or co-op owners use the HO-6 policy, offering similar protections. Both include additional living expenses.
Coverage Levels:
Three main options exist:
1. Actual Cash Value:
Reimburses for property or belongings’ value minus depreciation.
2. Replacement Cost:
Compensates the full rebuilding or repair cost without depreciation deductions.
3. Guaranteed/Extended Replacement Cost:
The most comprehensive option, guaranteeing full home rebuilding costs even beyond policy limits. It doesn’t typically account for code-upgrade costs, but an Ordinance or Law endorsement might. Some insurers offer extended replacement, covering an additional 20-25% over policy limits. Guaranteed and extended options are pricier but offer superior protection. These might not be available everywhere. For belongings, only actual cash value coverage is obtainable.