What Does Homeowners Insurance Cover

Homeowners insurance policies, better known as HO policies, have been designed to help home owners safeguard their home and personal belongings. Considering that home owners have the responsibility of protecting their home and their personal property, they should definitely opt for insurance. In fact, home owners can be sued by people who accidentally fall and injure themselves on the owner's turf. Moreover, a homeowner may also be forced to vacate the home and arrange for alternate accommodation in case the home gets damaged. Thankfully, a wide range of homeowners insurance policies are available in the market.

Types of Homeowners Insurance

Basic Homeowners Insurance: The most basic home insurance policy insures the property against damage due to 11 factors or perils of nature. Some of these factors are: fire, lightning, smoke, vandalism, theft, ice, snow, windstorm hail, riot and volcano eruption. The popularity of this policy, better known as HO-1, has diminished over the years since the policy does not protect against loss or damage to property on account of plumbing issues as a result of freezing. Loss on account of heating system malfunction is, again, not covered by this policy. HO-2 is also a basic policy but with a wider scope of coverage. HO-2 protects the property from damage on account of 17 factors and hence it is a marginal improvement over HO-1.

Popular Homeowners Insurance: It's evident that both HO-1 and HO-2 provide only minimal coverage. For people who live in areas that are not prone to floods or earthquakes, HO-3 is a good policy since it provides peace of mind to the homeowner on many fronts. For instance, this policy provides protection to the homeowner who may get sued by people who meet with an accident on the home owner's turf. Damage to the residence and personal property are also covered by this policy. As far as damage to the home is concerned, the insurance company agrees to pay the price that is equal to the cost of replacing the property (replacement cost). In case of personal property, the homeowner is entitled to receive the actual cash value of the property. For people living in flood prone areas, flood insurance should be purchased in addition to HO-3.

Actual Cash Value= Cost of Replacing the Property - Depreciation of the Property

Most Comprehensive Policy: HO-5 policy or Comprehensive Form Policy is equivalent to purchasing a HO-3 policy with "Special Personal Property" endorsement. This would help protect unscheduled personal property from all possible risks except those that are specifically excluded. It's no wonder that the cost of this policy is 15 percent more than the cost of the most popular homeowners insurance coverage provided by HO-3.

Insurance Policy for Older Homes: In case of older homes, the cost of replacing the property is usually more than the market value of the property. This is on account of depreciation. Hence, for older homes, insurance will not cover more than the actual cash value of the property. This is where the HO-8 policy, which is a modified version of HO-1, assumes importance.

Since homeowners insurance is indispensable, the homeowner should shop around for the best homeowners insurance quotes after settling on the appropriate insurance policy. Tenants can also ensure that their personal property is protected by opting for HO-4, better known as Contents Broad Form or Tenants Policy.