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- The type of homeowners insurance you need depends in part on the risks to your home.
- Universal coverage is good for people who have expensive items, such as electronics and jewelry.
- If you own an apartment or rent, your landlord or HOA will need physical building insurance.
There are many perks to becoming a homeowner, but there are also many costs. Not only are you responsible for paying your monthly mortgage and property taxes, but if something goes wrong with your home, you’re on the hook for paying to fix it.
While having home insurance is not required by law, having a policy comes with many benefits, especially in the event of unexpected damages that could negatively affect their finances.
Homeowner’s insurance can provide homeowners with financial protection against unexpected loss or damage to their homes and personal property, says David Stewart, founder of Southwestern Insurance Group.
“It is imperative to protect your property and provide liability protection in the event someone is injured on your property,” Stewart says.
But because there are so many different homeowner insurance policies anyone can choose from, deciding which one is right for you can feel overwhelming or overwhelming.
There are eight different types of home insurance plans – here are four ways to decide which one is right for you.
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1. You want the most popular policy
One of the first policies you may want to consider getting is a Special Home Owner Form 3 (HO-3). Kin Insurance’s head of insurance and compliance Angel Conlin says it’s the most popular policy because it balances well between solid coverage and reasonable premiums.
“An HO-3 policy covers your home and other buildings on an all-risk basis,” says Conlin. “This means that it covers all sources of loss or damage except those listed in the policy as exclusions, which usually include things like ordinance or law, power outages, or nuclear hazards.”
2. You primarily want to be protected from natural disasters
If your home doesn’t qualify for a higher level of coverage or if the home is usually vacant, Conlin says you can choose a basic homeowners insurance form. This policy is rarely used, says Conlin, because coverage is limited and only covers damage to your home from 10 specified perils (fire or lightning, storm or hail, explosions, aircraft damage, riot or civil commotion, smoke, vehicles, vandalism). , theft, and falling objects).
Another downside to this policy is that it insures your home for its actual cash value, not its depreciated value or the cost of rebuilding it today.
“For example, rebuilding your home could cost $120,000, given today’s labor and materials cost,” says Conlin. “But if the actual cash value of your home is only $90,000, you’ll need to find a $30,000 difference to rebuild.”
Conlin shares that the policy does not cover your belongings or other structures, personal liability, loss of use, or medical payments. It only covers your residence.
Homeowners who want more coverage than they can get from an HO-1 policy may opt for an HO-2 policy, especially if they are looking for a less expensive option than an HO-3 policy, which offers more coverage.
Conlin says that an HO-2 policy covers the home for its replacement cost and your property for its actual cash value. It protects your home and the items in it from everything in an HO-1 policy, plus the weight of ice, snow, or sleet; accidental discharge, water overflow, or current; freeze. accidental sudden tearing; cracking or burning of a built-in appliance such as a water heater or furnace; Sudden and accidental damage from the generated electric current.
In addition, Conlin adds that unlike an HO-1 policy, an HO-2 policy covers other structures, property, personal liability, loss of use, and medical payment coverage.
For homes that have more specialized concerns about natural disasters (such as homes that might be affected by a volcanic eruption), you’ll want to speak with an insurance agent.
What does homeowners insurance cover? »
3. You don’t own the building you live in
If you’re a renter, Conlin says an HO-4 renters’ insurance policy for homeowners is worth considering because it covers personal belongings and liabilities, whether you’re renting an apartment, a single-family home, or a condo. Many rental units require renters insurance.
However, Conlin adds that unlike other policies, this one does not cover your residence or other premises on the block, because it is up to the landlord to insure.
If you own a condominium, Conlin says this policy provides internal protection for property, property, loss of use, personal liability, and more.
Conlin shares that an HO-6 policy usually complements a homeowners association’s master insurance policy, which covers the exterior of the property and common property.
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4. You have high-value or high-risk possessions
When looking for the right policy, Conlin suggests Comprehensive Homeowner 5 (HO-5) coverage if you have a high-value property in a high-risk area.
Conlin says that while this policy offers coverage similar to an HO3 policy, an HO5 policy also offers comprehensive all-risk coverage for your home and property.
“Usually an HO-5 policy provides higher coverage limits for expensive possessions such as electronics, jewelry, and furs,” she says. “For most homeowners, the extra coverage isn’t worth the extra premium when an HO3 covers similar losses.”
For those who own a mobile or factory home, Conlin suggests Homeowner 7 Mobile Home Coverage, which she says is sometimes referred to as the Mobile Home 3 policy because it’s so similar to a homeowner’s HO-3 policy.
“The difference is that this policy is designed to protect the unique characters of a mobile home, from the home itself to other structures on the property, such as fences or sheds,” she says.
If you own an older, high-risk home, Conlin says, you might consider a Homeowner’s Modified 8 coverage policy, which covers replacement costs above its market value.
“These homes may have difficulty obtaining other coverage because they may not meet the underwriting requirements,” Conlin says. “For example, these homes may have old electrical wiring, which could lead to a fire. Because of this, the cost of replacing them may exceed the value of the house.”
She says an HO-8 policy may be appropriate for your home if it is more than 40 years old, or if it is a registered landmark or architecturally significant home.