The Ultimate Homeowners Insurance Guide

Helpful advice to find the right Home Insurance for you and your family.

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What is Homeowners Insurance?

Homeowners insurance is a crucial aspect of responsible homeownership. It provides financial protection against unforeseen events that could damage or destroy your home. From natural disasters to theft, having the right insurance coverage can make a significant difference in your peace of mind.

Types of Coverage

Dwelling Coverage: This primary component protects the structure of your home, including walls, roof, and floors, against covered perils.

Personal Property Coverage: Your belongings matter. This coverage extends protection to your personal items, such as furniture, electronics, and clothing.

Liability Coverage: Accidents can happen. Liability coverage helps protect you financially if someone is injured on your property or if you accidentally damage someone else’s property.

Additional Living Expenses (ALE) Coverage: If your home becomes uninhabitable due to a covered event, ALE covers your temporary living expenses.

Choosing the Right Homeowner Insurance

Factors to Consider When selecting homeowners insurance, consider the following:

Determine Coverage Needs: Assess the value of your home and belongings to determine the appropriate coverage levels.

Research Insurance Companies: Look for reputable insurance providers with a track record of excellent customer service and timely claims processing.

Policy Exclusions: Be aware of any exclusions in the policy. Understanding what is not covered is as crucial as understanding what is covered.

 

Choosing the right type of policy

There are various types of homeowners insurance policy forms, each offering specific coverage options. Here are eight common forms:

HO-1: Basic Form

Coverage: Provides basic coverage against a specific list of perils, such as fire, theft, vandalism, and certain natural disasters.

HO-2: Broad Form

Coverage: Offers broader protection compared to HO-1, including coverage for additional perils like falling objects, weight of ice or snow, and accidental water damage.

HO-3: Special Form

Coverage: One of the most popular forms, HO-3 provides broad coverage for your home’s structure and personal belongings, excluding specific perils listed in the policy.

HO-4: Renter’s Insurance

Coverage: Tailored for renters, it covers personal belongings and liability but excludes coverage for the structure itself, as that is the landlord’s responsibility.

HO-5: Comprehensive Form

Coverage: Offers extensive coverage for both the structure and personal belongings, with fewer exclusions compared to HO-3. It is a more inclusive and premium policy.

HO-6: Condo Insurance

Coverage: Designed for condominium owners, it covers personal belongings and parts of the structure not covered by the condo association’s master policy.

HO-7: Mobile Home Form

Coverage: Specifically crafted for mobile or manufactured homes, providing coverage for the structure and personal belongings.

HO-8: Older Home Form

Coverage: Tailored for older homes where the replacement cost may be higher than the market value. It covers the actual cash value of the home and its belongings.

Understanding these different homeowners insurance policy forms is crucial for selecting the one that best suits your needs, whether you own a house, condo, or rent a property. Each form offers specific coverage options and is designed to address different homeownership scenarios.

What your home insurance usually covers

In a standard homeowners insurance policy, several common perils are typically covered. These perils are events or situations that may cause damage to the property or its contents. While the specific coverage can vary between policies and insurance providers, the following perils are often included in a standard homeowners insurance policy:

Fire and Smoke: Coverage for damage caused by fires, including smoke damage.

Windstorms and Hail: Protection against damage caused by strong winds and hailstorms.

Explosions: Coverage for damage resulting from explosions.

Vandalism and Malicious Mischief: Protection against intentional damage to the property.

Theft and Burglary: Coverage for losses due to theft or burglary.

Falling Objects: Protection against damage caused by falling objects, such as trees or branches.

Weight of Ice, Snow, or Sleet: Coverage for damage caused by the weight of these elements.

Accidental Discharge or Overflow of Water or Steam: Protection against water damage caused by accidents like burst pipes.

Freezing of Plumbing: Coverage for damage resulting from frozen plumbing.

Riots and Civil Commotion: Protection against damage caused by civil unrest or riots.

Aircraft and Vehicles: Coverage for damage caused by aircraft or vehicles.

Volcanic Eruption: Some policies include coverage for damage caused by volcanic eruptions.

What a home insurance policy does not cover

HO-3 and HO-5 homeowners insurance policies typically provide coverage for your home and personal belongings against a wide range of damages and losses. However, it’s important to note that there are certain common disasters and liability-related expenses that require additional coverage beyond any standard home insurance policy.

Here are common exclusions:

Floods: Standard homeowners insurance typically does not cover damage caused by floods. For flood protection, homeowners may need to purchase a separate flood insurance policy through the National Flood Insurance Program (NFIP) or a private insurer.

Earthquakes: Damage resulting from earthquakes is usually not covered by standard home insurance. Homeowners in earthquake-prone areas may need to purchase a separate earthquake insurance policy.

Routine Maintenance and Wear and Tear: Normal wear and tear, as well as maintenance-related issues, are not covered. This includes damage caused by lack of maintenance, such as mold, pest infestations, and gradual deterioration.

Neglect and Intentional Damage: Damage resulting from neglect or intentional actions by the homeowner is typically excluded. This includes damage caused by the homeowner’s failure to take preventive measures.

War and Nuclear Hazards: Damage caused by war, acts of war, and nuclear hazards are generally excluded from standard home insurance policies.

Government Action: Damage resulting from government actions, including seizure, condemnation, or destruction of property, may not be covered.

Power Failures and Utility Service Issues: Losses caused by power failures or issues with utility services (such as water, electricity, or gas) outside the property may not be covered.

Sewer Backup: Standard policies may exclude coverage for damage caused by sewer backups. Homeowners can often purchase a separate endorsement for this coverage.

High-Value Items Beyond Policy Limits: Certain high-value items, such as expensive jewelry, art, or collectibles, may not be fully covered by standard policies. Additional endorsements or a separate policy may be necessary for adequate coverage.

Certain Dog Breeds: Liability coverage may exclude certain dog breeds, and homeowners may need to obtain additional coverage or a separate policy for liability related to these breeds.

Understanding these exclusions is crucial for homeowners to assess their risk exposure accurately. Depending on their circumstances and location, homeowners may need to consider additional policies or endorsements to ensure comprehensive coverage for potential risks.

Examples of coverage endorsements include water backup, equipment breakdown, and scheduled personal property coverage.

Evaluate the appropriate amount of coverage you will need

A basic homeowners insurance policy typically includes six main coverages. The amount of coverage needed for each aspect depends on various factors, such as the value of your home, personal belongings, and potential liability risks. Here’s a breakdown of each coverage and general considerations for coverage amounts:

Dwelling Coverage:

What it does: Covers the cost to rebuild or repair the structure of your home if it is damaged or destroyed by covered perils (e.g., fire, windstorm).

How much you generally need: The coverage amount should reflect the estimated cost to rebuild your home. This is not the market value but the cost of construction, including materials and labor.

Personal Property Coverage:

What it does: Protects your personal belongings (furniture, clothing, electronics) from covered perils (theft, fire, etc.).

How much you generally need: Conduct a home inventory to estimate the value of your belongings. Ensure the coverage limit is sufficient to replace your possessions in case of a total loss.

Liability Coverage:

What it does: Offers protection in case you are held responsible for injuries to others or damage to their property. It covers legal fees, settlements, and judgments.

How much you generally need: Consider your assets and potential liability. Many experts recommend coverage limits of at least $300,000, but higher limits may be advisable for those with greater assets.

Medical Payments to Others Coverage:

What it does: Pays for medical expenses if someone is injured on your property, regardless of fault.

How much you generally need: Coverage amounts are often lower compared to liability coverage, ranging from $1,000 to $5,000. This coverage is for immediate medical expenses and doesn’t require a lawsuit.

Additional Living Expenses (ALE) Coverage:

What it does: Covers the costs of temporary living arrangements if your home is uninhabitable due to a covered event.

How much you generally need: ALE coverage is typically a percentage of your dwelling coverage. Commonly, it ranges from 20% to 30%.

Other Structures Coverage:

What it does: Protects structures on your property that are not part of the main dwelling (e.g., detached garage, shed).

How much you generally need: This is often a percentage of your dwelling coverage, typically around 10%. Adjust based on the value of the structures on your property.

When comparing policies from different companies, it’s important to not only consider the amount of coverage you need but also how claim settlements are determined for each coverage. This comprehensive analysis will help you make an informed decision about the best policy for your needs.

Here are the two main loss settlement options for dwelling and personal property coverage claims.

For dwelling and personal property coverage claims, there are two main loss settlement options: Actual Cash Value (ACV) and Replacement Cost Value (RCV).

Actual Cash Value (ACV):

    • Definition: ACV is the value of an item or the cost to repair or replace it at the time of the loss, taking into account depreciation.
    • Determination: The settlement is calculated by subtracting the depreciation of the damaged or lost item from its original cost. Depreciation considers factors like age, wear and tear, and market value.
    • Example – Dwelling Coverage: If a roof is damaged, the ACV settlement would factor in the age of the roof, and the payout would be the original cost of the roof minus depreciation.
    • Example – Personal Property Coverage: For a stolen television, the ACV settlement would be the original cost of the TV minus depreciation based on its age and condition.
    • Consideration: ACV settlements may result in lower payouts compared to Replacement Cost Value, as they reflect the item’s current worth rather than its full replacement cost.

Replacement Cost Value (RCV):

    • Definition: RCV is the cost to repair or replace the damaged or lost item with a new one of similar kind and quality, without considering depreciation.
    • Determination: The settlement is based on the current market cost of replacing the item, providing reimbursement for the full cost of repair or replacement.
    • Example – Dwelling Coverage: If a covered event damages the roof, the RCV settlement would cover the entire cost of replacing the roof with a new one.
    • Example – Personal Property Coverage: In the case of a stolen laptop, the RCV settlement would cover the cost of purchasing a new laptop of similar kind and quality.
    • Consideration: RCV settlements generally result in higher payouts compared to ACV, as they provide full reimbursement without factoring in depreciation.

When selecting a loss settlement option, homeowners should carefully review their policy and consider factors such as premium costs, coverage limits, and the condition of their property and belongings. Some policies automatically provide RCV for dwelling coverage while offering the option to choose between ACV and RCV for personal property coverage. It’s important to understand the implications of each option to make informed decisions based on individual preferences and needs.

Pro Tip: Consider enhancing dwelling & personal property replacement cost coverage

Standard home insurance policies typically include replacement cost dwelling coverage and actual cash value personal property coverage as default options. 

For an additional premium, you have the choice to upgrade your personal property coverage to replacement cost, ensuring that depreciation is not deducted from claim payouts. Moreover, many insurance companies offer extended replacement cost dwelling coverage, allowing you to increase your dwelling coverage limit by an additional 25% to 50% (depending on your preference) in case the cost of rebuilding your home exceeds the initial coverage limits. 

Additionally, some insurers go the extra mile by providing guaranteed replacement cost coverage, guaranteeing full reimbursement for the cost of rebuilding your home after a covered loss, regardless of whether this exceeds your policy limits or not.

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About Ken

Ken Caiani

OWNER - LICENSED PROPERTY AND CASUALTY AGENT

Ken Caiani specializes in home, auto and commercial insurance products in Colorado. His team has over 75 years of personal and commercial insurance experience and represents the nation’s top carriers in property and casualty. 

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