Property maintenance tends to be expensive, especially when homeowners pay for repairs and other refurbishments out of pocket. To ease this financial burden, buying a homeowner’s insurance policy can be a safer alternative. This insurance usually covers four kinds of incidents on the insured property: exterior damage, interior damage, injuries sustained by covered members while on the property, and the loss or damage of personal belongings or assets inside the insured property.
Homeowners Insurance Basics
When a claim is made on any of the four above-mentioned scenarios, homeowners/policyholders will have to pay a deductible. Insurance companies offer riders that provide additional coverage for certain events and high-value properties and reduce deductible amounts. To enjoy these added benefits, policyholders must pay a higher premium.
Usually, insurance providers depreciate the value of a covered home based on its use, age, condition, and life expectancy. When insurance companies depreciate the value of a given property, they do so to account for wear and tear, age, or obsolescence.
For example, consider the scenario where a policyholder files a claim for interior wall damage in their home. A claims adjuster representing the insurance company inspects the property and estimates the cost to bring the property back to livable conditions to be $10,000. Once the insurance provider approves the claim, the homeowner will be informed of the amount of their deductible, say, $6,000. These numbers are usually included in the policy agreement. In this situation, the insurance company will issue a payment for the remaining cost of damage, which would be $4,000.
Essentially, the higher the deductible, the lower the monthly or annual premium will be on a given homeowners insurance policy. Clients can also add a recoverable depreciation clause to their contract, which compensates for the depreciation value and the replacement costs.
Types of Home Insurance
Homeowners insurance policies come with a liability limit that determines the amount of property liability coverage they have. Normally, the standard minimum limit is $100,000. However, many insurance companies offer clients the option of choosing a higher limit. When a claim is made, the liability limit dictates the percentage of the coverage amount that goes towards replacing or repairing damage to the property, relocation expenses while the insured property is being repaired, and replacing personal belongings.
Different types of home insurance policies offer varying levels of protection and coverage options. Since this is a crucial financial decision, it is important to evaluate one’s options and choose a policy that properly safeguards one’s assets during unforeseen events.
1) HO-1: Basic Form
This policy typically covers damage or losses caused by 10 specifically named perils (events or factors that may cause damage to one’s home or belongings). Some of these perils include fire, lightning, windstorm, civil commotion, aircraft, vehicles, and theft.
2) HO-2: Broad Form
This policy includes a broader variety of perils. These can include damage from heavy snow or ice, water leaks, frozen or burst pipes, power surges, and things falling on the home. Furthermore, the policy typically covers homes at their replacement cost. Personal property will be covered at its actual cash value.
3) HO-3: Special Form
This is the most common type of homeowners insurance policy because of its comprehensive coverage. Besides repair expenses, this policy typically covers homes at their replacement cost. Compared to HO-1 and HO-2 policies, HO-3 provides financial protection to policyholders against various perils. This is because while HO-1 and HO-2 policies offer protection only from specific problems listed in the policy, an HO-3 policy covers one’s home for almost any damage unless the contract specifically excludes it from the coverage. Some of the perils excluded by this policy type involve earthquakes, floods, landslides/mudslides, neglect, sinkholes, and government action.
4) HO-4: Contents Broad Form
Commonly known as renters’ insurance, HO-4 policies cater to people who lease or rent an apartment, a larger home, or a condo.
The policy typically covers a renter’s personal property (at its replacement cost) against the same factors included in an HO-3 policy. Renter’s insurance also covers living expenses if the policyholder’s rented home becomes uninhabitable due to damage caused by a named peril, like a short circuit, and the renter needs a new place to stay.
Other types of home insurance policies include HO-5: Comprehensive Form, HO-6: Unit-owners Form, HO-7: Mobile Home Form, and HO-8: Modified Coverage Form.
Insurance Claim Process
Insurance providers typically take 30 days to acknowledge receipt of a claim, but the overall timeline for a home insurance claim (from a client) and response (from the insurance provider) varies between companies. Claiming coverage for damage to a given home’s exterior or interior, injuries to occupants, or lost or damaged belongings is usually a simple and easy process.
- First, contact the law enforcement authorities in the event of crimes like theft or vandalism and get a report.
- Call the insurance provider to discuss one’s exact deductible and coverage.
- Complete all the required claim forms. This can be done online, by visiting the insurance company’s office, or by phone.
- Work with an insurance adjuster who may visit the property to inspect damages or review digital images to determine the payout.
