Homeowner’s Insurance FAQ’s

What does a homeowner’s insurance policy cover?

Homeowners insurance provides protection for your home, personal property such as furniture, clothing, and appliances as well as for personal liability. It protects you from a variety of events, including fire, lightning, burglary, vandalism, storms, explosions, and more.

Homeowner’s insurance will cover loss of property from storms, wind, fire and most natural disasters. Homeowner’s insurance will also cover loss from theft, burglary and vandalism. Homeowners insurance also provides liability protection, in case someone injures themselves in your home or on your property.

Policies vary in terms of the kinds of perils or hazards they cover, and how they compensate you for a loss. You can get additional insurance for valuable articles — such as jewelry, art work, and collectibles — for which you pay a separate premium. And you may qualify for a reduced premium on your policy if you have an approved security system installed.

Homeowner’s insurance policies usually provide other types of coverage, including off-premises theft protection and unauthorized use of your credit cards. Make sure you understand which provisions are included in the standard coverage you elect to purchase and which might require supplemental premiums.

Some policies require you to replace the damaged or stolen property, and then reimburse you for the expense. While others give you the money for the agreed-upon value, but don't require the replacement.

What kinds of policies are available?

Homeowner’s insurance policies are usually available in seven levels of coverage. The Insurance industry codes homeowner's policies from HO1 to HO8 to reflect the range of coverage’s, with higher numbers indicating more comprehensive policies. The broader the policy, the higher the premium you'll pay. However, you should also be aware that different companies may charge very different premiums for the same level of coverage.

The HO-1 is basic coverage for standard, or named perils, policy provides limited protection and lists the specific perils (for example, fire and theft) that are covered. Broader coverage gives you insurance for all types of losses except those excluded from the policy. The HO-2 is “basic plus” coverage, including insurance against such threats as falling objects and electrical surges. The HO-3 is “extended coverage,” and covers “non-specified” threats. The HO-4 is “basic plus” coverage for renters. HO-5 is “all risk” coverage. The HO-6 is “basic plus” coverage for condominium owners. The HO-8 is basic coverage for buildings with high replacement cost due to historic value.

How much coverage do I need?

Your policy should cover the value of the structure of the house, as well as the contents of the home. This includes all personal property, jewelry, electronics, appliances, furniture, and other possessions. If you have items of extreme value, such as fine art or specialized computer equipment, you may need to purchase a rider to cover or an additional policy.

What is “actual cash value”? What is “replacement cost”?

Actual cash value is the amount paid for a piece of property, minus the depreciation of value over time. Replacement cost is the actual cost of replacing a piece of property at current market prices. For most consumer goods, actual cash value will be less than the replacement cost.

What’s excluded in the policy?

Virtually no basic policy covers losses resulting from war, riots, police actions, nuclear explosion, or "acts of God." You can sometimes get a rider, or an endorsement to your policy, to cover situations that are normally excluded, such as floods and earthquakes, but you'll pay an extra premium for this coverage.

Because policies vary, pay attention to all of the detailed descriptions of what's covered and what isn't. Sometimes a policy that's significantly cheaper than the others you consider also has many more exclusions than you might expect.

What is a Deductible?

Every policy has a deductible, an amount you pay to settle a bill or replace lost or damaged property before you receive a payment from the insurer. Deductibles may vary from a few hundred to a few thousand dollars. You can reduce the cost of your insurance by choosing a larger deductible, but you'll have to pay the amount of any loss up to the deductible. Some people don't make claims for losses less than the deductible level.

What does a homeowner’s insurance policy pay out if there is a loss my home?

A homeowner’s insurance policy pays the actual cash value or replacement cost of a home. If your home has depreciated in value, this cost may be less than the appraised value of the home. If your home was poorly maintained prior to the loss, the insurance policy will pay out less than its appraised value.

Why do I need liability insurance?

If someone injures themselves in your home or on your property, you could be held liable for damages. In order to protect yourself against these damages, it is common for a homeowner’s policy to provide for between $100,000.00 to $300,000.00 of liability coverage. If you have a high-risk piece of property such as a swimming pool, you may want to have higher liability coverage.

What happens after a loss?

What you receive after a loss depends on your policy's terms and the fine print, which you should read carefully, and discuss with your insurance agent, before you buy the policy. Not learning how much you will be reimbursed until after a loss can lead to an unpleasant surprise. That may be especially true if your loss occurs during what's described as a natural disaster, where many factors may have contributed.

What's the right amount of homeowner’s insurance coverage?

Your coverage should match the replacement value of your home. Homeowners insurance do not cover the land your home is built on it only the structure on the property.

You should insure your house for at least 80% of its replacement value of what it would cost to repair or rebuild the house at today's prices. But it probably makes better sense to insure your house for its full replacement value. Most companies will automatically increase your coverage and raise your premium each year to cover rising costs. It can also pay to get replacement cost coverage for the contents of your home. However, you'll want to be sure that your policy defines replacement as rebuilding your home as it was, with its unique architectural characteristics, not simply a home of the same size. Remember, too, that the replacement value may be substantially less than the market value, or the price at which you could sell. That's because the market value includes the price of the land on which your home is built.

If you insure your house for $100,000, that´s the most you will get if it is destroyed, even if it would cost more to replace it. The Declarations Page on the front of your policy shows how much coverage you have and you’re insurance limits.

What is "replacement" coverage?

The definition of replacement coverage is that in the event of a loss, the homeowner’s insurance company will pay a claim equal to what it costs to replace the property at today's market costs price. Different insurers offer different levels of replacement coverage. You should understand the difference between replacement costs and actual cash value.

Replacement cost policies, gives you more protection than actual cash value coverage policies. With actual cash value coverage, you get only what you would expect to pay for an item. With replacement cost coverage, the insurance company pays to replace the item with an item similar to the replaced one.

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