Home insurance is an absolutely necessary part of owning a home. This insurance protects you from paying out of pocket if you suffer a loss to your home or its contents, or from any liability that may happen on your property. If you own a home, you probably have insurance, but if you are like many of us, it can seem confusing. If you do not own a home yet, but are planning to in the future, this is a great time to familiarize yourself with some of the terms of home insurance. You are required to prove that you have homeowners’ insurance in place before a mortgage on a home can be finalized, so it is very important to be aware of not only the product, but also its many aspects.
Home Insurance Policy Types
There are countless different combinations of policies of homeowners’ insurance, depending on what kinds of coverage you need or want. Some of these may be dictated by your mortgage company, and some may depend on what area of the country you live in. Your homeowners’ insurance policy will typically cover the following events:
- Damage to your home
- Damage to your home’s contents
- Damage to other structures on your property (such as a shed or barn)
- Repayment of costs stemming from damage to your home (such as a hotel stay)
- Liability for negligent acts that happen on your property
There are three basic stages of coverage:
- HO-1 includes coverage for the eleven basic perils: fire, lightning, hail, explosion, riots, aircraft, vehicles, smoke, vandalism, theft, and volcanic eruption.
- HO-2 includes coverage for everything covered under HO-1, plus falling objects, snow/ice, plumbing accidents, heating, air conditioning, sprinkler/heating systems accidents, plumbing freezes, and electrical accidents.
- HO-3 is the most prevalent type of coverage, including everything covered under HO-2, as well as everything not specifically excluded. Think of it as comprehensive coverage, with a few exceptions. Floods and earthquakes are commonly excluded, but can be added separately.
There are also three levels of coverage:
- Actual Cash Value will pay you the present value of your home and its contents.
- Replacement Cost will pay you the amount necessary to rebuild your home and replace your belongings.
- Guaranteed Replacement Cost will pay you the amount necessary to rebuild your home and replace your belongings, regardless of whether the cost is higher than your policy limits.
Home Insurance Coverage Limits
Coverage limits dictate the maximum amount that an insurer will pay out for damages. It’s important to think about all the things you will need to replace if you were to have a total loss on your home. If you have Replacement Cost coverage, you will need to take into account all the contents of your home as well. Also, consider liability claims if someone were to be injured or killed on your property. Medical bills and lawsuits can be very costly, so it is imperative to take all of these potential costs into account when deciding on coverage limits.
What is a Deductible?
A deductible is the amount you are required to pay out of pocket before your insurance company will pay a claim. While higher deductible plans are cheaper, it’s very important to choose a deductible that you can afford.
While homeowners’ insurance is something you hope you’ll never have to use, it’s important to understand the ins and outs of your policy. Be sure to familiarize yourself now- don’t want until after a loss to wonder what kind of policy you have!
ASK US ABOUT INSURANCE FOR THESE:
▸ Manufactured Home
▸ Rental Dwelling
▸ Personal Liability Umbrella
▸ Commercial Liability Umbrella
▸ Workers Comp
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