Homeowners insurance may be optional depending on whether you own your home or have it financed. Individuals who own their home outright can choose not to have insurance on the home. But, doing so puts them at risk for serious financial loss if the home is damaged. If you have a financed home, the lender will require proof of insurance. To get the best coverage for your home you need to know the different types of homeowners insurance and which is right for your needs.
Homeowners insurance protects your home and belongings from damage or loss up to certain coverage limits. It can also protect you from lawsuits and legal fees if someone sues you. However, insurance policies differ in terms of how much and what they cover.
Understanding the different types of homeowners insurance will help you make sure you are adequately covered. The following are some types of policies you should be aware of.
Open Peril and Named Peril Policies
In insurance language, a peril is an event that causes damage to your home or belongings. The two main types of insurance coverage are:
- Open Peril – Hazards that are not listed as an exclusion are covered.
- Named Peril – Covered hazards are identified in the policy. If it’s not on the list, it is not covered.
Insurance coverage is also available in 8 different types of policies such as the following.
Types of Homeowners Insurance Policies
HO-1 Insurance – As the most basic form of insurance, an HO-1 policy provides limited coverage only for the structure’s actual cash value (ACV). It typically does not cover personal property, liability, or additional living expenses. This type of insurance is popular due to its low cost. HO-1 insurance is not available in all states, and most lenders require higher levels of coverage.
HO-2 Insurance – A broad form of coverage, HO-2 includes coverage for the dwelling, personal belongings, loss of use, personal liability, and medical payments to others. Personal belongings coverage is for ACV only.
HO-3 Insurance – The most common type of insurance, an HO-3 policy covers your home, belongings, liability, medical payments to others, and additional living expenses. It is an open peril policy.
HO-4 Insurance – Also known as renter’s insurance, it is for people who rent homes or apartments. However, it doesn’t cover the unit itself. The property owner must obtain landlord insurance that covers the structure.
HO-5 Insurance – A comprehensive policy that provides the highest level of coverage. Your home and belongings are covered for all hazards except those specifically excluded. It pays out for replacement costs, but not all insurance companies offer this type of insurance.
HO-6 Insurance – Covers condos or co-op buildings, personal belongings, liability, additional living expenses, medical payments to others, and any renovations you made after purchasing the unit.
HO-7 Insurance – Applies specifically to mobile homes. HO-7 is an open peril policy and covers any peril not listed as an exclusion. The coverage does not apply if the mobile home is in transit.
HO-8 Insurance – Provides coverage for older or historic homes built over 40 years ago. It provides comprehensive coverage including liability, medical payments to others, and additional living expenses.
Understanding Replacement Cost and Actual Cash Value
When you purchase homeowners insurance, you can choose replacement cost coverage or actual cash value coverage. Replacement cost coverage typically costs more than ACV, but you’ll receive more compensation from covered losses.
Replacement cost insurance will replace your damaged home or belongings with a new or similar version. In comparison, ACV coverage only pays out for the depreciated value of the items.
To avoid underinsuring your home, choose coverage that matches the amount it would cost to rebuild your home. You can determine the cost of rebuilding by getting a professional estimate. The estimate should account for any improvements such as remodeling.
You can also consider add-on coverage to boost your basic policy. Furthermore, it’s always a good idea to compare quotes from several insurance companies but don’t let a low policy premium be the main deciding factor. A cheaper policy may not provide adequate coverage for your needs.
Sandifer Insurance Understands the Different Types of Homeowners Insurance
If you’re in need of homeowners insurance, reach out to Sandifer Insurance Agency in Cheraw, SC. Our insurance specialists understand the differences between homeowners insurance types. We will take the time to assess your insurance needs to find the best coverage at an affordable rate.
Sandifer Insurance is a family-owned company with over 40 years of experience in helping homeowners protect their families and property. We also offer auto, life, farm, and commercial insurance so you can bundle all of your policies with us to save time and money.
Contact Sandifer today to learn more about homeowners insurance. You can reach us by phone, email, or online for a free quote.
Source:
forbes.com/ – 8 Types of Homeowners Insurance Policies