Policy Info
Before you purchase an Insurance Policy for your property, it is important to make sure the following items are considered:
- Make sure you purchase the correct type of policy.
- Ensure that your policy provides proper and adequate coverage.
- Certain endorsements and exclusions are avoided.
Types of Policies
There are a number of different types of Insurance Policies that one can purchase. It is important to make sure that you have the correct type of policy for your specific property and coverage requirements.
Below is a listing of the more common standard insurance policies, often called “forms”. As a practical matter, only “all-risk” policies (HO-3 for homeowners, HO-4 for renters, and HO-6 for condominium owners) should be considered unless there are extenuating circumstances.
If you own your home
If you own the home you live in, you have several policies to choose from. The most popular policy is the HO-3, which provides the broadest coverage. Owners of multi-family homes generally purchase an HO-3 with an endorsement to cover the risks associated with having renters live in their homes.
HO-1: Limited Coverage Policy
Although not available in most states, this “bare bones” policy covers you against:
fire or lightning, windstorm or hail (other than hurricane), explosion, riot or civil commotion, damage caused by aircraft, damage caused by vehicles, smoke, vandalism or malicious mischief; and
theft.
HO-2: Basic Policy
It provides protection against those losses included in an HO-1 policy, in addition to: falling objects, weight of ice, snow or sleet, accidental discharge or overflow of water or steam, sudden and accidental tearing apart, cracking, burning or bulging of a steam or hot water heating system, air conditioning or automatic fire-protective system, freezing of a plumbing, heating air conditioning or automatic fire-protective sprinkler system or of a household appliance, and sudden and accidental discharge from artificially generated electric current and volcanic eruption. There is a version of HO-2 designed for mobile homes.
HO-3: All Risk Policy
This is the best policy to purchase. This “all-risk” policy protects your home from all perils except those specifically excluded.
HO-8: Older home
Designed for older homes, this policy usually reimburses you for damage on an actual cash value basis which means replacement cost less depreciation. Full replacement cost policies may not be available for some older homes.
If you are a renter
HO4-Renter
Created specifically for those who rent the home they live in, this policy protects your possessions and any parts of the apartment that you own, such as new kitchen cabinets you install, against all 16 disasters.
If you own a co-op or a condo
H0-6: condo/co-op
A policy for those who own a condo or co-op, it provides coverage for your belongings and the structural parts of the building that you own. It protects you against all 16 disasters.
Your level of coverage
Regardless of whether you are an owner or renter, you have the following three options:
- Actual cash value. This type of policy pays to replace your home or possessions minus a deduction for depreciation.
- Replacement cost. The policy pays the cost of rebuilding/repairing your home or replacing your possessions without a deduction for depreciation.
- Guaranteed or extended replacement cost. This policy offers the highest level of protection. A guaranteed replacement cost policy pays whatever it costs to rebuild your home as it was before the fire or other disaster – even if it exceeds the policy limit. This gives you protection against sudden increases in construction costs due to a shortage of building materials after a widespread disaster or other unexpected situations. It generally won’t cover the cost of upgrading the house to comply with current building codes. You can, however, get an endorsement (or an addition to) your policy called Ordinance or Law to help pay for these additional costs. A guaranteed replacement cost policy may not be available if you own an older home.
Some insurance companies offer an extended, rather than a guaranteed replacement cost policy. An extended policy pays a certain percentage over the limit to rebuild your home. Generally, it is 20% to 25% more than the limit of the policy. For example, if you took out a policy for $100,000, you could get up to an extra $20,000 or $25,000 of coverage.
Even though a guaranteed/extended replacement cost policy may be a bit more expensive, it offers the best financial protection against disasters for your home. These coverages, however, may not be available in all states or from all companies.
Floods
You can purchase this coverage directly from your homeowners insurance agent. However, the policy is provided by the Federal Flood Insurance Program (800-427-4661, (http://www.fema.gov/nfip).
You can get replacement cost coverage for the structure of your home, but only actual cash value coverage is available for your possessions. There may also be limits on coverage for furniture and other possessions stored in your basement.
Flood insurance is available for renters as well as homeowners. You will need flood insurance if you live in a designated flood zone. But also consider buying it if your house could be flooded by melting snow, an overflowing creek or water running down a steep hill. Don’t wait until the evening news announces a flood season warning to buy a policy. There is a 30-day waiting period before coverage takes effect.
Earthquakes
This coverage can be a separate policy or an endorsement to your homeowners or renters policy. It available from most insurance companies. In California, it is also available from the California Earthquake Authority (http://www.cea.gov). In earthquake prone states like California, the policy comes with a high deductible.
Maintenance damage.
It is your responsibility to take reasonable precautions to protect your home from damage. Your insurance policy will not cover damage due to lack of maintenance, mold, termite infestation and infestation from other pests.
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