Home ownership is a source of pride and worry for millions of Americans. While no homeowner wishes to dwell on the unfortunate event of home damage, this is essential concern. Homeowner’s insurance works to protect a home on several levels. Although a homeowner is only in control of so many variables, insurance prevents financial liability caused by damage, theft and injuries. In fact, insurance is so paramount, mortgage lenders will refuse a loan unless an insurance policy is taken out. While necessary, homeowner’s insurance is a confusing topic. To start clarifying this confusion, it’s best to understand the different types of insurance policies.
Much like automobile or health insurance, Home Insurance comes in a variety of types and coverage levels. While discussing these options with a reputable agent, such as , is essential, the following are the most common Home Insurance types.
HO-1 – In the most general sense, HO-1 insurance offers “bare-bones” coverage. Due to the lack of full coverage, the International Risk Management Institute reports many states have outlawed this coverage level. Only situations listed in its “named perils” are covered. However, HO-1 does provide a basic level of liability insurance.
HO-2 – Coverage for this policy includes all buildings within a property. Personal property within each building is also protected. Much like HO-1 insurance, HO-2 only covers situations within its “named perils.” However, its list is much more inclusive. In some instances, an HO-2 policy covers housing expenses should the owner(s) be required to move out due to damage or repairs.
HO-3 – This is the most commonly used policy, based upon data gathered by the aforementioned institute. While coverage levels are the same within the HO-2 policy, HO-3 policies protect from non-specified occurrences. However, personal property, which are items found within a home, is only covered based upon the “named perils” within the policy.
Cash value policies reimburse the original purchase price of the property should it be damaged. While this may seem superior to other policies, reimbursements do not take into account increased property values. For example, a homeowner purchases a home for $120,000. However, a claim isn’t filed for 10 years. The owner would receive a payment of $120,000, even if the property has doubled in value.
