Home Insurance

  • What is homeowners insurance?

    Homeowners insurance provides financial protection against disasters. A standard policy insures the home itself and the things you keep in it.

    Homeowners insurance is a package policy. This means that it covers both damage to your property and your liability or legal responsibility for any injuries and property damage you or members of your family cause to other people.

    Damage caused by most disasters is covered but there are exceptions. The most significant are damage caused by floods, earthquakes and poor maintenance. You must buy two separate policies for flood and earthquake coverage. Maintenance-related problems are the homeowners’ responsibility.

  • What is in a standard homeowners insurance policy?

    A standard homeowners insurance policy includes four essential types of coverage. They include:

    Coverage for the structure of your home.
    Coverage for your personal belongings.
    Liability protection.
    Additional living expenses in the event you are temporarily unable to live in your home because of a fire or other insured disaster.

    1. The structure of your house
    This part of your policy pays to repair or rebuild your home if it is damaged or destroyed by fire, hurricane, hail, lightning or other disaster listed in your policy. It will not pay for damage caused by a flood, earthquake or routine wear and tear. When purchasing coverage for the structure of your home, it is important to buy enough to rebuild your home.Most standard policies also cover structures that are detached from your home such as a garage, tool shed or gazebo. Generally, these structures are covered for about 10% of the amount of insurance you have on the structure of your home. If you need more coverage, talk to your insurance agent about purchasing more insurance.

    2. Your personal belongings
    Your furniture, clothes, sports equipment and other personal items are covered if they are stolen or destroyed by fire, hurricane or other insured disaster. Most companies provide coverage for 50% to 70% of the amount of insurance you have on the structure of your home. So if you have $100,000 worth of insurance on the structure of your home, you would have between $50,000 to $70,000 worth of coverage for your belongings. The best way to determine if this is enough coverage is to conduct a home inventory.

    This part of your policy includes off-premises coverage. This means that your belongings are covered anywhere in the world, unless you have decided against off-premises coverage. Some companies limit the amount to 10% of the amount of insurance you have for your possessions. You have up to $500 of coverage for unauthorized use of your credit cards.

    Expensive items like jewelry, furs and silverware are covered, but there are usually dollar limits if they are stolen. Generally, you are covered for between $1,000 to $2,000 for all of your jewelry and furs. To insure these items to their full value, purchase a special personal property endorsement or floater and insure the item for it’s appraised value. Coverage includes “accidental disappearance,” meaning coverage if you simply lose that item. And there is no deductible.

    Trees, plants and shrubs are also covered under standard homeowners insurance. Generally you are covered for 5% of the insurance on the house up to about $500 per item. Perils covered are theft, fire, lightning, explosion, vandalism, riot and even falling aircraft. They are not covered for damage by wind or disease.

    Liability protection
    Liability covers you against lawsuits for bodily injury or property damage that you or family members cause to other people. It also pays for damage caused by your pets. So, if your son, daughter or dog accidentally ruins your neighbor’s expensive rug, you are covered. However, if they destroy your rug, you are not covered.

    The liability portion of your policy pays for both the cost of defending you in court and any court awards – up to the limit of your policy. You are also covered not just in your home, but anywhere in the world.

    Liability limits generally start at about $100,000. However, experts recommend that you purchase at least $300,000 worth of protection. Some people feel more comfortable with even more coverage. You can purchase an umbrella or excess liability policy which provides broader coverage, including claims against you for libel and slander, as well as higher liability limits. Generally, umbrella policies cost between $200 to $350 for $1 million of additional liability protection.

    Your policy also provides no-fault medical coverage. In the event a friend or neighbor is injured in your home, he or she can simply submit medical bills to your insurance company. This way, expenses are paid without a liability claim being filed against you. You can generally get $1,000 to $5,000 worth of this coverage. It does not, however, pay the medical bills for your family or your pet.

    Additional living expenses
    This pays the additional costs of living away from home if you can’t live there due to damage from a fire, storm or other insured disaster. It covers hotel bills, restaurant meals and other living expenses incurred while your home is being rebuilt. Coverage for additional living expenses differs from company to company. Many policies provide coverage for about 20% of the insurance on your house. You can increase this coverage, however, for an additional premium. Some companies sell a policy that provides an unlimited amount of loss-of-use coverage, but for a limited amount of time.

    If you rent out part of your house, this coverage also reimburses you for the rent that you would have collected from your tenant if your home had not been destroyed.

  • How much homeowners insurance do I need?

    You need enough insurance to cover the following:

    The structure of your home.
    Your personal possessions.
    The cost of additional living expenses if your home is damaged and you have to live elsewhere during repairs.
    Your liability to others.

    The structure
    You need enough insurance to cover the cost of rebuilding your home at current construction costs. Don’t include the cost of the land. And don’t base your rebuilding costs on the price you paid for your home. The cost of rebuilding could be more or less than the price you paid or could sell it for today.Some banks require you to buy homeowners insurance to cover the amount of your mortgage. If the limit of your insurance policy is based on your mortgage, make sure it’s enough to cover the cost of rebuilding. (If your mortgage is paid off, don’t cancel your homeowners policy. Homeowners insurance protects your investment in your home.)

    For a quick estimate of the amount of insurance you need, multiply the total square footage of your home by local building costs per square foot. To find out construction costs in your community, call your local real estate agent, builders association or insurance agent.

    Factors that will determine the cost of rebuilding your home:

    Local construction costs
    The square footage of the structure
    The type of exterior wall construction – frame, masonry (brick or stone) or veneer
    The style of the house (ranch, colonial)
    The number of bathrooms and other rooms
    The type of roof and materials used
    Other structures on the premises such as garages, sheds
    Fireplaces, exterior trim and other special features like arched windows
    Whether the house, or parts of it like the kitchen, was custom built
    Improvement to your home – adding a second bathroom, enlarging the kitchen or other additions that have added value to your home

    Standard homeowners policies provide coverage for disasters such as damage due to fire, lightning, hail, explosions and theft. They do not cover floods, earthquakes or damage caused by lack of routine maintenance.

    Flood insurance is available from the Federal Insurance Administration ( http://www.fema.gov ) and earthquake coverage is available from private insurance companies or, in California, also through the California Earthquake Authority ( http://www.earthquakeauthority.com )

    Replacement cost policies
    Most policies cover replacement cost for damage to the structure. A replacement cost policy pays for the repair or replacement of damaged property with materials of similar kind and quality. There is no deduction for depreciation – the decrease in value due to age, wear and tear, and other factors.

    If you purchase a flood insurance policy, coverage for the structure is available on a replacement cost basis.

    Guaranteed or extended replacement cost coverage
    After a major hurricane or a tornado, building materials and construction workers are often in great demand. This can push rebuilding costs above homeowners policy limits, leaving you without enough money to cover the bill. To protect against such a situation, you can buy a policy that pays more than the policy limits.

    An extended replacement cost policy will pay an extra 20 percent or more above the limits, depending on the insurance company. A guaranteed replacement cost policy will pay whatever it costs to rebuild your home as it was before the fire or other disaster.

    Building codes
    Building codes are updated periodically and may have changed significantly since your home was built. If your home is badly damaged, you may be required to rebuild your home to meet new building codes. Generally, homeowners insurance policies (even a guaranteed replacement cost policy) won’t pay for the extra expense of rebuilding to code. Many insurance companies offer an Ordinance or Law endorsement that pays a specified amount toward these costs. (An endorsement is a form attached to an insurance policy that changes what the policy covers.)

    Inflation guard
    Consider adding an inflation guard clause to your policy. This automatically adjusts the dwelling limit when you renew your policy to reflect current construction costs in your area.

    Older homes
    If you own an older home, you may not be able to buy a replacement cost policy. Instead, you may have to buy a modified replacement cost policy. This means that instead of repairing or replacing features typical of older homes, like plaster walls and wooden floors, with similar materials, the policy will pay for repairs using the standard building materials and construction techniques in use today.

    Insurance companies differ greatly in how they insure older homes. Some won’t insure older homes for the replacement cost because of the expense of re-creating special features like wall and ceiling moldings and carvings. Other companies will insure older homes for the replacement cost as long as the dwelling is in good condition.

    If you can’t insure your home for the replacement cost or choose not to do so – in some cases, the cost of replacing a large old home is so high that you might not want to replace it with a house of the same size – make sure the limits of the policy are high enough to provide you with a house of acceptable size and quality.

    Your personal possessions
    Most homeowners insurance policies provide coverage for your personal possessions for approximately 50 percent to 70 percent of the amount of insurance you have on the structure or “dwelling” of your home. The limits of the policy typically appear on the Declarations Page under Section I, Coverages, A. Dwelling.

    To determine if this is enough coverage, you need to conduct a home inventory. This is a detailed list of everything you own and information related to the cost to replace these items if they were stolen or destroyed by a disaster such as a fire (for more information see How do I take a home inventory and why). If you think you need more coverage, contact your agent or insurance company representative and ask for higher limits for your personal possessions.

    Replacement Cost or Actual Cash Value
    You can either insure your belongings for their actual cash value, which pays to replace your home or possessions minus a deduction for depreciation up to the limit of your policy. Or you can opt for replacement cost, which pays the actual cost of replacing your home or possessions (no deduction for depreciation) up to the limit of your policy.

    Suppose, for example, a fire destroys a 10-year-old TV set in your living room. If you have a replacement cost policy for the contents of your home, the insurance company will pay to replace the TV set with a new one. If you have an actual cash value policy, it will pay only a percentage of the cost of a new TV set because the TV has been used for 10 years and is worth a lot less than its original cost. Some replacement cost policies also replace the item and deliver it to you.

    Generally, the price of replacement cost coverage is about 10 percent more than that of actual cash value. If you need a flood insurance policy for your belongings, it is only available on an actual cash value basis.

    Insuring expensive items with floaters/endorsements
    There may be limits on how much coverage you get for expensive items such as jewelry, silverware and furs. Generally, there is a limit on jewelry for $1,000 to $2,000. You should ask your agent or look it up in your policy. This information is in Section I, Personal Property, Special Limits of Liability. Insurance companies may also place a limit on what they will pay for computers.

    If the limits are too low, consider buying a special personal property floater or an endorsement. These allow you to insure these items individually or as a collection. With floaters and endorsements, there is no deductible. You are charged a premium based on what the item (or collection) is, its dollar value and where you live.

    You can determine the value by providing your agent with a recent receipt or getting the item or collection appraised.

    Additional living expenses after a disaster
    This is a very important feature of a standard homeowners insurance policy. This pays the additional costs of temporarily living away from your home if you can’t live in it due to a fire, severe storm or other insured disaster. It covers hotel bills, restaurant meals and other living expenses incurred while your home is being rebuilt.

    Coverage for additional living expenses differs from company to company. Many policies provide coverage for about 20% of the insurance on your house. Some companies will even sell you a policy that provides you with an unlimited amount of loss of use coverage, for a limited amount of time.

    If you rent out part of your house, this coverage also reimburses you for the rent that you would have collected from your tenant if your home had not been destroyed.

    You should talk to your agent or company to make sure you know exactly how much coverage you have and how long the coverage will be in effect. In most cases, you can increase this coverage for an additional premium.

    Liability to others
    This part of your policy covers you against lawsuits for bodily injury or property damage that you or family members cause to other people. It also pays for damage caused by pets. It pays for both the cost of defending you in court and for any damages a court rules you must pay.

    Generally, most homeowners insurance policies provide a minimum of $100,000 worth of liability insurance, but higher amounts are available. Increasingly, it is recommended that homeowners consider purchasing at least $300,000 to $500,000 worth of coverage of liability protection.

    Umbrella or Excess Liability.
    You should buy enough liability insurance to protect your assets. If you own property and or have investments and savings that are worth more than the liability limits in your policy, you may consider purchasing an excess liability or umbrella policy.

    Umbrella or excess liability policies provide extra coverage. They start to pay after you have used up the liability insurance in your underlying home (or auto) policy. An umbrella policy is not part of your homeowners policy. You have to purchase it separately. In addition to providing a higher dollar amount, they offer broader coverage. You are covered for libel, slander, and invasion of privacy. These things are not covered under standard homeowners or auto policies.

    The cost of an umbrella policy depends on how much underlying insurance you have and the kind of risk you represent. The greater the underlying liability coverage, the cheaper the policy. This is because you would be the less likely to need the additional insurance. Most companies will require a minimum of $300,000 on your home and your car, if you own one.

  • How do I take a home inventory and why?

    Would you be able to remember all the possessions you’ve accumulated over the years if they were destroyed by a fire? Having an up-to-date home inventory will help you get your insurance claim settled faster, verify losses for your income tax return and help you purchase the correct amount of insurance.

    Start by making a list of your possessions, describing each item and noting where you bought it and its make and model. Clip to your list any sales receipts, purchase contracts, and appraisals you have. For clothing, count the items you own by category — pants, coats, shoes, for example – making notes about those that are especially valuable. For major appliance and electronic equipment, record their serial numbers usually found on the back or bottom.

    Don’t be put off!
    If you are just setting up a household, starting an inventory list can be relatively simple. If you’ve been living in the same house for many years, however, the task of creating a list can be daunting. Still, it’s better to have an incomplete inventory than nothing at all. Start with recent purchases and then try to remember what you can about older possessions.
    Big ticket items
    Valuable items like jewelry, art work and collectibles may have increased in value since you received them. Check with your agent to make sure that you have adequate insurance for these items. They may need to be insured separately.
    Take a picture
    Besides the list, you can take pictures of rooms and important individual items. On the back of the photos, note what is shown and where you bought it or the make. Don’t forget things that are in closets or drawers.
    Videotape it
    Walk through your house or apartment videotaping and describing the contents. Or do the same thing using a tape recorder.
    Use a personal computer
    Use your PC to make your inventory list. Personal finance software packages often include a homeowners room-by-room inventory program.
    Storing the list, photos and tapes
    Regardless of how you do it (written list, floppy disk, photos, videotape or audio tape), keep your inventory along with receipts in your safe deposit box or at a friend’s or relative’s home. That way you’ll be sure to have something to give your insurance representative if your home is damaged. When you make a significant purchase, add the information to your inventory while the details are fresh in your mind.

  • How do I file a homeowners claim?

    If someone has become injured on your property or if a violent storm destroys your home, you will need to file a claim with your insurance company. Remember, a homeowners policy is a contract between you and your insurance company. And there are rules and procedures that you and your insurer must follow. Read your insurance policy to see what your responsibilities are.

    Report any crime to the police
    If you are the victim of a theft or your home has been vandalized or burglarized, report it to the police. Get a police report and the names of all law enforcement officers that you speak with.

    Phone your agent or company immediately
    Insurance policies place a time limit on filing claims. Find out what the time limit is. Ask questions: Am I covered? Does my claim exceed my deductible? (Your deductible is the amount of loss you agree to pay yourself when you buy a policy.) How long will it take to process my claim? Will I need to obtain estimates for repairs to structural damage?

    Make temporary repairs
    Take reasonable steps to protect your property from further damage. Save receipts for what you spend and submit them to your insurance company for reimbursement.

    Prepare a list of lost or damaged articles
    You are going to need to substantiate your loss. Avoid throwing out damaged items until the adjuster has visited your home. You should also consider photographing or videotaping the damage. Prepare a home inventory, make a copy for your adjuster and supply him or her with copies of receipts from damaged items.

    If you need to relocate, keep your receipts
    If your home is severely damaged and you need to find other accommodations while repairs are being made, keep records of all additional expenses incurred. Most homeowners insurance policies provide coverage for the “loss of use” of your home.

    Get claim forms
    Once your insurance company has been notified of your claim, the company is required to send you the necessary claim forms to you by the end of a specified time period. (The time period varies from state to state.) Return the properly filled out forms as soon as possible in order to avoid delays.

    Have an adjuster inspect the damage to your home
    Your insurance company will probably arrange for an adjuster to come and inspect your home.

    Once you and your insurance company agree on the terms of your settlement, state laws require that you be sent payment promptly. In most cases, your claim will be processed quickly. If you have any questions about the claim filing laws in your state, call your insurance agent or your state department of insurance.

  • How can I save money?

    The price you pay for your homeowners insurance can vary by hundreds of dollars, depending on the size of your house and the insurance company you buy your policy from. Here are some ways to save money.

    Shop around
    Prices vary from company to company, so it pays to shop around. Get at least three price quotes. You can call companies directly or access information on the Internet. Your state insurance department may also provide comparisons of prices charged by major insurers.

    Check the financial health of insurance companies by using ratings from independent rating agencies and consulting consumer magazines.

    Get quotes from different types of insurance companies. Some sell through their own agents. These agencies have the same name as the insurance company. Some sell through independent agents who offer policies from several insurance companies. Others do not use agents. They sell directly to consumers over the phone or via the Internet.

    But don’t shop price alone. You want a company that answers your questions and handles claims fairly and efficiently. Ask friends and relatives for their recommendations. Contact your state insurance department to find out whether they make available consumer complaint ratios by company.

    Select an agent or company representative that takes the time to answer your questions. Remember, you’ll be dealing with this company if you have an accident or other emergency.

    Raise your deductible
    A deductible is the amount of money you have to pay toward a loss before your insurance company starts to pay a claim. The higher your deductible, the more money you save on your premium. Consider a deductible of at least $500. If you can afford to raise it to $1,000, you may save as much as 25 percent.

    If you live in a disaster-prone area, your insurance policy may have a separate deductible for damage from major disasters. If you live near the coast in the East, you may have a separate windstorm deductible, if you live in a state vulnerable to hail storms, you may have a separate deductible for hail, and if you live in an earthquake-prone area, your earthquake policy may have a deductible.

    Buy your home and auto policies from the same insurer
    Most companies that sell homeowners insurance also sell auto and umbrella liability insurance. (An umbrella liability policy will give you extra liability coverage.) Some insurance companies will reduce your premium by 5 percent to 15 percent if you buy two or more insurance policies from them. But make certain this combined price is lower than buying the coverages from different companies.

    Make your home more disaster-resistant
    Find out from your insurance agent or company representative what you can do to make your home more resistant to windstorms and other natural disasters. You may be able to save on your premiums by adding storm shutters and shatter-proof glass, reinforcing your roof or buying stronger roofing materials. Older homes can be retrofitted to make them better able to withstand earthquakes. In addition, consider modernizing your heating, plumbing and electrical systems to reduce the risk of fire and water damage.

    Don’t confuse what you paid for your house with rebuilding costs
    The land under your house isn’t at risk from theft, windstorm, fire and the other perils covered in your homeowners policy. So don’t include its value in deciding how much homeowners insurance to buy. If you do, you’ll pay a higher premium than you should.

    Ask about discounts for home security devices
    You can usually get discounts of at least 5 percent for a smoke detector, burglar alarm or dead-bolt locks. Some companies may cut your premiums by as much as 15 or 20 percent if you install a sophisticated sprinkler system and a fire and burglar alarm that rings at the police, fire or other monitoring stations. However, these systems aren’t cheap and not every system qualifies for a discount. Before you buy one, find out what kind your insurer recommends, how much the device would cost and how much you’d save on premiums.

    Seek out other discounts
    Many companies offer discounts, but they don’t all offer the same types of discounts or the same level of discount in all states. Ask your agent or company representative about discounts available to you. For example, if you’re at least 55 years old and retired, you may qualify for a discount of up to 10 percent at some companies. If you’ve completely modernized your plumbing or electrical system recently, some companies may also provide a price break.

    See if you can get group coverage
    Does your employer administer a group insurance program? Check to see if a homeowners policy is available and is a better deal than you can find elsewhere. In addition, professional, alumni and business groups may offer an insurance package at a reduced price.

    Stay with the same insurer
    If you’ve been insured with the same company for several years, you may receive a discount for being a long-term policyholder. Some insurers will reduce premiums by 5 percent if you stay with them for three-to-five years and by 10 percent if you’re a policyholder for six years or more. To ensure you’re getting a good deal, periodically compare this price with the prices of policies from other insurers.

    Review policy limits and the value of your possessions annually
    You want your policy to cover any major purchases or additions to your home. But you don’t want to spend money for coverage you don’t need. If your five-year-old fur coat is no longer worth the $5,000 you paid for it, you’ll want to reduce or cancel your floater (extra insurance for items whose full value is not covered by standard homeowners policies) and pocket the difference.

    Look for private insurance if you are in a government plan
    If you live in a high-risk area – one that is especially vulnerable to coastal storms, fires or crime – and you’ve been buying your homeowners insurance through a government plan, find out from insurance agents, company representatives or your state department of insurance which insurance companies might be interested in your business. You may find there are steps you can take that will allow you to buy insurance at a lower price in the private market.

    When you’re buying a home, consider the cost of homeowners insurance
    The price you pay for homeowners insurance depends in part on the cost of rebuilding your home and the likelihood that it will be damaged by natural disasters or that it will burn down. You may pay less if you buy a house close to a fire hydrant or in a community that has a professional rather than a volunteer fire department. You may also pay less if your home’s electrical, heating and plumbing systems are less than 10 years old. If you live in the East, consider a brick home because it’s more wind-resistant. If you live in an earthquake-prone area, look for a wooden frame house because it is more likely to withstand this type of disaster. Choosing wisely could cut your premiums by 5 percent to 15 percent.

    Remember that flood and earthquake damage are not covered by a standard homeowners policy. If you buy a house in a flood-prone area, you’ll have to pay for a flood insurance policy that costs an average of $400 a year. The National Flood Insurance Program provides useful information on flood insurance on its Web site at http://www.floodsmart.gov . A separate earthquake policy is available from most insurance companies. The cost of the coverage will depend on the likelihood of earthquakes in your area and the construction features.

    If you have questions about insurance for any of your possessions, be sure to ask your agent or company representative. For example, if you run a business out of your home, be sure you have adequate coverage. Most homeowners policies cover business equipment in the home, but only up to $2,500 and they offer no business liability insurance. For more information, see Business Insurance.

  • Does my homeowners insurance cover flooding?

    Standard homeowners policies do NOT cover flooding. You can purchase flood coverage directly through your homeowners insurance agent. However, the policy is provided by the Federal Flood Insurance Program ( 888-379-9531, http://www.floodsmart.gov ).

    Replacement cost coverage is available for the structure of your home, but only actual cash value coverage is available for your possessions. Replacement cost coverage pays to rebuild your home as it was before the damage. Actual cash value is replacement cost coverage minus depreciation so that the older your possessions are, the less you will get if they are damaged. There may also be limits on coverage for furniture and other belongings 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 flooding can also occur in inland areas and away from major rivers. Consider buying a flood insurance policy if your house could be flooded by melting snow, an overflowing creek or pond or water running down a steep hill. Don’t wait for a flood season warning on the evening news to buy a policy – there is a 30-day waiting period before the coverage takes effect.

    The federal flood insurance program provides only limited coverage. If you need more coverage than the federal program provides, additional coverage known as “excess” flood insurance is available from specialized insurance companies. Depending on the amount of coverage purchased, an excess flood insurance policy will cover damage above the limits of the federal program on the same basis as the federal program – replacement cost for the structure and actual cash value for the contents.

    Excess flood insurance is available in all parts of the country – in high risk flood zones along the coast and close to major rivers as well as in areas of lower risk – wherever the federal program is available. It can be purchased from specialized companies such as Lexington Insurance Company, part of American International Insurance Company, and Lloyd’s through independent insurance agents, or from regular homeowners insurance companies that have arrangements with a specialized insurer to provide coverage to their policyholders.

  • Do I need special coverage for jewelry and other valuables?

    A standard homeowners policy includes coverage for jewelry and other precious items such as watches and furs. These items are covered for losses caused by all the perils included in your policy such as fire, windstorm, theft and vandalism.

    However, there are special limits of liability for certain items, meaning that the insurer will not pay more than the amount specified in the policy. One important limit is for the theft of jewelry. To keep coverage affordable because jewelry can be easily stolen, the standard policy has a relatively low limit of liability for theft, generally $1,500.

    If you own valuable jewelry or other items that would be difficult to replace, there are two ways you can increase coverage: by raising the limit of liability or “scheduling” your individual pieces through the purchase of “floater” policies. Raising the limit of liability is the cheapest option; however, there may be a limit on the amount you can claim for the loss of any individual piece, say $2,000, when the overall limit is $5,000.

    Scheduling each piece or item may cost more in premiums, but it offers broader protection because the floater covers losses of any type, including accidental losses-such as dropping your ring down the drain of the kitchen sink or leaving an expensive watch in a hotel room – that your homeowners insurance policy will not cover. Before purchasing a floater, the items covered must be professionally appraised. The cost of this service varies depending on where you live.

  • Are there different types of policies?

    Yes. A person who owns his or her home would have a different policy from someone who rents. Policies also differ on the amount of insurance coverage provided.

    The different types of homeowners policies are fairly standard throughout the country. However, individual states and companies may offer policies that are slightly different or go by other names such as “standard” or “deluxe”. The one exception is the state of Texas, where policies vary somewhat from policies in other states. The Texas Insurance Department ( http://www.tdi.state.tx.us ) has detailed information on its various homeowners policies.

    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
    This “bare bones” policy covers you against the first 10 disasters. It’s no longer available in most states.

    HO-2: Basic policy
    A basic policy provides protection against all 16 disasters. There is a version of HO-2 designed for mobile homes.

    HO-3: The most popular policy
    This “special” policy protects your home from all perils except those specifically excluded. (Click on the link below for a sample HO-3 form; you will need Acrobat which you can download, free of charge, from the Adobe Web site: http://www.adobe.com/products/acrobat/).
    Download/View File: HO-3 Form (160 K)

    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 rent your home
    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 percent 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.

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