A Homeowner’s Guide to Homeowner’s Insurance

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Homeowner’s insurance is probably one of the most important types of insurance you’ll ever buy. It’s right up there with life insurance in terms of essential financial protection. But to get the most out of your homeowner’s insurance, you need to know your plan’s coverage details.

Like all types of insurance, homeowner’s insurance comes in a variety of coverage levels. Other forms of insurance – health, auto, etc. – are structured the same way.  More coverage means higher premiums, and homeowner’s insurance is no different.

Here’s a quick look at the most common means of designating homeowner’s insurance policies and details on which coverage could be right for you:

HO-1 – The most basic type of coverage is called HO-1. HO-1 covers your home only against the most seldom and tragic disasters: fire or lightning.

HO-2 - Often referred to as “broad coverage,” HO-2 covers your home against HO-1 damage types, as well as against losses or damage due to windstorm, hail, vandalism, theft, explosion, smoke damage from vehicles and aircraft, glass breakage, and even riot. It will also cover you for removal of property endangered by fire.

HO-2 also insures the policyholder against building collapse, plumbing mishaps such as accidental steam discharge or frozen pipes, damage incurred from weight of snow (hope the Metrodome had that!), and the accidental burst of water heating systems.

HO-3 – Special forms of insurance are typically referred to as HO-3. These policies insure your home and other structures – garage, shacks, boathouse, and the like – against losses or damage from any source except those mishaps specifically mentioned as excluded in the policy. Most homeowners decide to purchase HO-3 coverage. If you get this sort of coverage, make sure you are thoroughly familiar with what is excluded.

HO-4 – HO-4 policies cover against the same types of damage as an HO-2 policy. The difference is that HO-4 policies are typically for tenants to insure the personal effects and property the tenant keeps at a rented location.

HO-6 – For condominium unit-owners, HO-6 policies offer the ability to insure items not covered by any policy purchased by the condo association. HO-6 policies can also cover personal effects inside the individual unit.

HO-8 - Because old homes frequently contain building materials no longer in use, owners of older homes are precluded from buying replacement policies. HO-8 coverage is for such homeowners.

Rather than having typical replacement terms, HO-8 policies are modified to insure against the cost of installing modern, updated fixtures and materials. For example, an HO-8 policy would provide for the replacement of plaster walls with newer materials, or for old home electrical systems with newer, updated ones.

These specific coverage titles can vary from state to state, but for the most part, the distinctions between levels of coverage are generally the same. In other words, HO-3 policies might go by a different name, but policies of that type will still insure homeowners against all but the excluded events.

Of course, this is not an exhaustive list of the types of homeowner’s insurance available. Homeowners can, and often do, purchase supplemental insurance for events not covered in their primary policies.

For example, many policies do not cover homeowners against flood damage, which can bet devastating in the event it happens. Just a few inches of flooding can rack up thousands in damage costs! Many homeowners in moderate-to-high-risk flood areas purchase supplemental coverage to make sure they’ll be kept financially afloat (pun intended) in the event of flood.

Other individuals supplement their policies with personal liability insurance, included in many HO-3, HO-4, and HO-6 policies, which insures a policyholders against damages owed to others because of injury occurring on their property.

When looking for homeowner’s insurance, always remember to figure out the coverage you need first.  Then, go shopping for comparable policies, and look for the best policy that meets your needs for the best price.

Published or Updated: April 3, 2013
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. Now, here is some great info. I know a lot of people lost there home due to the economy, but there are others that kept them. We see some people are slowing easing there way back into home owning so knowing about homeowners insurance is a great and vital piece of information to have. This is a must read.

  2. Jane Sanders says:

    Great post Doc,

    This is so crucial yet so overlooked by so many homeowners. Like other forms of insurance, you don’t give it much thought until you NEED it, but by then it’s too late. It good that people like you explain all the options.

    In your opinion (and this is subjective), could a homeowner have too much coverage?

  3. Pete Low says:

    Glad to see you mentioned renters insurance too. People think of it as just coverage for belongings in your apartment, but there are policies that cover things away from home too (think laptops, jewelry or bicycles), and even liability if you cause accidental injury to someone away from home.

  4. Arielle says:

    Insurance has been a definite help when facing situations that can easily become – if nothing else – a financial calamity. I wonder about what Jane said, though. Is there such a thing as too much coverage? We all want to protect our homes and enjoy them for many years.

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