For most people, their home is the most valuable thing they own. That’s why they should protect it with homeowners insurance, which pays to repair or replace the home if it is damaged or destroyed by disasters such as storms or fires. If you have a mortgage, most lenders require that you have homeowners insurance. There are different types of homeowner insurance that vary in cost because they offer different levels of protection.
The type of policy recommended most often is known as HO-3. Roughly 80 percent of homeowner policies sold are HO-3 policies, according to This Old House magazine. This policy type covers your home and personal property against all perils and risks except for those specifically excluded in the policy. Most HO-3 policies also provide some degree of personal liability protection. Cheaper types of homeowners insurance are known as HO-2 or HO-1. These protect only against perils specified in the policy; any causes of loss other than the perils named in the policy are not covered.
Typical exclusions in an HO-3 policy include losses caused by failure to obtain permits and approvals required by state or local laws, and costs of structural upgrades required by law when you rebuild. HO-3 policies also exclude losses from earthquakes and other earth movement, floods, nuclear accidents, power failures, war, neglect and intentional damage such as by arson. Extra-cost coverage is available for some exclusions, such as earthquakes and floods. HO-3 policies provide only very limited coverage for valuables such as jewelry, art and collectibles but more coverage is available at extra cost.
HO-3 policies come in two flavors, replacement cost or actual cash value. Replacement cost coverage pays the full cost of rebuilding your home and replacing your personal property, up to maximum dollar limits specified in the policy. This kind of policy costs about 15 percent more than an actual cash value policy that pays you the replacement cost minus depreciation, wear and tear. Buy enough coverage to replace your home if it were destroyed. Consult an insurance agent or building contractor for a recommendation on the dollar amount of coverage you should buy.
If you own a condominium unit, the homeowners insurance version for you is called HO-6. This policy type covers loss of personal property and damage to your walls, floors and ceilings. The basic condo owner’s policy only protects against the perils specifically named in the policy. But you can buy recommended all-risk coverage for your condo similar to an HO-3 homeowner policy for an extra charge.
Herb Kirchhoff has more than three decades of hands-on experience as an avid garden hobbyist and home handyman. Since retiring from the news business in 2008, Kirchhoff takes care of a 12-acre rural Michigan lakefront property and applies his experience to his vegetable and flower gardens and home repair and renovation projects.