Homeowners Insurance Policies - Know Its Coverage Limits
The homeowners policy is a complete package of property and liability coverages designed to cover the average residential and personal exposures of most individuals and families.
A policy may be issued to cover a premises used principally for private residential purposes (some incidental business occupancies, such as a studio or office, are permitted), and which contains no more than two family living units (single family homes and duplexes are eligible). Separate policies are also available for tenants of apartment buildings and condominium unit owners, who only have personal property and liability exposures and do not need to insure the dwelling.
A point to remember: Homeowners insurance covers the value of the home or homes in which you live not Just the physical property. In other words, the insurance should cover risks and liabilities that might encumber the value of your property.
The fact that you have a $200,000 homeowners policy doesn’t necessarily mean you get that amount if you’re house is destroyed. The $200,000 limit usually applies only to the cost of replacing the structure of your home. Typically, your policy will pay up to $100,000 more half of the face amount of the policy to replace the home’s contents, including valuables.
If you have a separate structure on the property a garage, shed or guest house that’s covered separately. Your landscaping is also covered separately.
A homeowner with a $200,000 policy could get $200,000 to rebuild, $100,000 for personal effects, $10,000 to re-landscape, $20,000 to rebuild the garage and $40,000 to cover temporary living expenses.
Insurance companies offer six basic types of homeowners-insurance policies. Every insurer may not offer all six, and the names and specific limits of coverage vary somewhat from company to company. In most states, these are the typical options:
HO-1. This “basic” homeowners policy protects your home against 10 named perils. That’s rarely enough, so many states are phasing out this type of coverage.
HO-2. The “broad” homeowners policy covers your home against 16 named perils. A variation of HO-2 is available to most mobile-home owners. This type of policy generally costs 5 to 10 percent more than HO-1 coverage.
HO-3. The “special” homeowners policy protects your home against all perils except those specifically excluded by the contract. It typically costs 10 to 15 percent more than the HO-1 policy.
Many companies also offer a guaranteed replacement-cost policy, which goes a step further than a standard HO-3. It offers to pay the full amount needed to replace your home and its contents, even if that exceeds the policy limit. Despite its name, however, many companies set limits for this coverage, paying only up to 120 or 150 percent of the policy’s face value. The limit for contents coverage is generally set at 75 percent of the home’s replacement cost, as opposed to the standard 50 percent on other policies. (This type of policy, usually written as a form of HO-3, offers coverage similar to what was formerly called HO-5, a policy that has been phased out by most companies.)
HO-4. The renters policy generally protects the possessions of tenants in a house or apartment against 16 named perils. It also provides liability coverage but doesn’t protect the actual dwelling, which should be covered under the landlord’s policy.
HO-6. The policy for co-op and condominium owners provides coverage for liability and personal property, much like HO-4. While insurance purchased by the co-op or condominium association covers much of the actual dwelling, individual owners who want coverage for improvements to their units must write them into an HO-6 policy. If you add a porch, for instance, you may need an endorsement (an addition to your policy that expands its coverage).
HO-8. Primarily for older homes, this policy covers the same perils as HO-1 but insures the house only for repair costs or its actual cash value, not its replacement cost. That’s because the cost of rebuilding some homes with the materials and details of the original would make replacement-cost coverage prohibitively expensive. An HO-8 policy pays to restore the damaged property, but not necessarily with the same kind or quality of materials as the original.
Each homeowners policy is divided into two sections. Section I provides coverage for the insured’s dwelling, other structures on the grounds, personal property owned by family members, and certain types of loss of use, such as rental value or additional living expenses. Section II provides personal liability coverage, medical payments coverage, and additional coverages for claim expenses, first aid, and damage to the property of others.