Home insurance otherwise called home insurance is designated to protect one ’s home and possessions from pricey expenses related to disasters, mishaps, and burglary. It’s an essential piece in protecting one’s finances from potential disasters, such as fire, windstorms, floods or others.
It is an agreement between one and his/her insurer that covers him/her against the financial risks associated with renting or owning his/her own home.
TYPES OF HOME INSURANCE
Normally home insurance comes in the following two types:
Buildings insurance: This protects individual ’s property against damage caused by fire, weather and natural disasters.
Contents insurance: This protects your valuables against loss, theft or damage. It’s important to know that buildings insurance alone does not cover your valuables.
Home Insurance Basics
It is easy to comprehend, it protects one’s home and belongings if they are completely destroyed or damaged from an unexpected disaster. It provides money to make repairs or replace items.
What Home Insurance Covers
There are several types of homeowners insurance, but they all protect one’s home from “perils,” which is just a fancy way of referring to something bad that damages one’s property. Homeowners insurance policies are denoted by numbers: HO-1, HO-2, HO-3, and so on. HO-1
Both HO-2 and HO-3 policies protect one’s house and its contents in the event of these 16 perils, according to the Insurance Information Institute (III):
Damage caused by aircraft
Damage caused by vehicles
Vandalism or malicious mischief
Fire or lightning
Windstorm or hail
The weight of ice, snow, or sleet which causes damage to a building
Riot or civil commotion and others
Heating, air conditioning or automatic fire-protective sprinkler system or from a household appliance, Accidental discharge or overflow of water or steam from within a plumbing,
Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system or an air conditioning or automatic fire-protective system, Freezing of a plumbing, heating, air conditioning or automatic fire-protective system or of a household appliance, Sudden and accidental damage from an artificially generated electric current
The difference between HO-2, also called “broad form” policies, and HO-3, called “special form,” is that HO-2 policies specify everything they cover, and HO-3 policies don’t. In other words. HO-3 policies, on the other hand, cover everything that could possibly happen to one’s home except for what they specifically exclude. Standard exclusions include earthquakes, floods, war, nuclear disasters, neglect, and pests. HO-3 policies are the most popular, according to the III.
HO-5 policies are just like HO-3 policies, but protect one’s personal belongings, too. There are other types of homeowners insurance for special circumstances: HO-4 policies protect renters, and HO-6 policies protect condo owners. HO-7 policies are for mobile or manufactured homes, and HO-8 policies are specifically for older homes.
What Home Insurance Doesn’t Cover
No matter what kind of homeowners insurance policy an individual buys, there are some important things that won’t be covered. Floods aren’t covered — the individual will need a separate policy for that (and it’s federally required if you’re in a high-risk area). Earthquakes or other “earth movements” such as landslides or sinkholes also require separate coverage. Sewer backups, mold damage, and problems resulting from neglect are also excluded from standard policies.
Home Insurance Payouts
House insurance or home insurance is designated to give individual coverage. There are three types of home insurance payouts related to the payment upon a claim that one would receive.
The actual cash value coverage includes the house and the value of one’s belongings after deducting the depreciation on items. Meaning, if an individual’s belongings are damaged and one is making a claim with the actual cash value coverage option, the insurance company will pay him/her based on the current worth of his/her item and not the original price he/she listed in his/her policy.
The replacement cost coverage includes the cash value of the individual’s home without deducting any depreciation. Therefore, the individual would be able to rebuild his/her home or replace contents without losing any money.
The guaranteed replacement cost will provide payment based on the actual cost of the individual’s home or belongings, even if it is more than he/she originally paid. This payment can also exceed the individual’s policy limit if the cost to repair or rebuild the individual’s home is higher than his/her limit.
It is important to note that an individual needs to make sure he/she asks his/her insurer for a full list of exclusions — of which some may be to the surprise of the individual.