Understanding Homeowner’s Insurance
Nov 1st 2011alexHome Owner Tips
A big part of homeownership is safeguarding what is yours. When you purchase a home through a mortgage lender, you will be required by the lender to also purchase homeowner’s insurance (also called hazard insurance). This policy covers a number of potential calamities that can befall the property, from theft of personal belongings to the total destruction of the building. This insurance protects both the lender from losing their investment on the property and the homeowner’s peace of mind should a disaster occur.
The price of the insurance is determined by several factors, including the size and condition of the home and its proximity to hazards. For example, a home that is located closer to hurricane-prone regions will require a higher premium paid to the insurer than a home in a more stable area. Also of note is that while typical homeowner’s insurance polices include a group of basic coverages, others, such as flood coverage, may require a separate policy or additional riders. A homeowner can also lower their premium by investing in home protection measures such as security systems and fire sprinklers.
Homeowners have a handful of options when choosing an insurance policy; the most widely used policy form is the HO3, or “Special Form” policy. The Special Form policy acts as a blanket coverage on the property with the exception of any named exclusions (such as earthquakes and flood). The HO1 “Basic Form” and HO2 “Broad Form” differ from the HO3 in that the specific coverages are named, rather than the exclusions. There is also the HO5 “Premier” policy that covers more than the HO3, the HO6 for condo owners, and the HO8 for older homes (in which the cost of replacing the home would be much higher than the home’s value on the market).
Insurance also classifies the property based on usage and structures. The four main property coverages, labeled A-D, are Dwelling (the house itself), Other Structures (such as a garage), Personal Property, and Loss of Use/Additional Living Expenses (covers expenses related to renting out part of the property). Additional coverages may be added for additional premium, as desired.
