-
Make sure you
purchase the correct
type of policy.
-
Ensure that your
policy provides
proper and adequate
coverage.
-
Certain endorsements
and exclusions are
avoided.
Types of Policies
There are a number of
different types of
Insurance Policies that
one can purchase. It is
important to make sure
that you have the
correct type of policy
for your specific
property and coverage
requirements.
Below is a listing of
the more common standard
insurance policies,
often called “forms”. As
a practical matter, only
“all-risk” policies
(HO-3 for homeowners,
HO-4 for renters, and
HO-6 for condominium
owners) should be
considered unless there
are extenuating
circumstances.
If you own your home
If you own the home you
live in, you have
several policies to
choose from. The most
popular policy is the
HO-3, which provides the
broadest coverage.
Owners of multi-family
homes generally purchase
an HO-3 with an
endorsement to cover the
risks associated with
having renters live in
their homes.
HO-1: Limited Coverage
Policy
Although not available
in most states, this
“bare bones” policy
covers you against:
fire or
lightning, windstorm or
hail (other than
hurricane), explosion, riot
or civil
commotion, damage caused
by aircraft, damage
caused by
vehicles, smoke, vandalism
or malicious mischief;
and
theft.
HO-2: Basic Policy
It provides protection
against those losses
included in an HO-1
policy, in addition to:
falling objects, weight
of ice, snow or
sleet, accidental
discharge or overflow of
water or steam, sudden
and accidental tearing
apart, cracking, burning
or bulging of a steam or
hot water heating
system, air conditioning
or automatic
fire-protective
system, freezing of a
plumbing, heating air
conditioning or
automatic
fire-protective
sprinkler system or of a
household appliance,
and sudden and
accidental discharge
from artificially
generated electric
current and volcanic
eruption. There is a
version of HO-2 designed
for mobile homes.
HO-3: All Risk Policy
This is the best policy
to purchase. This
“all-risk” policy
protects your home from
all perils except those
specifically excluded.
HO-8: Older home
Designed for older
homes, this policy
usually reimburses you
for damage on an actual
cash value basis which
means replacement cost
less depreciation. Full
replacement cost
policies may not be
available for some older
homes.
If you are a renter
HO4-Renter
Created specifically for
those who rent the home
they live in, this
policy protects your
possessions and any
parts of the apartment
that you own, such as
new kitchen cabinets you
install, against all 16
disasters.
If you own a co-op or a
condo
H0-6: condo/co-op
A policy for those who
own a condo or co-op, it
provides coverage for
your belongings and the
structural parts of the
building that you own.
It protects you against
all 16 disasters.
Your level of coverage
Regardless of whether
you are an owner or
renter, you have the
following three options:
-
Actual cash value.
This type of
policy pays to replace
your home or possessions
minus a deduction for
depreciation.
-
Replacement cost. The
policy pays the cost of
rebuilding/repairing
your home or replacing
your possessions without
a deduction for
depreciation.
-
Guaranteed or extended
replacement cost. This
policy offers the
highest level of
protection. A guaranteed
replacement cost policy
pays whatever it costs
to rebuild your home as
it was before the fire
or other disaster – even
if it exceeds the policy
limit. This gives you
protection against
sudden increases in
construction costs due
to a shortage of
building materials after
a widespread disaster or
other unexpected
situations. It generally
won’t cover the cost of
upgrading the house to
comply with current
building codes. You can,
however, get an
endorsement (or an
addition to) your policy
called Ordinance or Law
to help pay for these
additional costs. A
guaranteed replacement
cost policy may not be
available if you own an
older home.
Some insurance companies
offer an extended,
rather than a guaranteed
replacement cost policy.
An extended policy pays
a certain percentage
over the limit to
rebuild your home.
Generally, it is 20% to
25% more than the limit
of the policy. For
example, if you took out
a policy for $100,000,
you could get up to an
extra $20,000 or $25,000
of coverage.
Even though a
guaranteed/extended
replacement cost policy
may be a bit more
expensive, it offers the
best financial
protection against
disasters for your home.
These coverages,
however, may not be
available in all states
or from all companies.
Floods
You can purchase this
coverage directly from
your homeowners
insurance agent.
However, the policy is
provided by the Federal
Flood Insurance Program
(800-427-4661, (http://www.fema.gov/nfip).
You can get replacement
cost coverage for the
structure of your home,
but only actual cash
value coverage is
available for your
possessions. There may
also be limits on
coverage for furniture
and other possessions
stored in your basement.
Flood insurance is
available for renters as
well as homeowners. You
will need flood
insurance if you live in
a designated flood zone.
But also consider buying
it if your house could
be flooded by melting
snow, an overflowing
creek or water running
down a steep hill. Don’t
wait until the evening
news announces a flood
season warning to buy a
policy. There is a
30-day waiting period
before coverage takes
effect.
Earthquakes
This coverage can be a
separate policy or an
endorsement to your
homeowners or renters
policy. It available
from most insurance
companies. In
California, it is also
available from the
California Earthquake
Authority (http://www.cea.gov).
In earthquake prone
states like California,
the policy comes with a
high deductible.
Maintenance damage.
It is your
responsibility to take
reasonable precautions
to protect your home
from damage. Your
insurance policy will
not cover damage due to
lack of maintenance,
mold, termite
infestation and
infestation from other
pests.
