Home Insurance 101

This is a quick guide for understanding homeowners insurance. It explains coverage provided by the most common homeowners policies.

Homeowners Insurance Coverage (HO3)

Homeowners insurance is meant to safeguard an insured against the financial effects of loss of property and liability. There are several types of home insurance policies, which have different levels of coverage. The most popular is known as an HO3 policy.
This type of homeowners insurance coverage is provided for one-or-two-family units. The property must be owner-occupied. HO3 insurance generally protects against direct losses due to the following:

  • Explosions

  • Fire

  • Hail

  • Lightning

  • Theft

  • Tornadoes

  • Vandalism

  • Wind Storms

Coverage A: Dwelling

An HO3 insurance policy will cover the cost of structural damage to your home. This value is usually calculated on a replacement cost basis. However, the coverage is only up to the limits as specified in your policy. Check your policy to make sure that you have the proper amount of insurance coverage. You’ll want to make sure that you’re able to rebuild your home if the worst case scenario should happen and your home is completely destroyed.
Imagine your home is damaged and you have $250,000 worth of coverage. The actual cost to rebuild your home is $275,000, meaning you’ll be responsible for paying the remaining $25,000 yourself. You can prevent this situation by increasing the limits of your coverage. Or you could purchase a guaranteed replacement cost policy, which will cover all costs associated with your rebuild.

Coverage B: Other Structures

This section of HO3 coverage will protect you against damage or loss to other structures or buildings on your property. Usually the coverage is capped at 10 percent of the amount of the main dwelling, but most insurers allow you to buy a higher limit. Some common structures covered are:

  • Detached Garage

  • Fencing

  • Shed

Coverage C: Personal Property

To a certain extent, HO3 homeowners insurance will cover your personal property, including household items or personal possessions utilized, owned or worn by you and family members. It provides coverage for your personal effects while you are anyplace in the world. Again, coverage limits will apply. For instance, if your golf clubs are stolen while you’re on vacation, you’ll receive reimbursement minus the depreciated value of the clubs. You can purchase additional coverage limits and pay a predetermined premium to receive full coverage.

Coverage D: Additional Living Expenses

If your home is damaged as a result of a covered loss, a homeowners HO3 policy will cover additional living expenses, according to the policy limits, until your home is habitable. Some insurance companies may calculate this amount using “fair rental value,” which is based on the rental value of dwellings that are comparable to your home.

Coverage E: Comprehensive Personal Liability

This coverage pays for damages sustained by others should they fall or suffer from an accident on your property or on premises you are using temporarily. Coverage is also provided for named family members. Any legal expenses incurred as a result of a covered loss is also covered.

Condo/Townhome Insurance (HO6)

The HO6 policy is very unique. Most condo owners are not responsible for any exterior loss that might occur, but they are responsible for the interior walls, floors, and ceilings of their condo, as well as their personal property. Because the condo owner is responsible to repair the entire interior as result of a loss, HO6 insurance policies must have Dwelling coverage. Because condo owners are indeed owners, HO6 policies also have Loss of Use coverage. The primary difference between a regular home owners policy and the HO6 policy is that condo policies do not have Other Structures coverage. They also typically have a very low coverage amount for the Dwelling, because they aren’t responsible for the entire structure.

Renters Insurance (HO4)

The HO4 policy is what renters need to purchase. There is no coverage for the Dwelling, Other Structures, or Loss of Use. This policy is designed for those who are renting and have no interest in the existing structure, but want to make certain their belongings are protected. The HO4 Policy comes with the amount of Personal Property, Liability, and Medical Payments to Others that you specify.