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Summary

What Is Homeowners Insurance?

Homeowners Insurance is a bundle of different insurance coverages that together protect you from:

  • Damage to, or loss of, your home.
  • Damage to, or loss of, your personal property.
  • Liability for injuries to others or damage to their property. 

What Risks Does A Homeowners Insurance Policy Cover?

There are two types of Homeowners policies are "all risk" and specified risks.

    • "All risk" insurance covers loss from every risk  -- except for risks which are specifically excluded. For example, all risk policies generally exclude losses resulting from war or a nuclear accident. If the policy does not say specifically say that losses from war are excluded, they would be covered.
    •  Specified risk policies only cover a loss from specifically described risks. For example, a policy may cover losses due to fire, theft, or lightning. If there is damage, but it is not due to one of the listed risks, it is not covered.

What Types Of Homeowners Policies Are There?

The three broad types of Homeowners Insurance are policies for people who own a house, people who own a condo or co-op, and a third type for people who rent (known as renter's insurance.)

For people who own a single family dwelling

For single-family dwellings, there are two forms generally known as Forms HO-2 and HO-3.  Both type policies provide similar coverage. However, HO-2 covers specified risks, while HO-3 covers against all risks with certain exceptions. HO-3 is better because there is no question of a loss being caused by a risk which falls in between two covered risks. However, if you cannot afford HO-3 coverage, HO-2 coverage is still important to have. (For more information on "all risk" coverage, see the next section below.)

For people who own a condo or co-op

Form HO-6 is used for cooperative apartments and condominiums.  The HO-6 an all risks.

For people who rent (also know as renter's insurance.)

The Homeowners form for renters is known as HO-4. It is all risks type coverage.

What's Losses Does A Homeowners Policy Cover?

Homeowners policies generally cover the following:

Damage to Your Home and Other Structures

The amount of damage to other structures on the property is often expressed as a percentage of the insurance on the house. For example, if the house is insured for $250,000, the structures may be insured for up to 10%, or $25,000 each.

Loss of personal property

Your personal property is generally covered anywhere in the world - even when you're traveling.

Loss of the use of your home

Additional expenses that you have to pay because your home is temporarily unlivable because of an insured risk.

Medical Payments

Medical payments to members of your family and guests who are injured on your property. It doesn't matter if you're liable for the injury or not.

Personal Liability

Your liability for damage to person or the property of others. If you have health care professionals or friends visit you, and they are injured on your property, your homeowners insurance will cover the expenses incurred.

Miscellaneous Coverages

Homeowners' policies generally also include additional coverages such as:

  • Debris removal
  • Repairs: Costs associated with making reasonable repairs to your property to protect it from further damage.
  • Trees, Shrubs, Plants, and Lawns: This coverage generally has a $500 limit per tree, shrub, or plant.
  • Fire Department Service Charge: This coverage provides up to $500 if you owe the fire department because you called them due to a covered threat to your property.
  • Property Removed: If you try to preserve property by removing it from a building threatened by a covered risk -- and damage it in the process -- the loss will be covered.
  • Credit Card, Fund Transfer Card, Forgery, and Counterfeit Money
  • Collapse: Losses to property resulting from the collapse of a building or a part of a building if due to a risk covered in the basic homeowners policy plus other specified risks such as hidden decay or hidden insect or vermin damage.
  • Glass or Safety Glazing Damage.
  • Landlord Furnishings: This additional coverage provides up to $2,500 to cover appliances, carpeting, and other household appliances in an apartment on your premises that you rent to others.
  • Building Additions and Alterations: Homeowners insurance for renters (Form HO-4) includes an additional extension that insures alteration, fixtures, improvements or installations to the building.

How Much Of A Loss Will A Homeowners Policy Pay?

The amount of a claim that your policy will pay depends on your deductible, coinsurance, and how your policy defines what is covered.

Deductible 

The deductible is the amount of a loss that you are responsible for before an insurance company will start to pay any part of a claim.  For example, if you have a $5,000 covered loss, and your deductible is $500, the insurance company will pay $4,500 ($5,000 loss less $500 deductible).

Coinsurance

Perhaps the best way to understand a coinsurance clause is to understand the reason for it. Insurance companies found that people realized that a building seldom burns to the ground, so people only purchased insurance for a small percentage of the value of their premises. In order to make the system more fair, the companies instituted a "coinsurance" clause which penalizes people who do not insure their premises for at least that percentage of the market value of the property. For example, if you have a 90% co-insurance clause, if your property is worth $100,000, you are expected to purchase insurance for at least 90% of the value or $90,000. If you buy insurance for less than $90,000, and you have a loss, you will only receive a percentage of the loss, not the entire amount.

Actual cash value coverage

Generally a Homeowners policy will pay based on how much it would cost to replace your property minus the amount the property depreciated physically since it was built or purchased.  This type of coverage can be costly in the long run since you generally won't receive enough from the insurance company to replace or restore your property. This problem can be solved with "replacement cost" coverage, as described in the next section.

Replacement cost basis

A Homeowners policy can be written on a replacement cost basis. Replacement cost means that the amount you receive for a claim will be based on how much it costs to replace your home or repair the damages to your home. The amount you receive will also reflect the coinsurance amount, and the deductible (see above.). 

Personal Property

Most types of personal property are generally covered. However, there is a low limit on the amount of money that will be paid on certain property such as jewelry and fine arts. Full coverage on those items can be obtained in a Personal Article Floater, described in the next section.

What Is A Personal Article Floater?

  • A Personal Article Floater is a specialized form of insurance that covers personal property which is listed piece by piece in an attachment to the policy.
  • A Personal Article Floater is an all risks type policy. A Personal Article Floater can be used to insure all kinds of personal property such as jewelry, furs, cameras, musical instruments, silverware, golf equipment, fine arts, stamps, coins, and other valuables.
  • Coverage under a Personal Article Floater is for an agreed amount. When you take the coverage, you provide the value of each item. Subject to your proving that the amount you stated was indeed the worth of the item, the insurance company pays the agreed amount in the event of a loss.
  • A personal articles floater cannot be used to insure currency, deeds, promissory notes, money or securities.

What Types Of Personal Property Doesn't My Homeowners Policy Cover?

All Homeowners policies exclude the following types of property. They can generally be insured either by an amendment to the homeowners policy, or through a separate policy.

  • Articles that are generally insured under any other insurance, such as your car.
  • Motorized land vehicles. NOTE:  Vehicles used to service your residence or assist you if you are handicapped ARE covered, provided that they are not subject to motor vehicle registration. Despite some of the fancy wheelchairs around these days, we've yet to see one with license plates!
  • Aircraft.
  • Animals, birds, or fish.
  • Property of roomers, boards, and other tenants not related to you.  For example, if a volunteer stays the night in your home to help care for you, and her bicycle is stolen from your front porch, it would not be covered by your policy.
  • Property in an apartment that you rent out to others.
  • Property away from the premises that you rent to others.
  • Business data, including software, paper records, and drawings.  Other equipment used in business, such as a computer you use to work at home, is covered up to a $2,500 limit when the equipment is in your home.
  • Mold.

To Learn More

More Information

Automobile Insurance

Am I Covered For Floods?

No. Homeowners policies do not cover losses from flood.  As many of us learned from hurricane Katrina, there can be a fine line to determine whether damage is due to windstorm (which is generally covered) or flood.

If you live in an area prone to flood (or mudslides, which are also generally excluded) you might be able to get flood insurance under a program run by the Federal Insurance Administration. Call 800.427.4661 for information.

What Is Liability Insurance?

Liability insurance covers your liability for bodily injury and property damage occurring to others. 

Liability insurance does not cover liability that is generally covered under other types of insurance, such as automobile, worker's compensation, or flood

Liability insurance does not cover losses to a boarder's property, unless he or she is related to you. 

Am I Covered If My Dog Bites Someone?

It depends on your policy, and the type of dog you have. Companies are beginning to exclude damage caused by certain breeds, such as Pit Bulls. Check your policy.

If your pet is excluded from coverage, ask what you can do to get liability coverage.

What is Fire Insurance?

Fire insurance (or dwelling insurance) protects your home against losses due to fire or lightning. It generally does not protect against other losses such as theft or personal liability for injuries to others. 

Although losses due to the risk of fire is included in all Homeowners policies, it can also be purchased separately.

Is My Home-Based Business covered?

Home-based businesses are generally not covered under a Homeowners policy.

That said, business activities at home may be covered on a limited basis. For example, a typical homeowners policy generally covers about $2,500 of on premises business equipment (such as your computer and printer) and $250 off premises.

The odds are there is no liability coverage if someone comes into your home for business related purposes and has an accident. This is important if you work at home full time and can be important even if you only work at home part time to accommodate your health condition. Check your policy or insurance agent or broker.

The following alternativescover the risks of doing business at home:

  • Add a "business pursuits" amendment to a homeowners policy. Amendments in insurance parlance are known asan "endorsement" or "rider". (These amendments generally increase premiums by 5%.)
  • An in-home business owners policy that combines insurance for the home and business in a single policy.
  • A separate business owners policy.

Will A Homeowners Policy Cover The Rent I Might Lose If I Can't Rent To Tenants As Usual?

No.  If you have tenants, the appropriate insurance to reimburse for lost income is rental insurance.

Does A Homeowners Policy Cover My Second Residence?

The Homeowners policy on your main residence will also cover:

  • Liability at your second residence. 
  • Personal property located at a secondary residence. Coverage is limited to the greater of 10% of the amount of Personal Property coverage or a dollar amount such as $1,000.  

A Homeowners Policy does not cover damage to the second premises buildings.