Understanding Homeowners Insurance

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Homeowner’s insurance is a hybrid of property and casualty coverages rolled into one to provide cost savings to homeowners. Instead of having to buy multiple policies to cover your dwelling, other structures, personal property, and liabilities, a homeowner’s insurance policy incorporates many of the desirable features in a standard package. That’s why it’s called a multiline policy, because the homeowner’s policy has multiple lines of insurance coverage.

Typically, a homeowner’s policy will have the property, casualty, and very limited health coverage.

For a refresher on terms, property coverage is relatively self-evident, but many people get confused with the term casualty.  Think of a casualty as a liability for something you did wrong. For example, if you don’t shovel the snow off your sidewalk, and someone slips on ice buildup, they may have a cause of action against you.

That’s a casualty, and having casualty insurance may help protect you and your financial well-being from lawsuits. Some things aren’t insurable, for example, war, nuclear destruction, illegal activities, and others. Having a good agent explain the coverages and limitations of homeowner’s insurance is your best course of action.

Also, not everyone can buy a homeowner’s insurance policy. It’s more difficult to obtain a homeowner’s than a simple dwelling policy. Some of (but not necessarily all) of the requirements include:

The insured must be the owner/occupant.

The property must be considered a residential home with up to four families. Apartments with five or more units aren’t eligible.

Farms may not be covered, and mobile homes must have an endorsement.

There are two key sections in your typical homeowner’s policy.

Section I is the property insurance portion, and section II is the liability and medical payments (casualty) insurance.

Under section I, you will find various forms that are used, and include HO-2, HO-3, HO-4, HO-5, HO-6, and HO-8. While they may all have the same liability (casualty) coverage, the property coverage is different depending on the form chosen.

HO-2, or broad form, gives the insured broad insurance coverage for the dwelling and personal property. Theft and glass breakage are covered.

HO-3, is a special form, and provides open peril insurance for dwelling losses, and other structures/buildings.

HO-4, is also known as renter’s insurance, and insures renters (tenants), who don’t own the dwelling they live in. It insures a broad level of coverage for personal property (personal property is anything that isn’t real property i.e. homes, buildings). It’s similar to HO-2, less the dwelling coverage.

HO-5, or comprehensive form, gives open peril coverage for both the structures (including dwelling), and personal property.

HO-6, is used for condominium owners, and provides broad coverage for personal property, but also provides some limited coverage for the dwelling.

H0-8 isn’t used as much anymore. It’s for older homes with replacement values that are much higher than market value. Old Victorian homes come to mind quickly.

The above forms include coverage for some or all of the following four different property coverage types within section I:

Coverage A- dwelling (home)

Coverage B – other structures (could be a detached garage or shed)

Coverage C – personal property (usually the things inside your home, but can include personal property not located at your home at the time of loss).

Coverage D – Loss of use.

Keep in mind, that homeowner’s insurance is just that, for homeowners and not for business purposes. Having a home office is generally ok, but if you’re fixing cars as a living inside your garage, for example, you will want business insurance to cover all business related activities. Failure to do so could be catastrophic. For example, if a friend comes by to visit and falls, you’re usually covered in a standard homeowner’s policy, but if the same person is there to pick up pictures from you home photo studio and falls, it’s problematic.

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