The different types of home insurance
The best part of buying a house? Making it your home. Paint the wall opaque couche. Pound in a nail or 10. Call a remodeling company and knock the wall down. No need to ask the landlord for permission: It’s yours! But, whether you rent or buy, make sure you have the right amount of insurance. If you borrow money to buy the house, the bank will require you to carry homeowners insurance. What if you inherit a house or pay cash for it? Insurance is still a must-have—far more important than the right wall color.
Why do I need homeowners insurance?
Your house and any sheds, barns, or detached garages on your property cost a lot of money. If something bad happens, insurance will help you to replace or repair the structure—and contents—of your house and any other buildings.
That’s not all. What if someone gets hurt at your house? Or you, your family, or your dog are blamed for injuring them or damaging their property? Homeowners insurance includes liability coverage that can help with these costs, too. You can file claims for costs such as lawsuits, medical bills, or replacing or repairing someone else’s property.
What does “something bad happening” mean?
Most homeowners policies cover losses caused by the following:
- Fire or lightning
- Vandalism or malicious mischief (this includes damage from wild animals)
- Windstorm or hail
- Weight of ice, snow or sleet (think: crumpled gutters)
- Falling objects (satellite dishes, airborne deck umbrellas)
- Vehicles (such as a car crashing into your house)
- Explosion (such as a propane tank exploding)
- Riot or civil commotion
- Volcanic eruption
- Accidental discharge or overflow of water from plumbing or sprinkler system (floods are not covered)
- Sudden and accidental tearing apart, cracking, burning, or bulging (such as AC units)
- Sudden and accidental damage from artificially generated electrical current
How is homeowners different from renters or condo insurance?
You can buy a house that has a yard, a condo in the city, a townhouse in the suburbs, or a cabin in the woods. Live in it yourself or rent it to someone else. What do they have in common? These buildings, big and small, are primarily residences—not meant for business. A home office is probably okay; a sit-down restaurant in your basement? Not covered.
And whatever and wherever you call home, there is an insurance policy to protect it, the things inside it, and (through liability coverage), the people who live there. The term “homeowners insurance” really refers to three main sub-categories of insurance developed by the Insurance Services Office (ISO), a national advisory organization for insurance companies. (Just to be confusing, one of those sub-categories is also called “homeowners.”) These are known by their “form” (as in, “policy form”) code used by the ISO, and they are:
This type of insurance is intended for a freestanding home occupied by its owner. Forms HO-3, HO-5, and HO-8 are the most common policies sold. The main differences? HO-3 and HO-5 are designed for homes that have similar current market value and replacement costs.
The dollar amounts they reimburse, and the types of perils they cover for damage and loss to the structure and contents, vary. HO-8 is meant for homes worth much less than the total cost of rebuilding after a catastrophic fire or other event.
For example, a home might have a market value of $200,000. However, after a fire, the cost to rebuild it might be $300,000. For insurance companies, these are high-risk policies so they are priced differently than standard homeowners coverage. That keeps prices lower for everyone.
This type of homeowners insurance is intended for a tenants living in a rented dwelling unit. Form HO-4 covers the personal property inside a rental home or apartment, but not the structure itself (that is the landlord’s responsibility). Buy this policy to protect clothing, furniture, electronics and other possessions. Not to mention liability.
Own a condo? Form HO-6 is for you. This policy covers your possessions—clothes, cosmetics, food—and built-in appliances, kitchen cabinets, carpets, wallpaper, and other “permanent” parts of your unit. The condominium association carries insurance on the building itself, the sidewalks, grounds, parking lot and any other common property.