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  • Lombardo Espinoza

What is Homeowners Insurance, what does it cover, and do you need it?



Well, as the name can give away, Homeowners Insurance is a specific type of property insurance that covers damage and liabilities involving your home, whether it's a house or an apartment. Usually, homeowners’ insurance covers four different types of incidents: interior damage, exterior damage, loss or damage to personal assets, and any injury that can occur on the property. Should any of these incidents occur, you would file a claim and pay a deductible like any other type of insurance.


That’s not to say that Homeowners Insurance covers anything and pays for everything at cost. HO (Homeowners Insurance) policies have what is known as a liability limit, which will determine how much the insured has covered in an unfortunate accident. The standard amount begins at around $100,000 and increases from there. Across the United States, Homeowner insurance is structured fairly standard to one another, with the exception of Texas, where they structure their policies slightly differently.


The nationwide standards are broken into eight categories, known as HO-1 through HO-8. HO-1 is a bare-bones policy that any insurance agency rarely offers; while HO-2 expands upon HO-1, it is still constrained and does not cover as much as HO-3. HO-3 is your average HO, and HO-5 is a more premium version of the HO-3. HO-4 is commonly known as renter’s insurance; HO-6 covers condominiums, cooperatives, and townhouses. HO-7 is known as mobile home insurance, and HO-8 covers old homes and those registered as historical landmarks. (Stay tuned for a future blog post that will go more in-depth and break down these classifications)


There are also three levels of coverage of HO:


1. Actual Cash Value


Actual Cash Value coverage means the insurance company will cover the cost of replacing the damaged home and possessions minus a depreciation deduction.


2. Replacement Cost


With Replacement Cost coverage, the insurance company will cover the same actual cash value of your home and possessions, only this time; they will not be deducting the depreciation of your home and possessions.


3. Guaranteed/Extended Replacement Cost


The coverage that is most comprehensive is the Guaranteed/Extended Replacement Cost. This coverage is like Replacement Cost with additional protection against sudden inflation cost to construction. Should the price go further than the policy limit, the insurance company will cover a certain amount, such as 20 to 25 percent over the limit.


But what does it not cover?


Well, HO does cover things known as Acts of God and Acts of War. These can be classified as earthquakes, flooding, and other natural disasters. Though exceptions exist, depending on your location, some homeowners may have access to special coverage to insure their homes from floods or earthquakes.


Is HO required by law?


Depending on the state you live in, HO might not be required by law, but banks usually require proof of HO before approving a mortgage. The HO can be acquired either by the local bank or separately. The benefit of obtaining an HO policy separately from your mortgage is greater control of policy coverage and price that would suit the homeowner’s need.


But wait, I heard about Home Warranty, is that the same?


While they may sound similar, Home Warranty is more of a temporary guarantee for particular objects. This is generally done via contract between the homeowners and the appliance provider/contractor and typically lasts 12 months.


But I got Mortgage Insurance, so I should be fine, right?


Not exactly; Mortgage Insurance is more an insurance for the bank or lender than the homeowner. Mortgage insurance guarantees that should the buyer default on payments, the lender would be compensated. This is typically a requirement given to homeowners buying a home with a down payment of less than 20% of the cost of the property.


So, should I get Homeowners Insurance?


I recommend it if you own your home and have possessions that would be difficult to replace. It is an added safety that would allow you to rest easier should any unfortunate event occur to your property. In order to see what type of coverage would work best for you, I would suggest calling a Comfort Agent and discussing how your property could best be covered.

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