After investing in your home it’s important to have it insured properly. What are all the policy coverages, forms, and exclusions?
Why Homeowner’s Insurance?
A home is the single biggest investment most individuals will ever make; it is typically the largest asset on the family “balance sheet.” Also, the contents of a typical home, in the form of furniture, appliances, clothing, family heirlooms, and other movable personal belongings, represent a substantial additional investment. The unprotected loss (or partial loss) of a home and its contents to theft, fire, windstorm, or some other disaster, could be financially devastating. What is homeowners insurance what does it cover?
Further, everyone faces the risk of personal liability. For example, a visitor to the residence could slip and fall. Such accidents can result in court decisions awarding large sums to the injured party for medical expenses, and “pain and suffering.”
Coverage Under the Policy
What is homeowners insurance what does it cover? Originally, a standard homeowner’s policy covered only the risk of fire. Today’s homeowner’s policies provide protection against a number of the “perils” of modern life, in one “package” policy. A typical homeowner’s policy can provide insurance protection for the following:
- Home: The physical dwelling structure and other structures attached to it.
- Other structures: For example, a detached garage, pool house, guesthouse, green house, or tool shed.
- Personal property: This covers the contents of the home, such as furniture, appliances or clothing. Certain types of property may have specific dollar limits.
- Loss of use or additional living expense: If a home is damaged by a covered peril, loss-of-use coverage helps meet the costs of hotel bills, apartment or rental home, eating out, and other living expenses while the home is being repaired. This policy section can also reimburse a homeowner for lost income if a room in the home were rented out. This is sometimes insured on an actual-loss-sustained basis.
- Personal liability: Provides protection against legal liability for bodily injury or property damage if a third party is accidentally injured.
- Medical payments: Also known as guest-medical payments, this section provides coverage if a third party is accidentally injured and needs medical treatment.
There are several organizations that work with insurance companies to develop standardized homeowner’s policies. While the details of a particular policy can vary, these standardized policies or “forms” are generally very similar.
- Broad form policy (HO-02): This policy covers the home, other structures, and personal property on a “named-peril” basis. Only the perils listed are covered.
- Special form policy (HO-03): Coverage for the home and other structures is written on an “all-risk” basis; damage from any peril is covered, unless specifically excluded. Coverage for personal property is provided on a named-peril basis.
- Comprehensive form (HO-05): This policy covers the home, other structures, and personal property on an “all-risk” basis; damage from any peril is covered, unless specifically excluded. This form is typically used for more expensive homes.
- Modified form coverage (HO-08): This policy form is generally used with homes where the cost to re-build exceeds the market value of the property. Protection is provided on a named-perils basis. Payment is generally limited to actual cash value.
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