Frequently Asked Questions About Homeowners Insurance

What does homeowner’s insurance cover?
Homeowner’s Insurance will cover loss of property from fire, most natural disasters, theft, and vandalism. Homeowner’s insurance also provides liability protection, in case someone injures themselves in your home or on your property.

Are there any natural disasters not covered by homeowner’s insurance?
Yes. Floods and earthquakes are almost never covered by homeowner’s policies. If you live in an area with a high risk of floods or earthquakes, you should get additional policies to protect you against damage caused by these disasters.

What kinds of policies are available?
Homeowner’s insurance policies are usually available in seven levels of coverage. These are referred to as “HO-1” through “HO-6,” and “HO-8.” HO-1 is basic coverage. HO-2 is “basic plus” coverage, including insurance against such threats as falling objects and electrical surges. HO-3 is “extended coverage,” and covers “non-specified” threats. HO-4 is “basic plus” coverage for renters. HO-5 is “all risk” coverage. HO-6 is “basic plus” coverage for condominium owners. HO-8 is basic coverage for buildings with high replacement cost due to historic value.

How much coverage do I need?
Your policy should cover the value of the structure of the house, as well as the contents of the house. This includes all personal property, jewelry, electronics, appliances, furniture, and other possessions. If you have items of extreme value, such as fine art or specialized computer equipment, you may need to purchase an additional policy. This policy is often called a “rider.”

What is “actual cash value”? What is “replacement cost”?
Actual cash value is the amount paid for a piece of property, minus the depreciation of value over time. Replacement cost is the actual cost of replacing a piece of property at current market prices. For most consumer goods, actual cash value will be less than the replacement cost.

What is a home warranty?
A home warranty is a protection plan that helps pay for the maintenance costs of appliances and other home upkeep costs. Home warranties are not insurance policies, but many insurance companies have begun selling them. In order to get a home warranty, you must demonstrate that everything covered by the warranty is in good working order.

Will a homeowner’s insurance policy pay out the appraised value of my home if there is a loss?
Not necessarily. A homeowner’s insurance policy pays the actual cash value or replacement cost of a home. If your home has depreciated in value, this cost may be less than the appraised value of the home. If your home was poorly maintained prior to the loss, the insurance policy will pay out less than its appraised value.

Why do I need liability insurance?
If someone injures themselves in your home or on your property, you could be held liable for damages. In order to protect yourself against these damages, it is common for a homeowner’s policy to provide for between $300,000 – $1,000,000 worth of liability coverage. If you own certain “high-risk” pieces of property, such as a swimming pool or trampoline, you may want higher liability coverage.