Homeowner’s insurance is something that lets you sleep a little easier at night, knowing that if something unexpected should happen at or to your home, your insurance is protecting you—but is it? Do you know what is in your homeowner’s policy? If not, it could be a rude awakening for you to have a sudden loss that is not covered and leaves you financially devastated.
Types of Homeowner’s Policies
Most homeowner’s policies cover losses against fire, storm damage, and other named perils. Depending on your coverage, your policy pays for repairs, loss of use, liability claims, medical payments, and more. There are different types of homeowner’s insurance policies that will cover different types of losses, including basic, broad, and special (all-perils) coverage.
These policies will pay for losses according to actual cash value to replace your home and possessions minus depreciation, or by replacement cost value (the actual cost of replacing your home or belongings up to your policy limit less depreciation). Whether you receive an actual cash value payment or replacement cost payment will depend on the type of homeowner’s policy you have. There are many types of homeowner’s policies. Some of the more common ones include:
- HO-1: This is the base homeowner’s policy. It only covers perils specifically named in the policy.
- HO-2: The HO-2 is for mobile homes and covers specific perils named within the policy for both the structure and contents.
- HO-3: The HO-3 is a very popular homeowner’s insurance policy and protects against all perils except those specifically excluded. This policy is a broader form of homeowner’s insurance and provides more comprehensive coverage.
- HO-4: The HO-4 is your renter’s insurance policy. This policy protects only the contents rather than the structure. It covers only specific perils that are named within the policy.
- HO-6: An HO-6 policy provides insurance coverage for condominiums or co-ops. You are protected against losses from covered perils in the policy for the portion of the structure that you own.
- HO-8: Provides basic coverage for older homes for actual cash value less depreciation. These policies do not normally offer a full-replacement cost option. It is a “named perils” policy.
Typical Homeowner’s Insurance Policy Exclusions
You should carefully review all your homeowner’s policy language, including the declarations page, and take note of what types of losses are excluded in your policy. Typical homeowner’s exclusions include losses from:
- Business Equipment
- Valuable Personal Property
- Future Assets
- Damage From War
- Nuclear Accident
- Intentional Damage
- Normal Wear and Tear
- Construction Defects
- Vehicles Parked on Your Property
- Frozen Pipes
- Tenants’ Property
- Pets and Other Animals on Your Property
It is not a complete list of homeowner’s exclusions but just some of the more common ones. Even though a peril may not be covered on a homeowner’s policy, this does not mean that you cannot be protected from these types of losses. In many cases, you can endorse your homeowner’s policy with something called a policy rider.
Policy Riders (Endorsements) for Added Protection
A policy rider (also known as an endorsement) adds coverage for perils not originally listed as covered in your policy. A policy rider will provide the additional coverage you need, for an additional premium. You also have the option of buying a specialty coverage policy if an endorsement cannot be added to your homeowner’s policy.
Flood Insurance and Other Special Endorsements
Some specialty policies can include riders like pet insurance, boat insurance, and earthquake insurance. Most policies will not include flood insurance, however. Coverage for floods is only offered through the National Flood Insurance Program (NFIP) and its authorized private insurers. This policy has a standardized base cost regardless of the provider it is purchased through. However, it does allow owners to add modifications that can have varying costs and levels depending on the provider.
Your home is only insured against earthquake damage if you’ve added the earthquake endorsement to your homeowner’s policy. The earthquake endorsement will pay for repairs to your home and other structures not attached to your home (such as a garage) after an earthquake. It can also pay for costs to bring your home up to current building codes and for other incurred expenses such as debris removal.
We all understand inflation costs and their effect on our pocketbooks. If you insure your home for the price you paid for it, it may not be enough to replace your home if a total loss should occur. It is where an inflation guard endorsement to your homeowner’s policy can help. The coverage amount is automatically increased every year to keep up with inflation.
A sewer backup can cause expensive water damage that is difficult to repair and may also pose a health risk to you and your family. It is not an expensive endorsement to add to your homeowner’s policy, sometimes costing as little as $40 or $50 yearly. Check with your insurer or insurance agent to get the specific cost to add this endorsement to your policy.
Scheduled Personal Property
If you have valuable items outside of the normal household inventory, such as jewelry, electronics, computers, or fine art, you may want to schedule these items to make sure you can replace them at their full value in the event of a loss. A standard homeowner’s policy sets a dollar limit for items such as jewelry, which may not be enough to fully replace them in the event of a loss.
Personal Property Replacement Cost
The personal property replacement cost endorsement pays replacement cost for your personal property without depreciation in the event of a covered loss.
Home Business Endorsement
More and more homeowners are now operating home businesses and need business insurance for a home-based business not provided in a basic homeowner’s policy to cover business equipment and legal liability. The home business endorsement will add this coverage to your policy and usually has limits of 50% of the coverage for your main residence.
You can add a watercraft endorsement policy rider, which will add coverage for any boat that you own or use. It protects you against damages happening during boating or while the boat is docked, as well as liability protection and medical fees associated with a boating accident.
Theft coverage provides protection against theft for your personal assets. Different types of endorsements are available based on the type of insurance policy you have. Check with your insurance company to see what type of theft coverage is available.
Secondary Residence Premises Endorsement
This endorsement adds coverage to your homeowner’s policy for a vacation home. Purchasing the endorsement may be a cheaper option than purchasing a separate policy for a secondary residence.
Personal Injury Endorsement
A personal injury endorsement adds liability protection to your homeowner’s insurance policy for things such as false arrest, wrongful eviction, slander, defamation, personal and advertising injury legal liability, and other types of personal injuries that are harmful but are not actual physical damage to the body.
Final Thoughts and Considerations
While adding additional coverage to your homeowner’s policy through endorsements may cost you an additional premium, it may be worth it in the long-run. When disaster strikes, you don’t have a moment to lose to get your home repaired and in living conditions.
You will have to weigh the risks and determine if you need more homeowner’s insurance than you have in your existing policy. It is not a bad idea to consult with an insurance professional and review your options. It may be as simple as getting a more comprehensive homeowner’s policy.
It will depend on your unique circumstances and needs. For all your insurance needs, it is a good idea to do an insurance check-up at least once a year to make sure you are properly covered against any unexpected losses.