Homeowners Insurance Can Protect Your Biggest Investment

The Cost Of Insurance Is Worth It To Sleep Well At Night

Home ownership is an exciting rite of passage for many of us.  But whether you are a first time home owner or an experienced home owner, the risks that we assume with home ownership are often the same.  For example, we may ask ourselves the some of the following questions:

  • What if I lose my house totally or it sustains partial damage?
  • What if I lose other detached structures (a swimming pool, garden house, shed, etc.) on the property totally or they are damaged?
  • What if personal property, such as furniture, rugs, or antiques, is lost or damaged?
  • If my house is unlivable for a period of time, where am I going to live and how can I afford it when I must continue making mortgage payments?
  • What if a domestic employee or house guest is injured on my property?

In order to protect our homes and personal property, there are varying levels of homeowners insurance that are available.  You may feel that you can’t afford homeowners insurance or that you simply don’t need it.  But remember: your home is probably your biggest investment and you want to protect it.  You want to go to bed at night with peace of mind that should anything damaging happen to your home or its’ contents that you are covered.

Purchasing homeowners insurance can be confusing for many people given the number of nuances and differing characteristics with each plan.  You’ll want to take the time to diligently explore the best type of homeowners insurance that will suit your needs.

  Because insurance costs and premiums can vary as well, be sure that you are making the most informed decision possible.    

Primary Forms of Homeowners Insurance

In general, there are six standard forms of homeowners insurance that are recognized in most locations.  Personal circumstances, including your financial situation, will help you determine which form of homeowners insurance is best for you.

  A couple of terms you’ll want to understand prior to selecting your insurance are:

  • Named perils:  Named perils are generally included in basic and broad coverage.  Named perils are just what they sound like; they are the specific perils that are included in your insurance policy.  Fire, lightening, hail, smoke and vandalism are a few examples of named perils that are usually found on a basic coverage insurance policy.
  • Open perils: Open perils coverage provides coverage for all causes of loss, except those specifically excluded. 

Please keep in mind that this is a very general outline of the different forms homeowners insurance.  When deciding upon the right policy for you, it’s always best to seek advice from a professional.  Each form will vary in terms of the coverage you can expect to receive on your dwelling, other structures, personal property, and loss of use. 

HO-2 (Also referred to as "Broad Form" or "Form 2")

The HO-2 form is the least expensive and least comprehensive coverage of the four standard forms that cover owned homes. The primary difference between HO-2 and the much more popular HO-3 is that HO-2 provides named peril coverage vs. the HO-3, which provides open peril coverage.

Both policy forms typically cover personal property on a named peril basis.

HO-3 (Also referred to as "Special Form" or "Form 3")

It offers maximum coverage for the dwelling and other structures on an open perils basis. It is by far the most common coverage for residences. Coverage C can typically be upgraded to open perils coverage for an additional premium. 

HO-4 (Also referred to as "Contents Broad Form" or "Form 4")

The HO-4 form covers a tenant’s personal property on a named perils basis. This is the insurance form most often used for individuals renting apartments, houses or rooms. The Coverage C can usually be changed to open perils coverage at the option of the policyholder for an additional premium.

HO-5 (Also referred to as "Comprehensive Form" or "Form 5")

The HO-5 form is the most extensive package of all the HO forms.

It provides open perils coverage for all direct physical losses on the dwelling, other structures, and personal property. Exclusions are a little less restrictive than in an HO-3 form and personal property is covered a little more broadly. This coverage is more comprehensive than HO-3 and more expensive.

HO-6 (Also referred to as "Unit Owners Form" or "Form 6")

The HO-6 form is the unit owner's form. “Unit” in this sense means condominium units or cooperative apartments. Property not insured by the condominium association, co-op, etc.is the responsibility of the individual unit owner, thus necessary coverage can vary significantly.

HO-8 (Also referred to as "Modified Coverage Form" or "Form 8")

The HO-8 form provides coverage for older homes where replacement costs exceed market value or where the existing structure does not meet the requirements of the current building code. HO-8 will repair or replace damaged property using common, versus antique or specialized, materials and methods to meet code and functional requirements. Theft of personal property is limited to items that are stolen from an insured location and has a $1,000 maximum per occurrence.

Have you recently purchased a new home and feeling confused about the varying levels of homeowners insurance?  If so, speak to a trusted expert who can help guide your decisions.  In all instances, remember to read the policy carefully before signing on the dotted line.  You’ll want to fully understand your coverage in the event that you run into an unfortunate circumstance. 

Are you looking for some financial planning tools?  Check these out:

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Disclosure:  This information is provided to you as a resource for informational purposes only.  It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors.  Past performance is not indicative of future results.  Investing involves risk including the possible loss of principal.  This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions. 

Wes Moss is the Chief Investment Strategist at the financial planning firms Capital Investment Advisors and Wela. He is also the host of the Money Matters radio show on WSB Radio. In 2014, Moss was named one of America’s top 1,200 financial advisors by Barron’s Magazine. He is the author of several books including his most recent, You Can Retire Sooner Than You Think  - The 5 Money Secrets of the Happiest Retirees, which has been one of Amazon’s best-selling retirement books in 2014.