Home Insurance Coverage

Home Insurance Coverage Explained

Homes are valuable property that can be expensive to maintain, especially when unexpected incidents cause significant damage. Homeowners can mitigate some of the financial risks of homeownership by investing in a homeowner’s insurance policy. These policies come in many different structures, so before choosing a policy, you should learn exactly how home insurance works. 

What is homeowner’s insurance?

Home insurance exists to provide financial relief if specified events cause damage to your home or personal property. These policies can also help you pay for damages that are the result of accidents or injuries that occur on your property. There are several types of homeowners insurance policies, which are called policy forms. They are as follows:

HO-3 Insurance

HO-3 Insurance policies, which are sometimes referred to as “special form” policies, are the most widely used homeowners insurance policies. In fact, nearly 80% of U.S. homeowners use this policy form according to the National Association of Insurance Commissioners (NAIC). This is partially because many mortgage lenders require homeowners with mortgages to have at least HO-3 level coverage. HO-3 policies normally cover any damage caused by the following 16 “named perils”. 

  • Smoke
  • Fire/lightning
  • Explosions
  • Damage from aircrafts
  • Damage caused by vehicles
  • Vandalism
  • Theft
  • Volcanic eruptions
  • Falling objects
  • Ice, snow, and sleet
  • Water overflow from household systems, such as plumbing or appliances
  • Freezing of household systems
  • Power surges
  • Damaged hot water, steam, air conditioning, or fire protective systems
  • Windstorms and hail
  • Riots

If you need extended coverage, insurance providers often offer you the option to purchase additional coverage.

HO-5 Insurance

Homeowners who need broader coverage should evaluate HO-5 insurance options, as they provide the most comprehensive homeowners coverage. Each HO-5 policy covers damage from any source, unless the policy explicitly states that the type of damage is not covered. HO-5 policies are normally only available in well-maintained homes located in low-risk areas and some insurance companies do not offer it. Because of these requirements, the NAIC found that only 14% of homeowners held this policy form in 2017. 

Limited coverage

If HO-3 or HO-5 offer coverage that you will likely not need, there are limited coverage options available to some homeowners. The most limited policy forms are HO-1 and HO-2. Both of these policy options cover a select list of named perils, with HO-1 providing the minimum level of coverage. 

How much homeowners insurance is necessary?

The amount of insurance coverage you need for your dwelling can be estimated based on a thorough home inventory and an assessment of how much it will cost to rebuild your home if it is damaged. Therefore, local construction costs should be used to understand how much coverage you need. For your personal property coverage, consider how much property you have through a home inventory, then think about how much it will cost you to replace your possessions. Many experts advise that you should at least have personal property coverage equalling 50% of your dwelling coverage, but you can choose higher or lower levels of coverage. 

How much does homeowners insurance cost?

Homeowners insurance can be very expensive or relatively affordable, depending on the type of policy you choose and your individual circumstances. To determine the rate they will charge for a policy, insurance providers often review details about your home and its surroundings. These are some examples of things you can expect insurance providers to consider when dictating your potential rates:

  • Cost to rebuild your home
  • Age and characteristics of your home
  • Your location’s fire protection rating
  • Claims history of you and your neighbors

If you are buying home insurance for a new home or you would like to switch to a new policy, Acropolis Insurance has a team of insurance experts who can help you find the best deal. Contact us now for a customized quote.