For many, their most valuable asset is their home, thus it is important to protect it with homeowner’s insurance. Homeowner’s insurance should protect your home against fire and wind damage, theft, falling trees, and personal liability. Standard forms of homeowners insurance policies are numbered from HO-1 to HO-8. These are structured with different degrees of coverage and the premiums are different for each package.
- HO-1: The most basic and limited type of policy for single-family homes, HO-1s are all but nonexistent nowadays.
- HO-2: A more commonly used policy and a slight upgrade from the HO-1.
- HO-3: The most common type of homeowners insurance policy with broader coverage than the HO-2.
- HO-4: A policy type that is specifically for renters.
- HO-5: The most comprehensive form of homeowners insurance and the second most common policy type for single-family dwellings.
- HO-6: A type of coverage designed for condo owners.
- HO-7: The type of policy you get if you own a mobile or manufactured home.
- HO-8: A special type of homeowners insurance for homes that do not meet insurer standards for other policy forms.
The insurance policy will generally be a cash value policy; if the house is destroyed, you will be paid the current value of the house. Since ground does not burn, what the company is insuring is the structures on the property. You should try to get a replacement value policy which will increase the value of the house according to inflation and pay the cost to replace it. Your policy will also specify the replacement of other structures on the property such as a detached garage or swimming pool. In addition, the policy will cover personal property in the house such as furniture, computers, televisions, jewelry and clothing if there is fire, theft, or vandalism. There is usually a set limit on the cash amount covered under this. If you have especially valuable items in the house, such as jewelry, paintings, or antique rugs, you should catalog them specifically in the policy or buy a separate valuable items policy. The insurance company may ask you to present an appraisal to establish their value.
Liability is also an important part of the homeowners policy. If someone is hurt on your property, you are covered up to a certain amount. However, you are not covered if you are breaking the law. For example, if you allow your teenager to have a party at your house with underage drinking and someone gets hurt, you will be in deep trouble, and your insurance company will not cover your liability.
The national average annual premium for homeowners’ insurance is $2,300. However, this is for the average home price of $300,000 and with a $1,000 deductible. Your premium will vary according to several factors, including:
- The value of your house
- The deductible you choose
- Whether your area is subject to earthquakes or wildfires
- Whether there is a fire hydrant nearby
Ask your real estate agent for a recommendation for an insurance broker. After you are comfortable with homeowner’s policies, you can get quotes from the direct to customer insurance companies. The Insurance Institute recommends these ways to lower the cost of your insurance premiums:
- Shop around.
- Before you buy a car, compare insurance costs.
- Ask for higher deductibles.
- Reduce coverage on older cars.
- Buy your homeowners and auto coverage from the same insurer.
- Maintain a good credit record.
- Take advantage of low mileage discounts.
- Ask about group insurance.
- Ask about other discounts, such as for safe drivers or if you install smoke alarms in your house.