Picking the right homeowners insurance coverage for your home is vital. After all, in addition to your mortgage, you have a significant investment in your home, from closing costs, renovations, additions and improvements you've made.
There are six different types of homeowners policies, the most popular being HO3. As a general rule, the number after the HO signifies a varying level of coverage, with the smaller the number offering fewer types of damage coverage and lower premiums.
- HO1 and HO2: Only protect against damages specifically listed in the policy and do not cover personal belongings.
- HO3: Covers against all types of damage, except for those specifically excluded. Also protects personal belongings, but only for specific types of damage.
- HO5: Offers same coverage as HO3, but extends coverage to all personal belongings. If your insurance company doesn't offer HO5, you can ask to add a rider to your HO3 policy to provide more protection.
- HO4 and HO6: Only covers belongings and only for specific types of damage. Typically used for co-op and condominiums, as those have separate building insurance purchased for the entire complex.
Another consideration to make when choosing a policy is the difference in valuation methods.
- Replacement cost value: Pays out the actual cost to replace an item or structure at its pre-loss condition. There is no deduction for depreciation and this coverage is designed so that the policyholder will not have to spend more money to get a similar new item.
- Actual cash value: Pays out the cost to replace an item or property with of like kind and quality, less depreciation.
- Guaranteed replacement cost value: Pays for the entire cost of replacing or repairing an item or structure, even if it's beyond the policy limit. It does not account for depreciation.
Lastly, you'll want to discuss any special riders with your agent, such as the code and contention/building code/ordinance and law rider that can help pay costs if you are forced to update due to changes in building codes or rezoning.
The most important thing to remember when purchasing homeowners insurance is to continually review and update it to reflect the true cost of rebuilding your home. Your policy coverage should always cover what your home is worth today, not what it was worth five or ten years ago.
Chances are, your home is the most significant and personal investment of your lifetime. Contact us, your designated independent insurance agency, to make sure you have the coverage you deserve.