Types Of Homeowners Insurance

Any homeowner who is looking to insure their property wants to get the best possible coverage for the lowest possible price.

In order to do this however, you need to know what types of risk you want to protect yourself against, and the different types of home insurance policies that are available for you to choose from.

Unfortunately however, not everyone takes the time to fully analyze the major risks in their life, and as a result, many people end up with insurance policies that provide them with too much coverage thereby over-insuring themselves and increasing their outgoing expenses, or with too little insurance thereby under-insuring themselves and leaving open the possibility of a large uninsured loss in the future.

So regardless of whether it is your home, your health, your car or your income, if you are taking out an insurance policy to protect yourself against a particular risk you always need to ask yourself the question, “am I adequately insured? Or do I have more or less insurance than I need?”

Are You Adequately Insured?

The best way to ensure that you are fully covered against the risks which you are most likely to be affected by, is to book an appointment with your insurance agent or broker and then go over your policies with them.

An experienced insurance adviser will be able to quickly tell you what risks you are insured against, and what risks you are uninsured against. It is then up to you to decide whether you want to extend or upgrade your existing policies to cover you against those uninsured risks.

It is also worth bearing in mind that the types of insurance risks you are exposed to will vary throughout the course of your life. This means that some risks will no longer pose a threat to your finances, whilst other new risks will.

Home insurance should therefore be seen as an active process, and something that you review whenever you go through significant changes in your life such as moving into a new house, having a baby, having teenagers in the home or keeping valuable items in or around the home.

If you do not keep your home insurance policy up to date it will eventually go out of date and when that happens, you could be in for a nasty surprise if you ever need to make a claim and then suddenly find out that you are not insured against a particular loss.

However, whilst speaking with your insurance adviser is certainly something that is recommended to do, it is equally as important for you to have a basic understanding of the different types of homeowners insurance policies that are available for you to take out.

This will not only help you to understand what your adviser is saying, but will also help you to make informed choices about whether or not you need a particular policy.

Remember, insurance salespeople exist to try to sell you insurance, and it is much easier to take advantage of someone who knows nothing about a subject than someone who has taken the time to learn the basics.

So let’s get started by having a look at the six main types of home insurance policies that you can take out. We begin with a few videos that provide some good background information on what home insurance is, the different types of policies available and how to reduce your home insurance costs.

The rest of this article will then expand upon those points in greater detail.

Types Of Home Insurance Coverage Policies

There are six major types of homeowners insurance coverage policies that you can choose from. Each insurance policy is called a coverage plan and ranges from A-F.

A – Dwelling Coverage

Coverage A homeowners insurance provides you with protection against damage or destruction to your home by fire, tornadoes and other natural disasters. Dwelling coverage is not available for rental properties.

The main purpose of this type of policy is to provide you with financial compensation in the event that you suffer major damage to or destruction of your home. As a result, this is considered to be a standard home insurance policy that everyone should have because it protects you from large financial losses that most people would not be able to recover from by themselves.

When insuring your home with dwelling coverage, there are two main choices that you have; less than replacement cost coverage or full replacement cost coverage.

A less than replacement cost policy is the cheaper of the two options, which can make it a suitable option for families who might be struggling financially but still want to have some insurance protection for their home.

The disadvantage of having less than replacement cost coverage is that if your home is ever destroyed, your insurance company will provide you with compensation that is less than the total value of your home. This means that you will have to pay for the rest of the costs to rebuild or repair your home by yourself.

Full replacement cost coverage however, will compensate you the full value of what your home is worth so that your out-of-pocket expenses are minimized when rebuilding or repairing your house. The downside is that this policy will cost you more money to maintain, which not everyone may be able to afford.

B – Other Structures

Coverage B home insurance protects your detached structures, and their contents, against damage or destruction. This policy is not available for rental properties.

Whether or not you need other structures insurance really depends on your circumstances. If for example, you have no detached structures such as a swimming pool, garage, shed or greenhouse in your front or back lawn, then you would not need this type of policy because you have nothing to insure.

On the other hand, if you do have detached structures, then you may consider taking out coverage B protection if the financial benefit conferred by the insurance is greater than the expense of maintaining that coverage.

However, things are not quite as simple as they might appear because if you have coverage A (dwelling) insurance, then you will automatically receive 10% coverage for detached structures under that policy. What this means is that if you only have a few inexpensive detached structures, then your coverage A plan will probably provide you with sufficient protection.

If however, you have many high value detached structures, then you would probably benefit from taking out other structures insurance for additional protection.

C – Personal Property

Coverage C homeowners insurance provides your personal property with protection against damage, destruction or theft. Personal property insurance offers this coverage regardless of where you are in the world.

This is perhaps one of the most useful home insurance policies to have because it protects virtually all the valuable possessions in your home. If these items become damaged, destroyed or are stolen, you will quickly be able to replace them under the protection given to you by your coverage C plan.

However, the level of coverage you get can vary depending on how much you are willing to spend to maintain your policy. Generally, you have two options: an actual cash value or a replacement cost policy.

Actual cash value is the cheaper of the two policies to have, which means that you will spend less money on your insurance over the course of your life. The downside however, is that when you make a claim you will only receive about 50% of what your item originally cost you to buy. This means that you will have to make up the difference out of your own pocket.

Replacement cost however, while being a more expensive policy to have, will compensate you the full value of your claimed item on the basis of what it would cost to buy again new. Although having such coverage will cost you more money over the lifespan of your policy, it is definitely the better option to have as it provides you with much greater financial protection in the event of a loss.

There are however, certain exclusions to personal property insurance. Very expensive items for example, such as money and jewelry, will only be covered up to a policy limit of $1000. For greater protection, you will need to list those items specifically on your insurance policy at higher coverage limits.

D – Additional Living Expenses

Coverage D home insurance covers any additional living expenses you incur as a result of having to leave your premises due to damage or destruction which is covered by coverage A, B or C homeowners insurance.

Basically, this is like an emergency type of insurance which will compensate you for any extra costs you suffer as a result of having to temporarily move out of your home. This can include things such as money spent on taxis, money spent eating at restaurants or ordering in takeaways or money spent on hotel rooms.

The important point to remember with this policy is that you will not be compensated for all your expenses, just those which you would not normally have had if were you still in your home. Keeping your receipts is vital to making successful claims on coverage D insurance, as your insurer will likely require proof of the expense items that you are claiming on.

E – Personal Liability Insurance

Coverage E homeowners insurance covers personal liability protection for any injuries or property damage that are non-vehicle related. Personal liability insurance provides this coverage no matter where you are in the world.

This is also another excellent policy to have, because if you have sufficiently high coverage limits set on your policy, it can provide you with superb protection against large financial losses.

Generally, you want to take out higher limits if you are on a high income, if you have an expensive home and/or if you have children. All of these factors can increase the amount of risk that you are exposed to, and so you would therefore benefit from having higher coverage limits.

The good news is that taking out higher coverage limits on your personal liability insurance is relatively inexpensive to do. By paying a small amount extra, you get a significant amount of increased financial protection which makes that expense more than worthwhile. You can even offset these costs by increasing your deductible limit so that your premium rates are not affected.

For most people, having coverage limits of $500,000 – $1,000,000 is usually recommended.

F – Medical Payments Coverage

Coverage F home insurance covers any medical bills for guests who were injured in your home.

This however, is only really beneficial if they do not have their own health insurance policy, or if you are looking to reduce the risk of other people suing you as a result of being injured in your home.

If you do not have many people visiting your home, or the risk of being injured in your home is minimal, then you could probably do without a coverage F plan.

More Detailed Information

To find out more detailed information on the six home insurance coverage policies just described, please see the following articles:

Coverage A Homeowners Insurance
Coverage B Homeowners Insurance
Coverage C Homeowners Insurance
Coverage D Homeowners Insurance
Coverage E Homeowners Insurance
Coverage F Homeowners Insurance

Types Of Homeowners Insurance Policies

If you look at what homeowner policies are offered by insurance companies, you are likely to see six entrees ranging from light coverage to extensive coverage. These types of coverages are listed below:

Basic Form Homeowner Policy (HO-A/HO-1)

Light coverage is listed as basic, and this only protects you against a limited number of perils. This coverage is not recommended, as it does not provide you with enough protection against common losses.

If you are on a budget however, taking out a basic form causes of loss policy is better than not having any insurance because it will still protect you against some risks, even though this coverage will be very limited.

Broad Form Homeowner Policy (HO-B/HO-2)

Medium coverage is listed as broad, and this protects you against 15 common loses including those covered by the basic policy. For most people, this coverage should provide them with sufficient protection against loss.

Overall, a broad form causes of loss is a very good policy to have as it provides you with a decent level of coverage for a reasonable price.

Special Form Homeowner Policy (HO-C/HO-3)

Extensive coverage is listed as special or open perils, and this provides the most amount of protection even protecting you against accidental causes of loss, unless that loss has been specifically excluded from the policy.

So any kind of loss that you suffer your insurer will cover you for, unless your policy specifically stated that it would not cover that type of loss.

If you want the best insurance protection for your home, the special policy is the way to go. Be warned however, that it is more expensive, so you need to be sure that you can afford to maintain it in the long-term.

Homeowner Forms

Each of the homeowners policies entrees is referred to as a form, and there are different forms available for different types of requirements such as a form for homeowners, condo owners and a form for renters.

Form 1,2,3 & 5 Homeowners Insurance

Each of these forms provides increasingly greater coverage for building coverage and contents coverage for homeowners.

Form 1 provides basic building and contents coverage, whilst form 5 provides special building and contents coverage.

Form 4 Renters Insurance

Form 4 provides only broad contents coverage for renters, as building coverage does not apply to rental properties.

It is possible however, to extend broad contents coverage to special contents coverage for additional cost.

Form 6 Town House / Condo Insurance

Form 6 provides broad building and contents coverage for town house or condo owners.

It is possible to upgrade broad coverage to special coverage for additional cost.

Common Policies

The most common type of home insurance policy that people buy is Form 3, which provides special buildings coverage and broad contents coverage.

For the majority of people, Form 3 home insurance is advisable because the biggest risk you face is to your home because it is exposed to the external environment. There is a lesser risk to your personal possessions as they are protected within your home.

If however, you have very expensive items within your home, or simply want the extra protection special coverage gives you, then you can purchase Form 5 homeowners insurance which gives you special building and contents coverage.

Alternatively, you can purchase Form 3 homeowners insurance, and then at a later date upgrade to special contents coverage.

Form 1 basic insurance is not recommended for homeowners, because it does not provide very much coverage against common losses and therefore exposes you to unnecessary uninsured risk.

How To Make Homeowner Insurance Cheaper

Here are some quick tips that can help you to save money on your home insurance costs.

1) Use The Same Insurer

If you have multiple insurance policies, such as for your home and your vehicle, you can usually save money and avoid coverage gaps by getting insured for both policies with the same company.

2) Be A Loyal Customer

Loyalty discounts can sometimes be obtained from your insurer if you stay with them for long enough to be classed as a long-term policy holder.

Some homeowners insurance companies for example, will reduce your premiums by 10% if you have been with them for 5-6 years. So this is worth checking out before you sign up with anyone or if you have been with your insurer for more than a few years.

3) Comparison Shop

Use the internet to find out which home insurance company is offering the best coverage at the best price. If you are already with an insurance company but have found another that offers a better deal, tell your insurer about it as they may match that deal in order to keep you as a customer. If they can’t, then you might want to consider moving to another provider who will treat you better.

4) Raise Deductibles

Raising your deductible is the simplest way to save money on your home insurance costs. If you raise your deductible limit from $500 to $1000 for example, you could save 25-30% on your monthly premium costs.

5) Get A Credit Check

When signing up for a home insurance policy your insurer will now likely check your credit score before determining the overall price of your policy.

So it is worth checking your credit score first by yourself, and if it is low, to then take steps to improve it before you sign your policy agreement. In general, the worse your credit score is the more you can expect to pay in premium costs.

6) Don’t Smoke

Home insurers consider smokers to be at an elevated risk of suffering from a house fire due to unattended cigarettes or cigars.

You may therefore be able to get a reduction on the cost of your premiums if you register yourself as a non smoker. Be warned however, that if your home does burn down and the cause was determined to be due to a cigarette or cigar, then your home insurance claim may be invalidated.

7) Install Home Security

Having a home security system installed in your property will reduce the risk of your home being burglarized, which subsequently reduces the risk of your home suffering from damage and theft of your personal possessions. Most insurers will therefore offer premium discounts if you install an alarm in your home.

8 ) Ask For Discounts

There are lots of different types of discounts that can be found with homeowners insurance policies. So it is at least worth asking your insurance agent or broker if there are any discounts that you qualify for.

9) Review Your Policy

Once you have taken out a home insurance policy, it is important that you review the coverage you are getting on a regular basis. You may find that you no longer need certain types of coverage, or can get the same coverage cheaper elsewhere.