Understanding Your Insurance Policy

Understanding Your Homeowners Insurance Policy Sept. 2012 Just as you have health insurance to protect your person and auto insurance for your car, you need the same kind of reassurance when it comes to your home as well; after all, a home is probably the largest purchase you will ever make. After submitting your home loan application, you should begin shopping for homeowners insurance immediately, and direct the insurance company to provide information about your policy to the processor. In addition, you'll need to provide proof of your homeowners insurance at closing. Sometimes called hazard insurance, homeowners insurance protects both you and your lender in the event of damage to your home. You can insure not only the physical building but also all the contents. Most mortgage lenders require borrowers to carry homeowners insurance. There are several types of homeowners insurance so be sure you understand the differences and choose the type that best fits your needs. I can refer you to a resource to help you choose an insurer; just let me know if you need assistance. Below is a breakdown of insurance types to help you better understand your options. There are three basic types of policies that homeowners with a mortgage typically purchase. HO2 — Broad Form: This policy will cover the home itself as well as other structures on the property such as a detached garage or even fencing against 15 specific "perils." This coverage also provides Homeowners personal liability coverage, which means if someone falls and is injured on your property and then sues you, your insurance company will pay a settlement if you lose the suit and may also defend you in court. The perils, or events that cause damage to your home, that are generally covered under HO2 are: Fire or lightning Windstorm or hail Vandalism or malicious mischief Theft Damage from vehicles and aircraft Riot or civil commotion Glass breakage Smoke Volcanic eruption Falling objects Weight of snow, ice or sleet Accidental discharge or overflow of water or stream Sudden and accidental tearing apart, cracking, burning, or bulging Freezing Sudden and accidental damage from artificially generated electrical current Note that floods and earthquake damage are not covered. These require separate policies in areas where these events are likely to occur. HO3 — Special Form: This is the most widely used type of homeowners insurance for single-family homes. It covers your dwelling and all detached structures against loss or damage from any peril except for those specifically listed as excluded from coverage. It is important to know what perils are specifically included and to discuss with your agent whether you will need additional insurance coverage, also called a "rider." Some perils that are generally excluded from coverage under an HO3 policy include neglect, intentional loss, smog, theft from a dwelling under construction [separate insurance is required for these structures], vermin and rodents and typical wear and tear or deterioration. HO5 — Premier Homeowner Policy: This policy covers everything in the HO3 plus additional perils. In fact, the HO5 covers your dwelling and detached structures and all the contents of your home, provides liability coverage and only excludes perils specifically listed in the policy: if damage or loss occurs because of a peril that is not listed, then that loss or damage is covered. This is sometimes called an "open peril" policy since everything is covered that is not specifically excluded. When discussing your homeowners insurance with your agent, be sure to determine whether your policy covers the actual cash value of your home or the full replacement cost. As always, if you need a referral to an experienced professional in our area I am happy to direct you to a valued colleague. Please call me with any questions!