Basics of Home Insurance

Basics of Home Insurance

When you purchase something as valuable as a home it is vital that you protect yourself from losing this asset. Your home is likely the most expensive purchase you will make in your lifetime and it could disappear in a matter of seconds. Tornadoes can reduce a home to a splintered pile of lumber in mere seconds. Luckily modern home insurance can protect you and your family from losing your home and the items that may be lost or damaged within it. In this article I will discuss everything you need to know before you purchase home insurance in the state of North Carolina.

Why do I Need Home Insurance?

Home insurance is extremely important whether you own or rent a home. Home insurance not only protects from damages to your home itself, it also protects you from lawsuits, as well as theft. If you do not have home insurance, and someone breaks into your home and steals your television while you are out of town, you are now without a television. If you had the correct insurance, you would be refunded for the price of the television so that you could just purchase a new one. Some lenders will require the borrower to purchase home insurance that covers at least the amount of the mortgage. This will protect the lender from losing the value of the asset.

How Much Does Home Insurance Cost?

The price of home insurance will vary depending on the level and type of coverage you wish to purchase from an agent. The cost is also dependent on the state in which you live as well as who you purchase the insurance from. Every insurance agency charges a different amount for different levels of coverage in different situations. So if you want an exact price estimate your best bet would be to request a quote from an agency in your area. Home insurance will typically cost around $70 a month or around $800 a year.

What Does Home Insurance Cover?

In addition to protecting your home, your home insurance can protect homeowners from a number of unfortunate events. Depending on your policy, a certain percentage of the coverage of the actual structure’s coverage will also cover a number of other damages. Your home insurance may cover damage or loss of belongings within the home, damage to fences or garages, any liability in cases where you are being sued for damages or injury to another person. Even medical bills for injuries caused by your household pets can be covered by your home insurance policy. Some insurance policies will even cover damages to trees and shrubs on your property as well as debris removal after a storm. There may be a number of occurrences where your home insurance policy could save you money. So be sure to read your policy carefully and speak with your agent before paying for any damages to your property out of pocket.

Basic Levels of Home Insurance Coverage in North Carolina

There are a number of different home insurance policies one can purchase for their home and property. Coverage plans can range anywhere from basic coverage that only covers the structure of the home and the belongings within it, to policies that will even replace a bush that gets killed by a falling airplane. Below you will find a list of home insurance policies that can be purchased either for your home, a vacation home, or even a condo. Be sure to speak with an agent about the specifics of each policy before you make the purchase.

HO-1 Home Insurance Policy

The HO-1 home insurance policy is the most basic home insurance policy that can be purchased for your home. A typical HO-1 policy provides coverage for the structure of the dwelling as well as structures surrounding the property. HO-1 policies also typically cover loss of use of your home as well as liability for any injuries that occur on your property. The main limitation of an HO-1 policy is the limited number of perils that are covered. An HO-1 policy will only cover eleven basic perils whereas an HO-2 policy will cover a few more perils.

HO-2 Home Insurance Policy

The HO-2 insurance policy is one step up from the basic HO-1 insurance policy. An HO-2 policy will provide similar coverage to the HO-1 policy. HO-2 policies provide coverage for the structure of the home, surrounding structures such as sheds or fences, as well as loss of use and liabilities. What makes the HO-2 insurance policy a step up from an HO-1 insurance policy is the amount of perils covered by the policy. An HO-1 policy will only cover damages to your home that are caused by one of only eleven different perils. An HO-2 insurance policy will cover damages caused by seventeen different perils; six more than an HO-1 policy.

HO-3 Home Insurance Policy

HO-3 home insurance policies are the most popular policies on the market. Why is this? When you compare an HO-3 policy to an HO-1 or HO-2 policy, there is one detail that makes a huge difference. An HO-3 policy is what is called an open perils policy. This means that the policy names perils that are not covered by the policy. If the peril is not named by the policy it is covered. The broad span of perils covered by this policy is what makes it so popular with homeowners. HO-3 policies cover the structure of the home, liability, and loss of use.

What is the Difference Between Open and Named Perils?

HO-4 Renters Insurance Policy

HO-4 insurance is also known as renters insurance. HO-4 policies are for those who are renting a dwelling and will not be responsible for replacing the structure of the dwelling. An HO-4 policy, like an HO-1 or HO-2 policy, is a named perils policy which means that the policy names specific perils that are covered by the policy. HO-4 policies cover personal property that may be damaged or stolen from the owner’s apartment or condo. Items covered can include furniture, appliances, clothing, and even toys.

HO-5 Home Insurance Policy

HO-5 insurance policies are often called premier insurance. This name comes from the fact that an HO-5 policy is an HO-3 policy with a few more bells and whistles HO-5 insurance policies offer coverage on an open perils basis just like HO-3 policies. What makes the HO-5 policy “premier” is the fact that it provides expanded coverage in addition to the coverage provided by an HO-3 policy. HO-5 policies cover jewelry and often include guaranteed replacement which will replace the entire cost of the home no matter what the price is.  

HO-6 Condominium Insurance Policy

HO-6 insurance policies are insurance policies designed for condominium owners. An HO-6 policy is similar to an HO-4 insurance policy in the way that it insures the contents of the condominium and does not provide coverage for the structure. The difference is that an HO-6 policy covers any upgrades that the owner purchases for the condo. Any cabinets, drywall, light fixtures, or wallpaper added to the condo by the owner will be covered by an HO-6 policy. HO-6 policies are named peril policies, they provide coverage for the same perils as an HO-2 policy.

HO-8 Older Home Insurance Policy

HO-8 home insurance policies are policies that provide coverage for older homes. These policies are for homes that are over forty years old and and homes that have an actual value that is much lower than the home’s replacement cost. Homes that may not qualify for an HO-3 policy for various can also be covered by HO-8 policies. An HO-8 policy is very similar to an HO-1 policy in the way that it only protects from eleven different perils. However, an HO-8 policy does not pay for replacement of the home. Instead an HO-8 insurance policy will pay the cash value of the home.

Flood Insurance

None of the above home insurance policies offer protection from flood or earthquake damage. If you live in an area that is at a high risk of flooding, it would be wise to speak with an insurance agent about the possibility of purchasing a flood insurance policy. If you live in an area that is not at risk of flood damage, it is not as big as a problem; however, flood insurance can still be purchased if you feel it is necessary.

Be sure that you find the home insurance policy that fits you and your needs. Shop around and ask agents about their specific policies. Just like every house is different, so is every home insurance policy. Buyers should be aware that every home insurance policy can have a different set of perils or coverage. Find the one that best fits you and your home, and make sure you find a good price for your budget.