Your home may be your most valuable asset – and you probably cannot afford to replace it out of your own pocket in the event of a disaster. And you don’t want to look for free cardboard boxes NYC and move every time something happens. This is why protecting your investment with the right homeowners insurance coverage is so important. But, what is covered by that insurance? Keep reading to find out.
What is homeowners insurance?
Homeowners insurance provides financial assistance if an insured event damages your home, property, or personal belongings. It can also be paid when you are responsible for an accident or injury. It has three main functions:
- Renovate your house, yard, and other structures so you don’t have to hire movers NYC and move.
- Repair or replace your personal items.
- Cover personal liability if you are legally responsible for damage or injury caused to anyone.
Homeowner insurance is not required by law, but if you have a mortgage, your lender will most likely require you to insure your home to protect its investment. Even if you don’t have a mortgage, home insurance is almost always a smart buy as it gives you property and liability insurance.
Types of homeowner insurance
There are several types of homeowner insurance called “policies”. Some types provide wider coverage than others, so it’s worth knowing the difference. While details may vary by state and company, these types are pretty standard.
Most popular: HO-3 insurance
HO-3 insurance policies, also called “special form”, are the most common. HO-3 insurance accounted for nearly 80% of coverage for owner-occupied homes in 2017, according to the National Association of Insurance Commissioners. If you have a mortgage, your lender will likely require at least that level of coverage.
HO-3 insurance policies usually cover damage to your home by any cause other than those it specifically excludes, such as an earthquake or flood. However, as far as your belongings are concerned, HO-3 will usually only cover damages from 16 named hazards unless you purchase additional coverage:
- Fire or lightning
- Hurricanes and other windstorms
- Aircraft damage
- Damage caused by vehicles
- Volcanic eruptions
- Falling objects
- Weight of ice, snow, and sleet
- Overflowing or draining water from household systems such as plumbing, air conditioning, and appliances
- Freezing of those very household systems
- Sudden damage from a power surge
- Sudden rupture, cracking, or swelling of the hot water system, steam system, air conditioning system, or fire protection system
Widest coverage: HO-5 insurance
The HO-5 insurance policy provides the most extensive coverage for homeowners. It pays for damages from all reasons, except for those excluded by the name of the policy. About 14% of homeowners coverage in 2017 was HO-5 insurance, according to NAIC. This is usually only available for well-maintained homes in low-risk areas, and not all insurers offer it.
HO-5 policies are sometimes referred to as “comprehensive” or “premier” coverage. However, in some cases, the HO-3 policy may also be labeled as “premier”, without offering the broader scope of the HO-5 policy. If you want HO-5 coverage, be sure to ask your agent or representative.
Limited coverage: HO-1 and HO-2 insurance
Much less popular are HO-1 and HO-2 homeowner insurance, which are paid only for damage caused by the problems listed in the policy. Together, these two types account for about 7% of homeowner’s insurance coverage. HO-2 insurance, the more common of the two, usually only covers your home and property for the 16 reasons listed above. HO-1, which is not widely available, is the simplest form of homeowner insurance. It covers an even shorter list of hazards than HO-2.
What is not covered by homeowners insurance
Even the broadest homeowner insurance policy won’t cover everything that can go wrong with your home. For example, you cannot intentionally damage your own home and then expect the insurer to pay for it. Policies also generally exclude damage from other causes, such as:
- Flooding including drainage and sewer backup
- Earthquakes, landslides, and sinkholes
- Infestation by birds, parasites, fungus, or mold (so you should better pest-proof your NYC home)
- Depreciation or negligence
- Nuclear hazard
- Government action, including war
- Power failure
However, you can purchase separate coverage for some of these risks. Flood and earthquake insurance are available separately, and in hurricane-prone states, you may also need hurricane insurance. Talk to your insurer if you have concerns about damage or events that your policy does not cover. In many cases, you can add so-called endorsements to your policy – which usually comes at extra cost – to provide more protection.
How much does homeowner insurance cost?
Homeowners insurance costs an average of $1,211 a year, according to the latest data. But prices can fluctuate much higher or lower, depending on your location and the amount of coverage you buy, as well as your credit rating and home value. To determine the cost of home insurance, insurers typically consider:
- How much it will cost to restore your home.
- The age, condition, and other characteristics of your home.
- Distance from home to the nearest fire hydrant.
- Your city’s fire safety rating.
- The history of your claims and the history of the claims of others in your area.
- Your coverage, limits, and deductible.
- Items that pose a high risk of injuries, such as swimming pools or trampolines.
If your premium seems too high, there are easy ways to save money on homeowner insurance. For example, many insurers offer a discount on home and car insurance. You can also get a lower rate for using common security features such as burglar alarms and bolt locks to burglar-proof your NYC home.
Before you get too nervous about the cost of your homeowners insurance, remember that this coverage gives you a significant return on your investment. The premium you pay will be a fraction of the cost of rebuilding your home from scratch and replacing your property.