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Are there different types of policies?
Yes. A person who
owns his or her home would have a different policy from someone who
rents. Policies also differ on the amount of insurance coverage
provided.
The different types of homeowners policies are fairly standard
throughout the country. However, individual states and companies may
offer policies that are slightly different or go by other names such as
“standard” or “deluxe”. The one exception is the state of Texas, where
policies vary somewhat from policies in other states. The Texas
Insurance Department ( http://www.tdi.state.tx.us
) has detailed
information on its various homeowners policies.
If you
own your home
If you own the home you live in, you have several
policies to choose from. The most popular policy is the HO-3, which
provides the broadest coverage. Owners of multi-family homes generally
purchase an HO-3 with an endorsement to cover the risks associated with
having renters live in their homes.
HO-1: Limited coverage policy
This “bare bones” policy covers you against the first 10 disasters.
It's no longer available in most states.
HO-2: Basic policy
A basic policy provides protection against all 16 disasters. There is a
version of HO-2 designed for mobile homes.
HO-3: The most popular policy
This “special” policy protects your home from all perils except those
specifically excluded.
HO-8: Older home
Designed for older homes, this policy usually reimburses you for damage
on an actual cash value basis which means replacement cost less
depreciation. Full replacement cost policies may not be available for
some older homes.
If you
rent your home
HO4-Renter
Created specifically for those who rent the home they live in, this
policy protects your possessions and any parts of the apartment that
you own, such as new kitchen cabinets you install, against all 16
disasters.
If you own a co-op or a condo
H0-6: condo/co-op
A policy for those who own a condo or co-op, it provides coverage for
your belongings and the structural parts of the building that you own.
It protects you against all 16 disasters.
Your level of coverage
Regardless of whether you are an owner or renter, you
have the following three options:
- Actual cash value.
This type of policy pays to replace your home or possessions minus a
deduction for depreciation.
- Replacement cost.
The policy pays the cost of rebuilding/repairing your home or replacing
your possessions without a deduction for depreciation.
- Guaranteed or extended
replacement cost.
This policy offers the highest level of protection. A guaranteed
replacement cost policy pays whatever it costs to rebuild your home as
it was before the fire or other disaster–even if it exceeds the policy
limit. This gives you protection against sudden increases in
construction costs due to a shortage of building materials after a
widespread disaster or other unexpected situations. It generally won't
cover the cost of upgrading the house to comply with current building
codes. You can, however, get an endorsement (or an addition to) your
policy called Ordinance or Law to help pay for these additional costs.
A guaranteed replacement cost policy may not be available if you own an
older home.
Some insurance companies offer an extended, rather than a guaranteed
replacement cost policy. An extended policy pays a certain percentage
over the limit to rebuild your home. Generally, it is 20 to 25 percent
more than the limit of the policy. For example, if you took out a
policy for $100,000, you could get up to an extra $20,000 or $25,000 of
coverage.
Even though a guaranteed/extended replacement cost policy may be a bit
more expensive, it offers the best financial protection against
disasters for your home. These coverages, however, may not be available
in all states or from all companies.
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