Homeowner's Insurance Policies Explained
Every owner of a home needs protection on such a large investment. Homeowner's insurance provides that protection and covers possible loss of property, possessions, or liability. Different types of homeowner's insurance are available, enabling owners to choose according to their needs and what they can afford.
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Function
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Homeowner's insurance is designed to cover specific events. Generally, the insurance covers damages from as fire, hail, lightning, explosions, theft, falling objects, and more. Some policies, such as HO-2, do not cover anything that is not listed. An HO-3 policy is called an open policy, and it covers everything, with certain exclusions. Typically these exceptions include floods, earthquakes and hurricanes and war, although coverage for some of these perils often can be purchased separately.
HO-5 is similar to HO-3, but it expands the coverage to personal property. It also provides coverage for open perils. HO-4 is for renters, HO-6 is for condominium owners, and HO-8 is for older homes.
Types
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All homeowner's insurance policies can be divided into two types of coverage--cash value or replacement value. When there is a claim, cash value means that the owner receives the value of the damage, minus any depreciation.
Replacement coverage is more expensive, but it means the insurance company will actually replace the item with a new one of similar value. When this happens, cost is not a concern, but there might be a cap.
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Features
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A home insurance policy provides coverage in a wide variety of instances besides just covering various types of incidents. Physical injury to you or your family members is generally not covered under a homeowner's policy. This is usually covered by the family health insurance policy.
Liability is another important area. It provides coverage if you or your family are liable for injury or damage to other property or people, such as if a tree on your property falls and hits a neighbor's house. Liability coverage is also very useful if someone is hurt on your property, and then sues for damages. It will pay for the lawsuit, medical expenses for the injured, defense costs, and property damage, up to the amount designated in the policy.
Effects
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A homeowner's insurance policy provides flexibility to fit the needs of the buyer. Another thing that can be covered is your home business. If damage results from your business activities and you are liable, you can be covered for this purpose.
Other things that can be covered are fire department charges if firefighters respond to your house, and repairs that might be needed to prevent further loss.
Benefits
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Covering personal property requires choosing either cash value or replacement value. A home inventory, including receipts, needs to be made to receive the benefit of this coverage. Items of special value, such as jewelry, art, antiques, furs, collections and guns, need to have special insurance purchased to be covered for their value. Business equipment also needs to be insured separately.
House insurance can also pay for living expenses if the family needs to live elsewhere during repairs. Personal property can be covered when away from the house, too.
Warning
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Although it is considerably cheaper to get cash-value type of coverage, that might place the owner in a difficult position if a loss occurs. This is especially true in an older house, where depreciation can result in the owner receiving only 40 percent to 60 percent of the value of the house. This is definitely not enough money to be able to rebuild the home.
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References
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