Colony Title Associates

The Different Types of Homeowners Insurance Policies

If you’re buying a new home, one thing you’ll need to familiarize yourself with are the different types of homeowners insurance policies. Homeowners insurance provides protection against a variety of different risks associated with property ownership, but not all policies are the same. Learn about the different kinds of policies that are available for homeowners in our blog.

Homeowners Insurance Policies

HO-1

This is what’s known as a “bare-bones” policy. The first thing you should know is that these kinds of policies have been discontinued in most states, because they cover so little. The vast majority of homeowners do not choose an HO-1 policy.

HO-1 policies provide hazard insurance and liability insurance.

Hazard insurance covers a list of “named perils” for example, damage from a fire or storm. If the hazard is not named in the list, then the insurance doesn’t cover it.

Liability insurance covers you if someone injures themselves on your property and you are held responsible. This means your insurance will pay for their medical bills.

HO-2

This is usually referred to as a basic policy. It covers your house, any buildings on the property, and your personal property in the house. Personal property is covered up to a percentage of the value of the property, usually between 50-70 percent.

It also provides hazard insurance, with a longer list of named perils than an HO-1, and liability insurance.

HO-3

This is the most common homeowners insurance policy. It’s fairly similar to an HO-2 policy, with a few key differences.

For one thing, homes are protected against any hazard that is not specifically excluded. So for example, if earthquake damage is not excluded on the policy, you would be covered.

The other difference is with personal property. In this case, personal property is only covered for damage from the policy’s named perils.

Coverage Level

You have three options for coverage levels.

Actual Cash Value

This policy would pay to replace your home/possessions minus a deduction for depreciation.

Replacement Cost

The policy pays to repair/rebuild your home and/or replace your possessions, with no deduction for depreciation.

Guaranteed or Extended Replacement Cost

This is the best (and most expensive) level of coverage, but may not be available in all areas.

A guaranteed policy will pay to repair/rebuild your home as it was before it suffered hazard-related damage, even if it goes over the policy limit. One caveat is it that if building codes have changed since the house was built, it won’t pay to upgrade the house to comply with codes. But, you can get an endorsement to the policy called Ordinance or Law to pay for these costs.

Extended policies set a limit over the policy to which they will pay to rebuild your home. So if your policy is for $200,000 of coverage, at a 25% extended replacement costs, you’d get $250,000 of coverage.

Real Estate Closing Services from Colony Title Associates

Colony Title has been in business since 1995 and handles more than 2,000 real estate closings per year. If you have any questions or would like to speak to a representative about closing, please give us a call at 410-884-1160 or visit our website for more information.

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