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“I must be covered; I have Homeowners Insurance!”

What you don’t know about your policy can hurt you... financially

Edward Martinez    |    Insurance

It’s often been said, “it’s better to have insurance and not need it than to need it and not have it” as a homeowner I do have insurance so I must be covered…. right....well there is more to the story.

Understanding what is and what is not covered requires an in-depth look into how Insurance policies differ from one another. Having a firm understanding of what your policy covers in case of a loss is essential to insuring that you and your family are protected in case of an accident or natural disaster.

“So” what is Homeowner’s Insurance? According to the Insurance Information Institute, homeowners insurance is a package policy. This means that it covers both damage to your property as well as liability or legal responsibility for any injuries and property damage you or members of your family cause to other people. This includes damage caused by household pets. This is often a requirement from the lender to insure the loan is protected as well.1

Property and Casualty Insurance has two main objectives, first to prevent losses (injuries, deaths, and/or property damage) from occurring in the first place. And second, as stated by the American Insurance Association, is to facilitate recovery from losses suffered by individuals or businesses – whether those losses are relatively small or truly catastrophic (such as a flood, earthquake, hurricane etc.). Insurance helps individuals, businesses, and entire communities stay financially stable and recover from unanticipated – and potentially ruinous2 – losses, even with Insurance your policy may not cover all disasters.

What types of homeowner insurance policies are there?

  • HO-1 is the most basic insurance policy, covering only the perils named in the policy. It may not be available in all states.
  • HO-2 provides protection for specific perils named in a policy. There is a different version available for mobile homes as well.
  • HO-3 provides protection for all perils except those specifically excluded in the policy (this is the most common type of homeowner insurance policy).
  • HO-4 is designed specifically for renters. It protects your possessions against specific perils listed in the policy.
  • HO-5 is considered the ultimate “Open Peril” policy. This is popular for those with high value possessions.
  • HO-6 is for those who own a condo or co-op. It provides coverage for the possessions and portions of the structure that you own, and is specific to the perils listed in the policy.
  • HO-7 Is designed for Mobile and Manufactured Homes and is similar to an HO-3 policy
  • HO-8 is designed for older homes. It does not usually provide for full replacement cost. It provides for actual cash value reimbursement minus depreciation for any of the perils listed in the policy.

One of the most commonly written home policy types is HO-3, because it is the minimum coverage required by mortgage providers. The HO-3 policy is an open perils policy that covers any direct damage to the house or other structures on the property unless it is specifically excluded. However, the coverage for personal property is for named perils only—the same perils listed in an HO-2 policy. Covered losses on realty are insured for full replacement value with no depreciation deduction, although certain restrictions apply. The key is knowing what exact perils are covered and to what extent as well as what the restrictions are. The top three occurrences not covered by this type of policy are.

  1. Flood
  2. Earth Quake
  3. Maintenance

Weather related occurrences happen every day throughout the country, some more severe than others leaving us to wonder what kind of perils we may face. As a lifelong resident of California I have experienced my share of earthquakes as well as mudslides and wildfires. California has been in a serious drought for years, which compounds the danger of homeowners living near brush fire zones, any heavy rain we get causes new issues such as landslides and flooding. It is these types of events that may not be covered by standard homeowner policies and could be financially devastating if your Insurance does not cover it.

Property Insurance

Property Insurance

Homeowners’ insurance policies (also called Hazard Insurance) do not cover flooding - only a separate insurance product can protect against flood damage. Flood insurance is usually optional for mortgaged homeowners in what are normally considered low-risk flood areas. It may even be optional for mortgaged homeowners in high-risk flood areas, depending on the mortgage. However, homeowners who take out a mortgage from a lender that is federally regulated or insured (such as an FHA mortgage) and buy a home in a high-risk flood zone (also known as a Special Flood Hazard Area) will be required to buy flood insurance. In most cases, the homeowner will have to pay for flood insurance every year until the mortgage is paid off.

Today’s world of technology allows for greater insight into various weather related occurrences, it is this type of data that helps determine what perils you may be dealing with in your area.

Make sure you deal with qualified companies and individuals that can certify their knowledge of this industry because; it is always better to have it and not need it than to need it and not have it!

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