Highlights
Homeowners Insurance Basics
We won’t lie to you, finding quality Homeowners Insurance that matches your budget can be a tedious and complicated process. In addition to price, there are dozens of moving parts to think about. Does a particular company suit your coverage needs? How will your claims be handled? Are you already paying too much for your current policy? The list goes on.
Despite the complexity, we’re going to lay out all the terms and information in a format that’s easy to understand. By the time you’ve finished reading this article, you should feel confident about your coverage needs and that you’ll be getting the best bang for your buck. Knowledge is power, so let’s begin!
Types of Coverage
Coverage A: Dwelling
Dwelling coverage is the primary and (typically) the most financially significant coverage type. It compensates you for damage to the structure of your home, like the frame, walls, plumbing, or ventilation systems. It does not include the land your house is built upon or the surrounding lot.
Coverage B: Other Structures
Similar to dwelling coverage, but covers the structures on your property that are detached from the main dwelling. Good examples are pools, driveways, detached garages, or mailboxes.
Coverage C: Personal Property
As the name implies, this covers your personal property inside the dwelling and other structures. Anything that is permanently detached from your structures can be considered personal property. The amount of coverage offered varies between carriers. Typically, it should be between 40%-60% of what your dwelling (Coverage A) is insured for.
Coverage D: Loss of Use
Loss of Use coverage provides financial support for living expenses if your house was so damaged that it became unlivable. Basically, if a storm ravaged your house and an inspector declared it uninhabitable, your insurer will pay for other living arrangements during the home repairs. You can be compensated for rent, groceries, gas, and more.
Coverage E: Liability
Coverage for Liability is the first coverage type that does not pertain to your home. Instead, it protects you from financial suit if someone is injured by you, your actions, or on your property. Individuals do not need to be injured on your property for you to be covered.
Coverage F: Medical Payments (to Others)
Medical Payments exist to pay the medical expenses from minor injuries incurred by guests on your property. Payments range from $500 to $5,000, so it’s not an effective solution for major injuries that your Liability Insurance would pay for. A good scenario for Medical Payments would be covering the health insurance deductible of someone who was injured in your home and paid a visit to the Emergency Room.
Types of Homeowners Insurance Policies
You’ll be surprised at the number of different policy types there are for Homeowners; 8 types in total. Well, 8 basic types, and they’re referred to as “forms”. For now, we’ll keep calling them “types”.
Named Perils
Open Perils
Replacement Cost
Actual Cash Value (ACV)
Compensates you based on the value of your belongings at the time of loss. Using our same example from before, a 10 year old sectional couch is worth a lot less than it was when you originally purchased it. If you had an ACV policy, your expensive couch would be replaced with one of much lesser quality, due to depreciation.
HO-1
- Fire/Lightning
- Hail and Windstorms
- Explosions
- Smoke
- Theft
- Vandalism
- Damage from Vehicles
- Damage from Aircraft
- Riots/Civil Unrest
- Volcanic Eruption
These perils only protect the structure of your home, unless you have informed your agent of additional needs. You can purchase coverage for your personal belongings or equipment, but it’s not the most cost efficient policy to do so. In most cases, you should only consider an HO-1 policy if you are looking for bare minimum coverage. An upside to the HO-1 is your Dwelling and Other Structures will be valued using Replacement Cost. Even so, many carriers do not offer HO-1s, and the lender of your home may not consider this policy sufficient.
HO-2
- Fire/Lightning
- Hail and Windstorms
- Explosions
- Smoke
- Theft
- Vandalism
- Damage from Vehicles
- Damage from Aircraft
- Riots/Civil Unrest
- Volcanic Eruption
- + Falling Objects
- + Weight of Snow/Sleet/Ice
- + Freezing
- + Accidental Discharge or Overflow of Water
- + Sudden and Accidental Bursting/Burning/Cracking of Pipes
- + Sudden and Accidental Damage from Artificial Electrical Current
HO-3
- Earth Movement
- Ordinance or Law (Available with an endorsement)
- Water Damage not caused by Sudden and Accidental Discharge or Overflow
- Power Failure
- Neglect
- War
- Nuclear Hazard
- Intentional Loss (Fraud)
- Government Action
- Collapse due to Lack of Maintenance
- Mold, Fungus, or Rot
- Bird, Vermin, Rodents, and Insects
- Normal Wear and Tear
HO-4
An HO-4 is a unique policy type that’s designed for renters. It does not provide Coverage A, B, or C (Dwelling, Other Structures, Loss of Use), as the structure of the rental is typically insured by the landlord. Intended to keep costs low for those who rent, the only coverage types available are Personal Property, Liability, and Medical Payments.
HO-5
Similar to the HO-3 policy, the HO-5 offers an open perils/all-risk arrangement. The benefit of choosing an HO-5 over an HO-3 is that everything, including your Personal Property, will be covered by open perils. Exclusions are identical to the HO-3 plan, as well.
HO-6
A named peril policy designed for individuals who own a condo. Said individuals are not responsible for the condo’s exterior, but they are able to insure everything within. This includes the walls, ceiling, flooring, and personal property. Dwelling coverage is mandatory with an HO-6, while Other Structures is not available. The same 16 perils offered with an HO-2 or HO-4 are covered.
HO-7
The HO-7 policy is an HO-3 policy made available for mobile homes, trailers, RVs, and similar vehicles. The only difference between the policies is the Dwelling coverage limits will be lower, since these types of dwellings are not as expensive to rebuild or replace.
HO-8
Variations of the HO-* Policies
- HOA: Not to be mistaken with “Homeowners Association” Insurance (which exists), the HOA is a Homeowners policy of its own. It’s essentially identical to the HO-1 policy, the only difference besides the acronym is that it’s offered primarily in Texas.
- HOA+: This policy is identical to the HO-2 described above. Primarily offered in Texas.
- HOB: The HOB is identical to the HO-3 policy in every aspect, except it offers alternative coverage for water damage. This includes and is limited to one of the following: sudden and accidental discharge or overflow of water, sewage backup, foundation damage resulting from repairs of plumbing systems, or structural damage from leaking pipes.
- HOC: Identical to the HO-5 policy, offering open peril/all-risk coverage for Dwelling, Other Structures, and Personal Property, except it offers additional coverage for water damage. Sudden and accidental discharge or overflow of water, sewage backup, foundation damage resulting from repairs of plumbing systems, or structural damage from leaking pipes are all included by default.
How to Get Started
Now that you know the basic terms and policies available, you need to know how to turn that information into action. It’s not as simple as getting on the phone and speaking with an agent – yet. To get started, there are a few things you need to gather first.
Consider the Status of Your Mortgage
If you are still paying for your mortgage, you are obligated to purchase Homeowner’s Insurance up to the adequacy of your lender. An HO-1 might have seemed appealing because of it’s low cost, but odds are your lender is going to demand at least an HO-2 for the additional named perils. Insurance may already be included in your mortgage, so be sure to check your contract before proceeding.
When your home is entirely paid off, you are of course free to choose whichever policy suits you. Despite that, we advise against getting an HO-1 policy, and sometimes even an HO-2. The amount of investment that has gone into your home and furnishings is nothing to joke about. In the event of a disaster, the cheaper policy types just won’t cut it for every situation. Additionally, price variations between the HO-2 and HO-3 are not too extreme. Think about what you would be losing if you didn’t spend a few extra dollars on the proper coverage.
Take Inventory of Your Belongings
This will be a tedious endeavor, but it’s the most important thing you can do to help purchase the right Homeowners policy. Start writing down or filling a spreadsheet of every valuable possession you would expect to be replaced if your home was destroyed. If you can, include the purchase date, original price (or estimated value), and the receipt.
It’s okay if you do not know or have the information for every single item, just know that anything you have will help your claims be settled quicker in the future.
Scheduled Items
These are a portion of your personal belongings that won’t be covered under Coverage C (Personal Property) of your policy. They’re items of intrinsic value, such as art, jewelry, precious stones, and items of similar nature. Take account of them, and be aware that it will require an endorsement for them be covered on your insurance. Scheduled Items will have a lower limit of coverage. Typically around $1,500 just for jewelry with most carriers.
Determine Your Home’s Size and Build
Once you have your belongings accounted for, the second step is outlining the structure of your home. In most cases, an insurance agent will estimate the cost of your home over the phone after asking about building materials used, the roof you have, the type of flooring, and so on.
If your home has excessive custom materials or features beyond what the average agent could gather in a short phone call, it’s helpful to be prepared by knowing the information beforehand. Think about:
- Year of construction.
- Total square footage.
- The type of exterior wall construction. Frame, masonry, veneer, etc…
- The style of the house. Spanish, Colonial, Ranch, etc…
- The number of bedrooms, bathrooms, and other spaces.
- Appliances.
- The type of roof and materials used.
- Other structures on the premises such as garages, sheds, or pools.
- Fireplaces, exterior trim, and other special features such as arched windows.
- Whether the house, or parts of it, were custom built.
- Improvements to your home. For instance, adding a second bathroom.
- Security devices installed.
Take Pictures!
Comparing Quotes Online (Don't)
You’re probably saying to yourself, “Why shouldn’t I get online quotes? They’re easy, accurate, and I don’t have to speak to anyone!” We’ll address each of these points, and why they’re not exactly beneficial.
“They’re Easy”
We must give credit where it’s due: online quote comparisons are incredibly simple for the consumer. Within a few minutes spent filling out forms, they’re able to offer several to dozens of insurance companies with their associated ratings and price.
There is a problem that comes with this simplicity though, and that is a lack of a thorough quoting process. Quote comparison websites tend to be vague in the questions they ask, and many scenarios that could save you money aren’t covered. The difficult questions are intentionally left out because they work against the simplicity angle. According to themanifest.com, “… [m]ore than a quarter (27%) of users abandon an online form because it is too long.” Site designers are acutely aware of this and go to great lengths to avoid it.
They also expect the customer to be informed about all aspects of insurance, and make decisions on the spot. Perhaps you’ve done your homework (you’ve read this article, maybe?) and you are knowledgeable enough to fill in the blanks. You’re the exception to the rule, though, and it’s not the best case for your Average Joe.
“They’re Accurate”
- When multiple quoting sites offer the same insurance carriers, odds are you will receive different prices. This is because the quoting process differs between websites, and the final prices are generated solely from the information you’ve provided. For instance, a quote you received from Website #1 might have been quick to fill out and very cheap compared to Website #2. However, Website #1 didn’t have a form to enter your custom building materials used for your artisan fireplace. Website #2 did. Now you’ve got 2 different prices for the exact same carrier, policy, and coverage limits. Our major issue as the consumer is that we probably don’t know which of them was accurate. It becomes even more confusing when comparing additional websites.
- The possibility for “Bait and Switch”. It’s a nuanced, sneaky thing, and might not be intentional on the designer’s part. If you encounter a website that did not accurately gather your information, the prices they offered weren’t accurate either. You wouldn’t know this beforehand, but would find out when speaking with an agent from the insurance carrier afterwards. Then it’s as simple as the agent updating your policy with the proper information, which could have an impact on your monthly premium. Technically, your updated premium could become cheaper as easy as it could become more expensive. It’s inaccurate nonetheless.
- You only receive quotes from the companies the website wants you to buy from. Of course, many of them offer name brand companies that you recognize and trust, so who cares if it coincides with the website’s intentions? The one thing you must remember about the nature of these sites is that they aren’t generating business for The General or 21st Century because it’s fun. They are being paid to send leads to insurance carriers with massive marketing budgets. They don’t care about the specific needs of the customer, and have incentive to prioritize certain insurance carriers before others. That means you have no idea whether you’re receiving honest quotes from companies that would be a good fit for you and your budget, or because it lines the pockets of those generating the leads.
As unfortunate as it is for introverts, the insurance industry is one that still operates best between the customer and the agent. By now, you understand our position on quote comparison websites, but how are agents any better?
Agents have the expertise to ask the right questions. They’ve signed customers to more contracts than you can imagine, and have enough experience to know where you could be saving more money. Plus, forming a personal relationship with your agent unlocks easy access to insurance consultation, and can improve your claims process in the future.
Beyond the agent’s personal capabilities, the information they have access to is more in-depth. If you’re speaking with an agent from a direct insurer (sells only one brand of insurance), they will have more information on each and every aspect of their carrier’s products. When speaking with a broker agent (sells insurance from multiple brands), they will have deeper information for all of their carrier’s products.
Direct insurers are great when you know exactly which company you want to sign with. They represent the insurance carrier’s interests, and will sign you up based on how likely the company is to profit from you. That doesn’t mean you won’t receive a good policy, that’s just how it works. If you have a spotted driving history, direct insurers can be problematic. Top-tier companies will have a preferred driver demographic, so you may not be eligible for a policy until you meet their criteria.
Brokers are agents that are more like an online quote comparison site – without the drawbacks. They are “appointed” with dozens of insurance carriers, but do not represent their interests. Brokers work to satisfy the customer’s needs first, and only. It’s what they’re paid to do. Regardless of your driving history, a broker will be able to sign you with a company that suits your insurance and financial needs without having to call dozens of carriers on your own.
Preparing to Speak With an Insurer or Broker Agent
Hopefully by this point, we’ve convinced you to speak with a direct insurer or a broker. That’s good news because it puts you in the best position to secure a policy that works. So, here is the information you’ll need from what we’ve discussed so far:
- An idea of which policy you’re looking to purchase, and what perils you need to be protected from. If you live in an area known for a specific disaster, make sure you’re insured for it.
- The value of your personal belongings.
- List of Scheduled Items.
- The size and build of your home: year of construction, square footage, number of rooms/bathrooms, building materials, appliances, etc…
- List of recent renovations or improvements, if any.
- Your monthly budget.
Choosing the Right Insurer
There are a couple different factors that should be taken into account before you say yes to an insurer, particularly if they are a direct insurer. Ask about their claims record. Do they pay out? Do they have high consumer ratings? How is the customer service experience? If these questions don’t seem important to answer right now, be aware that when you have a claim, you might be kicking yourself in the butt. It’s important to have the coverage you need at a price you can afford, but it’s equally as important to be placed with an insurer that protects you when the time comes.
Deductibles
A deductible is the amount of money you pay to your insurer to access compensation from a claim. You pay a little to get a lot. Do not confuse this with premium, which is your monthly payment.
Deductibles play a huge roll in how much your monthly premium will be. The higher your deductible, the more you pay to access that compensation. You will be of lower financial risk to the insurer with high deductibles, so your monthly premium will be lower. The opposite is true for low deductibles. Amounts will vary between carriers and between policy types, so remember to compare apples-to-apples.
Discounts
Every insurance carrier offers a variety of discounts. Most of them are across the board, while a few direct insurers have their own brand of similar discounts. The most common discounts to be aware of are:
- Multi-policy
- Company Loyalty
- No Recent Claims
- Marriage
- New Home
- Security System
- Fire/Smoke Prevention System
- Paying in Full
- Senior Citizen
Hiring a Brokerage
We respect your right to do business with whoever you wish. That being said, we believe that hiring a brokerage is the single best option for a consumer in the insurance market today. A broker can access coverage options and prices from dozens of companies instantaneously. Instant price comparisons combined with a broker’s knowledge and expertise is the one-two combo optimal for you and your family.
Save yourself the hassle of doing it alone – Haven Insurance Services would love to have your business! Give us a call or use our online quote system to send us your contact information and policy preferences. An agent will receive your request, and we’ll reach out to offer our most accurate and affordable options!
Speak With an Agent
(909) 944-9022
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Frequently Asked Questions
Is there a grace period for Homeowner’s Insurance payments?
This primarily depends on your state. Most states do not require insurer’s to provide a grace period, however, some do. Check with your state law first.
If you live in a state that does not mandate a grace period, you should expect your insurance policy to lapse without warning immediately after a failure to pay.
Items were stolen from my yard. Am I partially at fault? Will I still be covered?
Nobody has the right to take your possessions. You will still be covered for theft as outlined in your policy, after you pay a deductible. If your claim was for a sizable amount, you may see an increase in monthly premium on your next renewal.
