Home Insurance Basics

Home insurance is the most popular personal insurance type. You need such insurance to protect your home against disasters; it’s also a pre-requisite to receiving mortgage financing.

Homeowners insurance doesn’t only protect you against damages to your home. It’s a package policy that can also cover theft or damage to belongings you keep in your home, as well as your liability or legal responsibility if someone is injured while on your property. That’s why renters may benefit from homeowners insurance, too.

The homeowners insurance policy covers most damages to the main structure. However, there are exceptions such as damage caused by floods, earthquakes, or poor maintenance. You’ll have to buy separate policies to cover such damages.

There are two principal methods used to determine the coverage amount for damages to your home and belongings:

• Actual Cash Value (ACV): Coverage amount is determined at the time the insurance policy is signed and it doesn’t change no matter if the value of the property insured rises or falls.
• Replacement Cost Value (RCV): Coverage amount depends on what is determined as necessary for replacing the damaged property, no matter what the property costs at the time the policy is signed.

There are seven standard forms of homeowners insurance policies and they're almost the same regardless of where you live. The only notable exception is Texas. If you need more info about homeowners insurance in Texas, you can consult the Texas Insurance Department.

• HO-1: Basic Form
• HO-2: Broad Form
• HO-3: Special/Standard Form
• HO-4: Renter’s Broad Form
• HO-5: Comprehensive Form
• HO-6: Special Condo Form
• HO-8: Older Home Form

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