Homeowners: Basic and Broad Coverages Explained

You found the house of your dreams, and you start the process of buying your home.  There are some things that are important and you want to look for. First, if the home is an older home, then you want to make sure that the electrical wiring and plumbing have been updated. Most insurance companies will not insure a home that has not been updated. Second, you want to make sure the septic and well are in good condition, as well as the roof and siding. A home inspection from a reputable company is a wise decision, but make sure they check everything thoroughly.

If the inspection comes back good, then you will start looking into homeowners insurance. Basically a homeowners can be a basic policy, also called an HOA; or a broad policy, also called an HOB.

An HOA (or HO2 policy) is a homeowners policy that covers the home on a "named perils" basis. That means that there are 11 perils that will be named in the policy and everything else is not covered. Most of the HOA policies give you a limit on theft coverage, and accidental discharge of water. Sometimes these type of policies will only cover your home for actual cash value, and not what the home would cost to be replaced. It may also only provide actual cash value against your personal contents of the home. The benefit of this type of policy is that it is cheaper, but also is less coverage.

An HOB (or HO3 policy) is a more broad form of coverage that would cover 16 perils unless otherwise excluded. This is a more common homeowner policy, because it gives more coverage than a standard policy, and provides coverage based on what the home would cost to replace it if there was a total loss. These type of policies include coverages like accidental discharge of water up to the coverage amount on the dwelling, glass coverage, replacement cost on detached structures (ie sheds, garages), and replacement cost on personal contents. This type of policy also offers coverage for loss of use, (also called additional living expense). This is an additional amount on the policy that can be given if the home is deemed uninhabitable after a loss.

Here are the coverage parts of a homeowner policy.

• Coverage A (Dwelling) covers the physical structure of your residence and any attachments--such as attached garages--but doesn't cover outlying structures, like sheds or fences.
• Coverage B (Other Structures) covers structures on your property not attached to your residence, including detached garages, sheds and guest homes.
• Coverage C (Personal Property) covers the contents of your home. Special limits are placed on valuables like cash or jewelry, which require additional, separate coverage.
• Coverage D (Additional Living Expenses) covers living expenses such as housing, meals and utilities, incurred due to loss from Coverage A, B, and C.
• Coverage E (Liability) covers injury and property damage incurred at your home and other covered locations.
• Coverage F (Medical Payments) covers medical payments for guests injured in your home and on your property.

The best way to find out what kind of coverage you need is to talk to a local agent that knows the location of where your home is. For example, if your home is located near a beach, you want to find an agent that knows the area, and knows what companies will take a home that is near a body of water.  There may also be certain requirements that the company has for the home to be insured properly.