Homeowners Insurance Information for the First Time Buyer

Q. We have just purchased our first home. What should we know about homeowner’s insurance before we go shopping for a policy?

A. Getting homeowner’s insurance should be a fairly simple process. Your goal is to get enough coverage to rebuild your house and replace the contents in the event of a total loss of your home. Along with insuring your house, you also need protection in case someone is injured on your property and sues you for maximum damages. Some agents will pull a “quickie” assessment based on your location, the size of your mortgage, and the number of rooms in your home. This can be risky at best, so here is some insider information on how the insurance industry will gauge your homeowner’s policy.

The insurance industry classifies homeowner’s policies on a scale of 1 to 8, tagging them as, for example, “HO-3.” Each level defines a different type of policy, separated by what they cover. Here is a brief list of HO1-8 policies.

HO-1, HO-2 – These basic policies cover from 11 to 17 named perils. Named perils can include fire, lightning, riot, theft, vandalism, falling objects, snow and ice damage, and faulty electrical and heating systems.
HO-3 – This homeowner’s policy is broader and more practical for most people. HO-3 policies protect against all perils except the ones explicitly excluded from the policy. Earthquakes, floods, and nuclear accident are usually excluded.
HO-4 – This level is excellent for renter’s insurance that covers your possessions from 17 named perils, but excludes the structure itself.
HO-6 – If you buy a co-op or condominium residence this level of insurance covers personal property and adequate liability coverage.
HO-8 – If have an antique or landmark-class home, you may not be able to get a guaranteed replacement policy. Companies figure the cost of rebuilding this type of home with the original materials and craftsmanship to be impossibly high. This policy covers against 11 named perils and will repair damage (with no guarantee on materials quality), or pay you the actual cash value of your home.