Types of Homeowners Insurance Policies: Which One's Right for You?

Whether this is the first time you are shopping for a homeowners insurance policy or if you currently have a policy, it is always a good idea to be well educated to make sure you have your home properly and adequately covered. It's also important to know what your deductible is.

Standardized HO (homeowners) insurance policies include:

HO-A provides extremely limited actual cash value coverage for your home and contents. Only the types of damage specifically listed in the policy are covered. HO-A amended policies provide more extensive coverage than the base HO-A but less coverage than an HO-B.

HO-B provides replacement cost coverage for most types of insurable perils, except for exclusions.

HO-C policies provide the most extensive coverage.

When you shop for homeowners insurance, it is very important that you know what your policy covers. Your policy is designed to protect homeowners from insurable perils. These perils can include fire, theft, hurricanes and several other events. Your individual policy is determined by named perils and exclusions. Policies can differ from homeowner to homeowner. With your agent's help, you can determine how much coverage you and your family need.

To receive full payment (minus your deductible) for a partial loss, you must insure your house for at least 80% of its replacement cost. If you insure for less, the insurance company will only pay for part of the expense of a partial loss. If your home is destroyed and you only have actual cash value coverage, you may not be able to completely rebuild with the claim payment you receive.

With any policy there are exclusions. Your policy typically does not cover injuries to animals or damage to motor vehicles or aircraft. You also are usually not covered for losses due to floods, mudslides, water damage from sewer backups, damage from war or nuclear hazards, neglect, earthquakes, power failures, seepage, dry rot or vermin.

Homeowners insurance policies have different covered perils and exclusions. Check your policy carefully so you understand the kinds and extent of coverage you have.

Five Key Home Insurance Coverage Types

The rates you pay for your standard homeowners insurance policy includes the following essential types of coverage:

1. Coverage for the structure of your home.
2. Coverage for other structures.
3. Coverage for your personal belongings.
4. Additional living expenses (ALE) also known as loss of use.
5. Liability protection.

1. The Structure of Your Home

Coverage for the structure of your house is the part of your policy that includes repairs or rebuilding if your home (dwelling) was damaged by fire, hurricane, hail, lightning or other disasters listed in your policy. Your "dwelling" typically includes your house, attached structures and fixtures in your house such as built-in appliances, plumbing, wiring, heating systems, and permanently installed air-conditioning systems. This coverage does not include damage caused by floods, earthquakes or routine wear and tear. When you buy your homeowners insurance, it is very important that you purchase enough to rebuild your home.

2. Coverage for Other Structures

Most standard policies also cover detached structures such as garages, storage sheds, and fixtures attached to the land such as fences, driveways, sidewalks, and retaining walls. These kinds of structures are usually covered for about 10% of the amount of coverage you have on your home. If you believe you need more coverage on these structures, make sure you talk to your insurance agent. If a detached structure is used for a business purpose, it is not covered under a homeowners insurance policy.

3. Your Personal Belongings

Items such as furniture, clothing, and sports equipment are covered if they are stolen or destroyed by insured disasters. Some policies may have limited coverage for small boats but not motorized vehicles unless they are unlicensed and only used at your home. Some belongings or items may have limited coverage. These could include artwork, firearms, electronic data and money. Usually you have 50% to 70% of the amount of insurance you have on the structure of your home. It is very important to conduct a home inventory to determine if you have enough coverage to replace these belongings.

Costly items such as silverware, jewelry, and furs are covered but there are usually dollar limits. Your coverage even includes "accidental disappearance," meaning if you lose the item it is covered by your policy. However, there is no deductible. To insure expensive belongings for their full limits you need to buy a special personal property endorsement.

Trees, plants and shrubs are also covered under the Personal Belongings part of your policy as long as they were damaged by insurable perils. They are not covered if the damage occurred from wind or disease. The coverage is usually 5% of the insurance on your home.

Your policy also includes off-premise coverage anywhere in the world. Sometimes the limit is 10% of the amount on the policy.

Your policy includes up to $500.00 of coverage for unauthorized use of your credit cards.

4. Additional Living Expenses (Or Loss of Use)

This part of your policy covers any additional expenses you may have above and beyond your normal living expenses if you cannot live in your home due to damage caused by insurable perils. This means hotel costs, meals, and other living expenses are covered while your home is being repaired or rebuilt. The amount available to pay for these expenses is usually equal to 20% of the insurance on your house. If you rent part of your home, the loss of income will be reimbursed. Policies differ company to company. Make sure you know what is covered. This part of your insurance policy is to help you maintain a "normal standard of living."

5. Liability Protection

Liability protection provides personal liability coverage against lawsuits for bodily injuries or property damage that you or other members of the family who live in the home cause others on your property. It also covers any damage or injury your pet may cause. This part of your policy includes no-fault medical coverage so medical expenses are paid with no liability claim filed against you. The cost of defending you in court and court awards are covered, up to the limit of your policy. This coverage covers you, your family members, or your pets anywhere in the world.

Home insurance experts highly recommend that you buy at least $300,000 worth of protection. You can also buy an umbrella or excess liability policy. This kind of policy covers you for slander or libel claims. These policies cost between $200 to $300 for every $1 million of additional coverage.

Your inventory can be documented by photographing each item or by making a video tape. Make sure to store these documents in a very safe place, not in your home. You can download free home inventory software at www.knowyourstuff.com. Better yet, keep your records and digital photos inside a free KeepandShare account.