Homeowners insurance is the most common type of household insurance. A homeowners policy covers both the structure of your home and its contents, or your personal belongings. These policies frequently contain a personal liability section that covers you in the event that a guest falls down your stairs or otherwise gets hurt while on your property.
There are many varieties of homeowners insurance, offered by many companies, with varying types of coverage for different areas and situations. There are special policies, for instance, for condo owners or renters, whose coverage needs are different from individual homeowners. Insurance companies use numbers and letters to classify homeowner policies. A common form is HO3 or HOB, an adaptation of the HO3 policy.
An HOB insurance policy combines open peril and named peril structures.
Understanding the HOB Policy
An HOB policy is a hybrid, with elements of "open peril" and "named peril" coverage. Open peril coverage is, as the name implies, open-ended. Rather than specifying what the insurance does cover, it instead lists any perils or dangers for which you are not covered. The insurer will pay for any event that is not listed as an exclusion.
Named perils, however, are dangers your insurance policy does specifically list and cover. In a typical HOB policy, structural damage to your home gets covered under an open peril clause while your personal property within the home gets insured on a named perils basis.
Review the Structure Exclusions
An HOB policy covers a house against most types of damage. It specifically excludes such things as earth movements, power failures, war, nuclear accidents, vandalism, sinking foundations and wear and tear deterioration. It also generally includes some protection against water damage. Note, however, that flooding is almost always excluded from homeowners insurance. If you live in a coastal area or one that is prone to flooding you'll need to purchase flood insurance separately.
Earthquakes, too, are generally excluded from homeowners insurance so you'll want to purchase earthquake protection if you live in California or other prone areas.
Personal Property Coverage
An HOB policy covers your personal property against 16 named perils. These include such things as fire or lightning, wind or hail, smoke, explosion, civil disturbance, falling objects, the weight of snow or ice, or the overflow of local streams. It also protects against theft or vandalism.
Amount of Coverage
The amount of coverage you need varies with the value of your house and its contents. For optimal coverage, have a contractor or builder walk through your home with you and give you an estimate of what it would cost to rebuild from the ground up. Once you've done that, take a look at the furniture and other property in your home and estimate what it would cost to replace it all. For optimal coverage, take out a policy that will pay 125 percent of these costs. The extra padding will protect you from inflation if you have to rebuild later when construction costs have increased.
When shopping for a policy, look for one that offers full replacement costs rather than actual cash value. The actual cash value of an item is the amount you would get if you sold it today. That number is often less than the cost of replacing the item with a new one. An actual cash value policy may leave you short if you have to start over.
Limits of HOB Policies
HOB policies usually cover accessories, such as lawn mowers, garden tractors, boats, boat trailers and similar devices when on the premises. It also covers such things as credit cards, securities, precious metals, furs or jewelry, but usually with special limitations on dollar coverage. It's wise to insure valuables like art, jewelry and collectibles under their own insurance policy so you can recover an amount closer to their actual value.
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