Home Insurance Types and Terminology - ByteScout

Home Insurance Types and Terminology

Since disasters are unpredictable, home insurance policy is a vital protection system for a homeowner to consider and ultimately purchase to protect themselves and their families. Therefore, every homeowner must be conversant with what and how home insurance policy works to enable them to make the right decisions.

  1. Home Insurance Coverage
  2. Home Insurance Process
  3. Homeowners vs. Renters Insurance
  4. Other Types of Home Insurance
  5. Common Problems with Home Insurance

Home Insurance Types

Home Insurance Coverage

Standard home insurance provides coverage for three fundamental requirements. These are explained below.

Building coverage – is the backbone of all home insurance policies. It covers an insured building’s entire structure, including walls, floors, and all fittings. Also, it protects the building against hail, fire, and burglary. The building coverage helps to repair or rebuild buildings that have been destroyed as a result of a disaster.

Content coverage – covers items such as clothing, furniture, electronics, and kitchen equipment found in a typical home. If any insured items are destroyed or damaged, the insurance companies pay for the replacement or the repair.

Personal liability coverage – covers damages, which happen as a result of a particular unforeseen occurrence. It also covers injuries caused by damage to some or all parts of a building.

Home Insurance Process

Typical forms of home insurance policies protect homeowners from misfortunes such as fire outbreaks, floods, and burglary. It also provides cover for injury or harm to third-party individuals within an insured property. However, most home insurance policies may not cover severe events such as earthquakes, nuclear disasters, wars, and tsunamis.

Different types of home insurance provide different forms of protection to properties. In general, there are many forms of protection that homeowners can expect from home insurance policies. These are:

  • Actual cash value
  • Replacement cost
  • Extended replacement cost

Actual cash rate – this type of policy pays for the replacement or repair of a property while considering its depreciated value. Therefore, a homeowner only gets paid equivalent to the worth of their property right before a disaster.

Replacement cost – covers properties by paying for the value of replacement cost. It does not consider the cash value of properties. It pays for the value of repairing or replacing damaged property.

Extended replacement rate – this form of protection covers a property even when the cost of construction or repair goes up as long as it does not exceed a predefined limit. Therefore, insurance companies and homeowners must agree on the highest amount to be paid in the event of a disaster.

Homeowners vs. Renters Insurance

These two types of insurances provide essential cover against damage, liability, to name a few. These are purchased by either the actual homeowner or a tenant. The fundamental difference between the two is the nature of the property each insurance covers. The renter insurance policy protects tenants against theft or damage to personal belongings or property. But, it does not cover damage done to a home. However, homeowner insurance covers the entire buildings or apartments, together with the owner’s personal belongings.

Other Types of Home Insurance

Apart from homeowner insurance and homeowner insurance, there are other types of home insurance policies that suit different needs. In most cases, additional insurance policies that are related to home insurance are purchased separately to supplement the basic home insurance policy. Also, the type of additions depends on the prevailing occurring disasters or problems within the geographic location. For example, an individual that lives in an earthquake-prone location may need to purchase an earthquake insurance add-on onto the primary home insurance. These types include the following.

  • Earthquake Insurance – for those that live in an earthquake-prone location, this insurance is essential. If an earthquake damages or destroys an insured building, the insurance company covers the reconstruction or repair of the property. Also, the deductible of this add-on is separate from that of the standard home insurance policy.
  • Flood Insurance – it protects insured buildings and properties against flood damage. Like the earthquake insurance policy, it is deducted separately. Homeowners within specific geographical locations that are predisposed to flooding are advised to purchased flood insurance add-on.
  • Valuables Insurance – individuals with expensive items or antiques such as jewelry or paintings may want to purchase additional insurance to cover damage or theft. The valuables insurance policy is quite expensive and is mostly purchased only when necessary.

There are many more types of add-on insurance policies. In many cases, an individual can arrange a customized add-on insurance policy that can provide sufficient cover as desired.

Common Problems with Home Insurance

Like any insurance, no insurance home insurance policy is flawless. Also, as most people do not like the idea of thoroughly reading contracts, a lot can be missing or present that is not in the interest of the homeowner. In recent years, many insurance companies tend to make provisions that tend to shift significant responsibility to homeowners. Deliberate attempts are made by insurance companies to use hard to read grammar and words to trick less vigilant clients. Many companies do this to maximize profit and increase their company’s ability to pay out future claims.

Therefore, Homeowners must be aware of the common problems with insurance coverage. These are discussed below.

  • Homeowners must know that most home insurance policies do not cover all possible incidents. Insurance companies do this to decrease the frequency of payout, especially with events that commonly occur in specific locations and to reduce payouts of higher value in cases of a significant natural catastrophe such as floods or earthquakes.
  • When two or more different disasters cause damage or destruction to a building, a clause within the insurance policy may limit the amount of money an insurance company can payout. Sometimes such clauses can completely prevent payment. This clause is referred to as the anti-concurrent causation clause. A homeowner must ensure that an appropriate add-on is purchased to cover for such loopholes.
  • New or modified building regulations can impact the amount of money paid out to reconstruct a damaged building. In some instances, a new regulation can significantly increase the amount of work required to rebuild a house, translating into additional construction expenses. A homeworker may want to purchase add-on policies to cover for additional issues.