Homeowner Insurance Basics

Homeowners Insurance is confusing, especially for first-time homebuyers. There are numerous types of policies, coverages vary from policy to policy, and to make matters worse – online insurance companies oversimplify and do little to educate the buyer on what they are actually getting! When a loss happens, homeowners are left confused, and in many instances, not covered properly.  

The Basics

Common terms policyholders need to know when dealing with homeowner insurance.

• Carrier: The insurance company that “carriers” your policy.  
• Named Peril: A named peril policy lists 8 or 16 perils (causes of loss) that the policies cover.  A 16 named peril policy will cover most claimable losses that happen in a home. 
• Open Peril:  An open peril policy will cover any cause of loss unless it is specifically excluded.  
• Flood Insurance: Flood insurance is a separate policy from a homeowner’s policy. There are very few carriers that offer a “Flood Endorsement.” The value of this endorsement varies from carrier to carrier.   
• Endorsement: A change in policy terms and conditions. 
• Replacement Cost: The cost of an item in today’s dollars, regardless of the cost when purchased new. 
• Actual Cash Value: The cost of an item in today’s dollars MINUS the depreciation, based on age and condition. 
• Captive or Exclusive Agent:  Offers insurance through one carrier. They may have access to a few additional carriers that do not directly compete with the company for which they work. 
• Independent Agent: Contracts with multiple carriers and has a wide range of companies and policy types to offer. 
• Online Reseller: No agent, uses Artificial Intelligence to determine risk. Little to no information given to the homeowner until after policy is purchased. 

Policy Forms

In Texas, there are numerous policy forms (types of policies,) we have listed the most common policies that homeowners should be aware of when reviewing home insurance.

• HO-A+: 16 Named Perils plus any endorsements.  (The first 8 perils comprise the Basic HO-A policy) 

1. 1.  Fire or lightning 
   2. Windstorm or hail 
   3. Explosion 
   4. Riots 
   5. Aircraft 
   6. Vehicles 
   7. Smoke 
   8. Vandalism 
   9. Theft 
   10. Falling objects 
   11. Weight of ice, snow, or sleet 
   12. Accidental discharge or overflow of water or steam 
   13. Sudden and accidental tearing, cracking, burning, or bulging 
   14. Freezing 
   15. Sudden and accidental damage due to short circuiting 
   16. Volcanic Eruption 

• HO -B: Open Peril for Structure and Named Peril for Contents. Flood and Damage by animals you own or care for is usually excluded.  A true HO-B policy will include Seepage. Many carriers limit this to 14 days for the time the leak originally occurred. 
• HO-3: Open Peril for Structure and Named Peril for Contents. Flood and Damage by animals you own or care for is usually excluded.  Most carriers do not offer coverage for Seepage. 

Coverages 

In addition to all of this, a homeowner’s policy has five coverages.

• Coverage A: Dwelling– The home. 
• Coverage B: Other Structures– Sheds, detached garages, etc. 
• Coverage C: Personal Property– Contents or the “stuff” the policyholder owns.
• Coverage D: Loss of Use– Coverage in case the home is not livable, and the policyholder must stay elsewhere will the dwelling is being repaired.  
• Coverage E: Liability– Covers the policyholder against lawsuits for injury or property damage that the policyholder or family members cause to other people. It also pays for damage caused by pets. It is important to note: many breeds of dogs are excluded. 
• Coverage F: Medical Payments– Covers the policyholder if a guest is injured at the home whether the policyholder to blame or not. This is meant for small claims. 

There are also a wide variety of endorsements that can be added to modify a policy based on each individual’s needs.  

Confusing? All of this is just the tip of the iceberg. A good agent can help a homeowner navigate what policy form to choose, the coverages, and the amounts of coverages that are needed. An agent can also explain exclusions and available endorsements. Getting the RIGHT COVERAGE at the RIGHT PRICE will help a homeowner protect the most important investment in their life, when they need it most.  

This Guest article was written by Christy Alexander, owner of Texas Great Rate Insurance. They provide home, auto, and life insurance. If you are interested in a quote or have additional questions feel free to contact Texas Great Rate Insurance.