Home Insurance

Home insurance is a contract between a homeowner and an insurance company. In exchange for paying a premium (monthly, quarterly, or annually), the insurer agrees to cover specific financial losses related to the home, its contents, or liability incidents. It’s designed to protect homeowners from unexpected expenses due to events like natural disasters, theft, or accidents.

Home insurance is typically required by mortgage lenders to protect their financial interest in the property. Even if you own your home outright, having insurance is advisable to safeguard your investment and personal finances.

A standard homeowners insurance policy (often called an HO-3 policy in the U.S.) includes several types of coverage:

1. Dwelling Coverage

• What it covers: The physical structure of your home, including walls, roof, foundation, and attached structures (like a garage or deck), against covered perils (e.g., fire, windstorms, hail, vandalism).
• Key details:
  • The coverage limit is typically based on the cost to rebuild your home, not its market value.
  • Policies list specific perils (events) covered, such as fire, lightning, or explosions. Some perils, like floods or earthquakes, are usually excluded and require separate policies.
  • Replacement cost coverage pays to rebuild or repair your home without factoring in depreciation, while actual cash value (ACV) coverage accounts for depreciation.

2. Other Structures Coverage

• What it covers: Structures on your property that are not attached to your home, such as detached garages, sheds, fences, or gazebos.
• Key details:
  • Typically limited to 10-20% of the dwelling coverage amount.
  • Covers the same perils as dwelling coverage.

3. Personal Property Coverage

• What it covers: Your personal belongings, such as furniture, clothing, electronics, and appliances, if damaged, destroyed, or stolen.
• Key details:
  • Coverage is usually 50-70% of the dwelling coverage amount.
  • High-value items like jewellery, art, or collectables may have sub-limits (e.g., £1,500 for jewellery) and require additional coverage (called a rider or floater).
  • You can choose replacement cost (pays the cost to replace items) or actual cash value (factors in depreciation).
  • Coverage applies worldwide for theft or loss, though limits may be lower for items damaged or lost away from home.

4. Loss of Use (Additional Living Expenses) Coverage

• What it covers: Temporary living expenses, such as hotel stays, meals, or rental costs, if your home is uninhabitable due to a covered peril.
• Key details:
  • Typically covers 20-30% of the dwelling coverage amount.
  • Coverage is time-limited (e.g., 12-24 months) or capped at a dollar amount.

5. Personal Liability Coverage

• What it covers: Financial protection if you or a household member are legally responsible for injuring someone or damaging their property.
• Key details:
  • Standard policies include £100,000-£300,000 in liability coverage, but higher limits can be purchased.
  • Covers legal defense costs if you’re sued.
  • Applies to incidents on or off your property (e.g., if your dog bites someone at a park).

6. Medical Payments Coverage

• What it covers: Minor medical expenses for guests injured on your property, regardless of fault (e.g., a visitor slips and falls).
• Key details:
  • Typically ranges from £1,000 to £5,000 per incident.
  • Does not cover injuries to you or household members.

Home insurance policies vary based on the level of coverage and the type of property. The most common forms in the U.S. are standardized by the Insurance Services Office (ISO):

1. HO-1 (Basic Form)

• Covers a limited set of perils (e.g., fire, lightning, theft).
• Rarely used due to its limited coverage.

2. HO-2 (Broad Form)

• Covers a broader list of perils than HO-1, including falling objects, water damage from plumbing, and freezing.
• Still less comprehensive than HO-3.

3. HO-3 (Special Form)

• The most common policy for single-family homes.
• Covers the dwelling and other structures on an open-peril basis (all risks unless explicitly excluded) and personal property on a named-peril basis (only      specific listed events).
• Exclusions include floods, earthquakes, and wear and tear.

4. HO-4 (Renters Insurance)

• Designed for tenants, covering personal property, liability, and loss of use but not the dwelling (which is the landlord’s responsibility).
• Similar to HO-3 for personal property coverage (named perils).

5. HO-5 (Comprehensive Form)

• A more extensive version of HO-3, covering both dwelling and personal property on an open-peril basis.
• Offers higher coverage limits for personal belongings and fewer exclusions.

6. HO-6 (Condo Insurance)

• For condominium owners, covering the interior of the unit, personal property, liability, and loss of use.
• The condo association’s master policy typically covers the building’s exterior and common areas.

7. HO-7 (Mobile Home Form)

• Tailored for mobile or manufactured homes, with coverage similar to HO-3 but adjusted for the unique risks of mobile homes.

8. HO-8 (Older Home Form)

• For older or historic homes where replacement costs exceed market value.
• Covers fewer perils and may pay out on an actual cash value basis.

Most standard policies (e.g., HO-3) cover the following named perils for personal property and, in some cases, the dwelling:

• Fire or lightning
• Windstorms or hail
• Explosions
• Riots or civil commotion
• Aircraft or vehicle damage
• Smoke
• Vandalism or malicious mischief
• Theft
• Falling objects
• Weight of ice, snow, or sleet
• Accidental water damage (e.g., burst pipes)
• Freezing of plumbing systems
• Sudden electrical damage

Standard policies typically do not cover:

• Floods: Requires separate flood insurance, often through the National Flood Insurance Program (NFIP) or private insurers.
• Earthquakes: Requires a separate earthquake policy or endorsement.
• Wear and tear: Normal deterioration or lack of maintenance is not covered.
• Mold: Often excluded unless caused by a covered peril (e.g., a burst pipe).
• War or nuclear hazards
• Intentional damage or criminal acts by the policyholder
• Sewer backups: May require an endorsement for coverage.
• Pest infestations (e.g., termites)
• Government actions (e.g., eminent domain)

Several factors influence the cost of home insurance:

• Location: Homes in areas prone to natural disasters (e.g., hurricanes, wildfires) or high crime rates have higher premiums.
• Home characteristics: Age, construction materials, square footage, and features like a pool or trampoline affect costs.
• Coverage limits: Higher coverage amounts or additional riders increase premiums.
• Deductible: A higher deductible (the amount you pay out of pocket before insurance kicks in) lowers premiums.
• Claims history: Frequent claims can raise premiums.
• Credit score: In many regions, insurers use credit-based insurance scores to determine rates.
• Discounts: Bundling home and auto insurance, installing security systems, or having a claims-free history can lower costs.

Homeowners can add endorsements to cover specific risks or items not included in a standard policy:

• Flood insurance: Covers water damage from natural flooding.
• Earthquake insurance: Covers damage from seismic activity.
• Scheduled personal property: Provides extra coverage for high-value items like jewelry or art.
• Water backup coverage: Protects against damage from sewer or sump pump backups.
• Identity theft coverage: Helps with costs related to restoring your identity.
• Home business coverage: Covers business equipment or liability for home-based businesses.

• Assess your needs:
  • Estimate the cost to rebuild your home (use a replacement cost estimator).
  • Inventory your personal belongings to determine coverage needs.
  • Consider liability risks based on your lifestyle (e.g., owning a dog or having a pool).
• Compare quotes:
  • Get quotes from multiple insurers to compare coverage and premiums.
  • Check for discounts and bundle options.
• Understand policy details:
  • Review covered perils, exclusions, limits, and deductibles.
  • Ensure you understand replacement cost vs. actual cash value.
• Consider additional coverage:
  • Evaluate whether you need flood, earthquake, or other endorsements based on your location and risks.
• Check insurer reputation:
  • Look at customer reviews, financial stability ratings (e.g., AM Best), and claims satisfaction scores.

• Use Phillips Capital annually to shop around for better rates.
• Increase your deductible to lower premiums if you can afford out-of-pocket costs.
• Install safety features like smoke detectors, deadbolts, or a security system.
• Bundle home and auto insurance for discounts.
• Maintain a good credit score.
• Avoid filing small claims to keep your premiums low.  

If you have a need for Home Insurance, please contact us on 0800 061 46 49 or email ask@phillipscapital.info to discuss your options.