how property insurance works
property insurance can include a number of types of policies such as homeowners insurance renters insurance flood insurance and earthquake insurance both structural losses and personal property are usually included in a homeowners or renters insurance policy 1 the exception is personal property that is very high value and expensive which is usually covered by purchasing an addition to the policy called a rider if there s a claim the property insurance policy will reimburse the policyholder for the actual value of the damage or the replacement cost to fix the problem 2perils covered by property insurance typically include select weather related afflictions such as damage caused by fire smoke wind hail the impact of snow and ice and lightning property insurance also protects against vandalism and theft covering the structure and its contents this insurance also provides liability coverage in case someone other than the property owner or renter is injured while on the property and decides to sue most mortgage lenders require homeowners to have property insurance if there s an outstanding mortgage loan on the property property insurance policies normally exclude damage that results from a variety of events including tsunamis floods drain and sewer backups seeping groundwater standing water and a number of other sources of water mold is typically not covered nor is the damage from an earthquake in addition most policies will not cover extreme circumstances such as nuclear events acts of war or terrorism property insurance includes homeowners insurance renters insurance flood insurance earthquake insurance and other types of coverage understanding property insurancethere are three types of property insurance coverage replacement cost actual cash value and extended replacement costs 3special considerationshomeowners and tenant insurance policies typically include some basic levels of coverage however several types of policies exist that extend beyond basic packages to include more comprehensive coverage the greater the coverage the more expensive the premiums will be for the policy below are the most common types of homeowners policies ho and their coverage ho1 is the most basic bare bones homeowners insurance available while it does cover basic risks like fire lighting theft and vandalism its typically provides only minimal coverage and is seldom recommended most homeowners prefer to obtain the more comprensive coverages listed below 4ho2 or broad form coverage offers more extensive coverage that ho1 it typically the named perils listed for ho1 plus such risks as damages caused by falling objects water from plumbing problems and electrical issues also like ho1 ho2 is not typically recommended because it of its limited coverage 4most homeowners purchase this hybrid policy that compensates for physical loss or damage caused by 16 perils including fire vandalism and theft the ho3 also known as the special form policy still has certain conditions and exclusions such as earthquakes and floods that require separate insurance there is a predetermined limit on the coverage of certain valuables and collectibles including gold wedding rings and other jewelry furs cash firearms and similar items coverage is not usually provided in an ho3 for accidental breakage damage and mysterious disappearance lost misplaced of valuables including fine art and antiques 5ho5 homeowners coverage includes everything in an ho3 policy but is more geared toward the structure itself and the property within the home including furniture appliances clothing and other personal items an ho5 also doesn t cover earthquakes or floods ho5 insurance policies are available to homes that were either built in the last 30 years or renovated in the previous 40 years and they typically cover any damages at replacement cost 5ho4 property insurance also known as renters insurance covers tenants from loss of personal property and liability issues however it does not cover the actual house or apartment being rented which should be covered by the landlord s insurance policy 5also known as condominium insurance ho6 provides similar coverage to renters insurance with personal property unit improvements internal damage and liabiity protecton included ho6 does not cover external or structural damage to the building as the condo association typically insures its buildings 4note that none of these coverage levels reimburses the homeowner for property that breaks down or is damaged in more normal wear and tear situations such as a roof that begins to leak without damage from wind and hail that s where home warranties another way to protect your property can be helpful home warranties are essentially service contracts that cover named appliances and systems such as plumbing or hvac in your home 6