Homeowners insurance is one of the most popular forms of personal lines insurance on the market today. The typical homeowners policy has two main sections: Section I covers the property of the insured and Section II provides personal liability coverage to the insured. Almost anyone who owns or leases property has a need for this type of insurance. And many times, homeowners insurance is required by the lender as part of the requirements in obtaining a mortgage.

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Before the 1950's, if a person wanted to purchase all the coverage that the modern day homeowners policy provides, he or she would have had to purchase at least three separate policies: one policy to cover personal property and the dwelling, a separate policy to cover losses due to theft, and a third policy to cover losses due to personal negligence. Changes in the laws which regulate the sale of insurance now allow the insurance industry to sell policies which combine the separate coverages into one all encompassing policy. The main advantages of combining the various coverages are lower expenses, and therefore lower cost to consumers, and the convenience of being able to purchase the property, personal liability and other coverages in a single policy.

The standard homeowners policy can have up to six different coverages. Coverage A covers the main dwelling being used. Coverage B covers any other structures that are on the premises but are not attached to the main dwelling. For example, losses to a detached garage would be covered under Coverage B. Coverage C covers the personal property of the insured. Coverage D covers the additional cost incurred by the policy owner when the premises cannot be used because of an insured loss. For example, if a tree falls through the roof of the main house and the policy owner has to live in a motel for two weeks, the cost of the motel room would be covered under Coverage D. The last two coverages provide personal liability coverage to the policy owner. Coverage E protects the insured from losses due to his or her negligence and provides this protection anywhere in the world. Coverage F provides medical payments to other persons who are injured either on the policy owner's premises or by the actions of the policy owner.

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Many insurance companies use standardized policy forms in lieu of developing their own company-specific contracts. One of the most popular homeowners policy forms used in the United States was developed by the Insurance Services Office (ISO), an industry consulting and statistical agency. Comparing premium quotes from different insurers is relatively easy when the quotes are based on the same policy form. Because some insurers use their own company-specific contracts, customers should examine whether the policy forms are the same when comparing premium quotes from different companies.

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The major policy forms offered by the ISO include:

• HO-2 is a named perils policy
• HO-3 is a special policy
• HO-4 is designed for tenants and therefore omits Coverages A and B
• HO-6 is a named perils policy designed for the owners of condominiums
• HO-8 is a named perils policy designed for owners of older homes where the cost of reconstructing the home in the event of a catastrophic loss exceeds the market value of the home.

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A named perils policy covers losses that are due to only those perils listed in the policy. The perils typically covered include fire, windstorm, hail, and other direct physical losses. A special policy covers losses that are due to any peril except those specifically excluded in the policy. It is important to note that special policy provides broader coverage than do named perils policies.

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[Note: this answer is based on the Insurance Services Office's HO-3 policy.] Coverages A and B provide protection to the dwelling and other structures on the premises on an all risks basis up to the policy limits. The policy limit is set by the policy owner at the time the insurance is purchased. The policy limit for Coverage B is usually 10% of the policy limit on Coverage A. Coverage C covers losses to the insured's personal property on a named perils basis (in most cases). The policy limit on Coverage C is 50% of Coverage A (this limit may be increased). Coverage D covers additional expenses that the policy owner may incur when the residence cannot be used because of an insured loss. The policy limit on Coverage L - Personal Liability - is determined by the policy owner at the time the policy is issued. The coverage limit on Coverage M - Medical Payments to Others - is usually set at $1,000 per injured person.

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Covered losses under a homeowner policy can be paid on either an actual cash value or on a replacement cost basis. When "actual cash value" is used the policy owner is entitled to the depreciated value of the damaged property. Under the "replacement cost" coverage, the policy owner is reimbursed an amount necessary to replace the article with one of similar type and quality at current prices.

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Certain types of personal property are subject to maximum dollar limits that the insurance company will pay in the event of a loss. Two classes of personal property are usually subject to these limits. The first is property that is particularly valuable that not everyone would own. For example, a collection of antique china dolls would be subject to a separate smaller limit under the standard homeowners policy. The second class of personal property for which coverage is limited under a standard homeowner policy consists of is personal articles that should be covered under other types of insurance contracts. For example, a computer in the home used for business purposes should be covered under a commercial policy, not a personal homeowner policy and is therefore subject to a limit of liability.

You can purchase additional coverage for these articles by adding a scheduled personal property endorsement to your policy. This endorsement will accomplish two things. First, any article listed in the endorsement will be covered on an all risks basis instead of the usual named perils coverage provided in Coverage C. Second, when you schedule personal property the insurance company will ask you to verify the replacement cost of the article. This is usually accomplished by having an appraisal of the article completed and then forwarding a copy of the appraiser's report to your insurance company. The replacement cost reported in the appraisal will then become the coverage limit which applies to that article, regardless of the limit listed in Coverage C. Examples of property you should schedule include expensive jewelry and a silverware, fine art, coin collections and the like.

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It is recommended that you carry a policy limit equal to at least 80% of the replacement cost of your home. This will ensure that you always receive the full value of any partial loss. You may, however want to carry an insurance amount equal to 100% of the replacement cost of your home. In this way, if you suffer a complete and total loss, the insurance company will pay the full replacement costs of your home. Otherwise, the insurer will only reimburse you up to the policy limit.

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Most policy owners purchase enough insurance to cover at least 80% of the replacement cost of their home. By purchasing this much insurance, the policy owner can avoid any penalties that might otherwise might apply under Coverage A and B. However, many policy owners forget to increase as the value of the home appreciates. An inflation-guard endorsement can be added to your homeowners policy which will instruct the insurance company to automatically raise your policy limit at each renewal according to some predetermined index of local home values. Policy owners should be careful, however, to make sure that the index used by your insurer matches the rate at which home values are rising in your area.

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Insurance contracts are conditional contracts, which means that policy owners have certain duties that they must perform if a covered loss occurs. Failure to complete these actions can, and sometimes does, result in non-payment by the insurance company for losses that otherwise would have been covered. Required duties include: (1) notifying the insurance company or the agent that a loss has occurred - this should be done as soon as you discover the loss; (2) protecting the property from further damage; (3) preparing a detailed list of the personal items

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Direct damage due to earthquakes are not covered under the standard homeowners insurance policy. However, unless you live in an area that is prone to earthquakes, you probably do not need this coverage. If you do live in a part of the country with high earthquake activity you may want to consider adding an earthquake endorsement to you homeowners insurance policy. This endorsement will cover damages due to earthquakes, landslides, volcanic eruptions, and other earth movements.

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Coverage C, which provides named perils coverage, applies to all your personal property (except property that is specifically excluded) anywhere in the world (under a standard homeowners policy). For example, suppose that while traveling, you purchased a dresser and you want to ship it home. Your homeowners policy would provide coverage for the named perils while the dresser is in transit - even though the dresser has never been in your home before.

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It should come as no surprise to most people that both the frequency and severity of civil lawsuits have been on the rise in this country for a long time. Accordingly, everyone should have liability insurance coverage to protect their personal assets. The standard homeowners offers at least $100,000 of liability coverage and this amount can often be increased to $300,000 or more at very little additional cost. How much liability insurance coverage you require depends primarily upon the value of your personal assets. People with more personal assets to lose in a lawsuit will typically carry higher policy limits. People who require more liability coverage than their homeowners policy can provide can purchase a personal umbrella where liability coverage limits of $5-$10 million are possible.

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There are a number of factors you should consider when purchasing a any product or service, and insurance is no different. Here is a checklist of things you should consider when you purchase homeowners insurance. First and foremost, the amount and type of insurance you need. Remember, that if your policy limit is less than 80% of the replacement cost of your home at the time of the loss, any loss payment (on partial losses) from your insurance company will be subject to a penalty. Also, determine the amount of personal property and liability coverage that you need. Second, determine which, if any, additional endorsements you want to add to your policy.

For example, do you want the personal property replacement cost endorsement or the earthquake endorsement? Finally, once you have decided on the coverage you want in your homeowners insurance policy, you can now decide which insurer you would like to purchase the insurance from. Some people like the idea of purchasing insurance form a mutual company rather that a stock company. You should also decide whether you would like an insurance agent to assist you in your purchasing decision or if you would like to buy the product directly from an insurer without the assistance of an agent.

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There are many factors which can affect the cost of your homeowners insurance. Some factors, such as location, type of construction, and the age of the home are beyond your control. However, there are other factors which you can control. The type of policy that you purchase will affect the cost of your insurance. For example, adding a personal property replacement cost endorsement to your homeowners policy will increase the cost. Selecting a larger deductible will lower your cost of insurance.

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There are a number of things you can do to lower the cost of your homeowners insurance. The best thing is to shop around. It is not surprising to find quotes on homeowners insurance that can vary by hundreds of dollars for the same coverage on the same home. When you shop, be careful to make sure that each insurer is offering the same coverage. Many insurers use the ISO policy forms, but this is not always the case. Another way to lower the cost of your homeowners insurance is to look for any discounts that you may qualify for. For example, many insurers will offer a discount when you place both your automobile and homeowners with them. Other times, insurers offer discounts if there are deadbolt exterior locks on all your doors, or if your home has a security system. Be sure to ask your agent or company about any discounts that you may qualify for. Another easy way to lower the cost of your homeowners insurance is to raise your deductible. Increasing your deductible from $250 to $500 will lower your premium, sometimes by as much as five or ten percent. However, be careful to make sure that you have the financial resources necessary to handle the larger deductible.

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