Categories of Coverage
When you buy a homeowner's insurance policy, an insurer will want to know whether you own a house, condominium or manufactured (mobile) home.
Insurers generally sell different policies with different premiums for each of these types. Some insurers may not sell policies for manufactured homes.
For houses, the major categories of homeowner's insurance coverage include:
Dwelling & other structures. Your dwelling is your home, which often includes any attached structures. Other structures include detached structures that are also on the insured property.
Personal property. Personal property includes items that you regularly use such as furniture, clothing, electronics, appliances, utensils and tools.
Liability & medical expenses. Liability coverage pays for accidental bodily injury or property damage for which you are responsible. Homeowner's liability insurance is similar in purpose to auto liability insurance. Hospital expenses that stem from liability claims under a homeowner's insurance policy are included in medical expenses coverage.
Living expenses. If your insured home suffers a loss and you have to live elsewhere, living expense coverage will pay the additional living expenses during the time you are away from your own home.
Additional coverage. You can purchase an amendment, rider or endorsement to an existing policy to obtain more coverage. For example, additional coverage is required to insure jewelry, art collections and personal libraries.
Buying homeowner's insurance coverage for certain types of perils may require a separate policy. These perils include floods, earthquakes, hurricanes and tornados.
When buying homeowner's insurance, be sure to evaluate the trade-off in obtaining replacement cost instead of actual cash value coverage. Replacement cost coverage is generally more expensive. That's because the price of building materials and construction labor increases over time, increasing the replacement cost.
Actual cash value is the value of the insured property as if it were damaged today and not restored. To calculate actual cash value, an appraiser or insurer reduces the home value to account for age and wear and tear. As a result, the amount the insurer pays on a claim that uses the actual cash value claim is lower than for a replacement cost claim. This is why mortgage lenders generally require homeowners to obtain a policy for replacement-cost value.
If you own a manufactured home, you will basically need the same categories of coverage. If you own a condo, you aren't likely to need dwelling coverage since your condominium association already has a dwelling-related policy. However, you're likely to owe the association a pro rata share of this premium. Otherwise, condo owners are likely to need the same coverage as house owners.