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When you own a home, rent an apartment, or own a business, it’s important to buy property insurance to protect your most valuable assets. Property insurance can provide property protection and liability coverage — along with peace of mind — and it comes in many forms.
Here’s what you need to know about property insurance:
What is property insurance?
Property insurance is a catch-all term referring to insurance policies that protect your home, your belongings, and your small business. Here’s a rundown of the major types of property insurance:
- Homeowners insurance: Covers your home’s structure and belongings against theft, loss, or damage caused by a covered peril. It also provides liability coverage in case someone is hurt on your property, and it pays for you to live somewhere else if your home is uninhabitable after filing a claim. Mortgage lenders typically require homeowners insurance as a condition of the home loan.
- Renters insurance: Pays to repair or replace your belongings if they’re stolen or damaged by a covered peril while you’re renting a home. These policies also provide liability coverage and reimburse additional living expenses when you have to leave your rented home because of your claim. Your landlord’s policy should pay to repair or replace the home’s structure.
- Landlord insurance: Protects homes that you own and rent out. These policies typically insure the home’s structure and provide liability coverage. If your renter wants to protect their belongings, they’ll need to buy a renters insurance policy.
- Flood insurance: Protects your home’s structure and belongings against losses caused by water damage in a flood. It’s not automatically included in homeowners insurance, but you can buy a flood insurance policy from the National Flood Insurance Program or from a private insurer.
- Earthquake insurance: Pays to repair or replace your home and personal property when it’s damaged in an earthquake. It also reimburses the cost of temporary living arrangements if you have to leave your home. You can buy this type of insurance as a stand-alone policy or add it to a homeowners or renters insurance policy as a rider.
- Business owner’s policy: Protects small-business owners against liability claims; insures buildings, equipment, and inventory; and covers the owner financially if the business unexpectedly shuts down.
Learn More: How Is Homeowners Insurance Paid?
If you have to file a claim, your homeowners insurance provider will typically use one of three methods to establish the value of your home or belongings. This affects how much the insurance carrier reimburses you:
- Replacement cost: Replacement cost coverage pays to repair or replace damaged property without factoring in depreciation. Your insurer gives you money for a new version of the item at today’s price, up to your policy’s limits.
- Actual cash value: With actual cash value coverage, the insurer pays for the items at replacement cost minus depreciation. Actual cash value policies cost less, but you’ll also receive less money after filing a claim.
- Extended replacement cost: Extended replacement cost is an endorsement you can add to your home insurance policy. It extends your dwelling coverage by 10% to 50% of the cost to rebuild your home.
How property insurance works
Your homeowners insurance coverage depends on the policy. Most policies pay to repair or replace your home after a covered event, which typically includes theft, fire, smoke, vandalism, and certain weather events and natural disasters.
Your policy may also cover the things inside your home, like furniture, clothing, appliances, and electronics. In addition, property insurance can protect you against liability if someone is injured on your property.
The same guidelines generally apply to landlord insurance, renters insurance, condo insurance, and mobile home insurance.
But policies can also exclude coverage for certain perils, like flooding, earthquakes, and mold. If you live in an area that’s prone to these events, you may need to add riders or separate policies to receive coverage for damage.
Homeowners insurance and renters insurance policies are referred to as insurance forms that range from HO-1 to HO-8. Each form has different levels of coverage and correspondingly higher or lower premiums. Here’s a quick breakdown of each form:
|Policy form||Property type||What it covers||Best for|
|HO-1 (basic)||House||Limited named perils for structure and contents||Bare-bones coverage, where available|
|HO-2 (broad)||House||Greater number of named perils for structure and contents||More coverage than HO-1 but less than HO-3|
|HO-3 (special)||House||Open perils for structure, named perils for contents||Most homeowners|
|HO-4 (contents broad)||Rental unit||Named perils for contents||Renters|
|HO-5 (comprehensive)||Higher-value house||Open perils for structure and personal property||Homeowners who want the most comprehensive coverage|
|HO-6 (unit-owners)||Condo or co-op unit||Named perils for contents and certain structural items||Condo or co-op unit owners|
|HO-7 (mobile home)||Mobile home||Open perils for structure, named perils for personal property||Mobile home owners|
|HO-8 (modified coverage)||Old, high-risk homes||Limited named perils for structure and personal property||Homeowners who don’t qualify for any other coverage|
Keep Reading: How Much Does Homeowners Insurance Cost?