Types of NJ Homeowners Insurance Policies Explained

two floor home with a white picket fence during fallBuying a home requires a significant amount of money. Most people accumulate a lifetime of savings to purchase their first home. It would be tragic to lose all your savings with a sudden fire incident or a natural disaster that destroys your home. That is why you should want homeowners insurance.

However, NJ homeowners insurance is a necessary purchase you need to make as a homeowner. Sometimes, you can get a home insurance policy without owning a home. While leasing, your landlord may require you to have renter’s insurance.

What Is Homeowners Insurance?

Homeowners insurance is a policy that covers any damage or theft of possessions within your property. Damage includes the destruction of both interior and exterior parts of your home. Anyone with a piece of property can apply for homeowners insurance. It is a mandatory requirement for some institutions when taking out a mortgage.

Types of Homeowners Coverage

There are three standard defining types of homeowners’ coverage.

Actual Cash Value

Actual cash value coverage replaces your property or possessions, minus the depreciation cost. This coverage equates your possession to its current value. This means the cost is lower than the cost of replacing the item.

Replacement Cost

Inverse to the actual cash value, the replacement cost policy covers replacing property at its original value. This means you can replace your lost item at its initial value.

Guaranteed (or Extended) Replacement Cost/Value

This type of coverage has no limit. The insurer can compensate for your property at a level beyond your policy limit. This means you get to rebuild your home or purchase another property at a price higher than your limit.

Most insurers give a predetermined rate of 20% to 25% of your limit.

What Does a Homeowners Policy Cover?

A homeowner’s policy is flexible. This means you can find coverage that adapts to your needs. However, these policies have specific elements that limit the type of coverage you can get.

Typical items a home insurance policy covers include:

Damage to Your Home

A typical NJ home insurance policy will cover damage to your home’s interior and exterior. Damage can range from vandalism to fire damage. Your insurer will reimburse you for the repair of your home. If the damage is unsalvageable, your insurer will pay for it to be rebuilt.

Damage caused by natural disasters such as floods or earthquakes may require additional coverage, such as flood insurance. The same applies to homes with poor maintenance. If you have an extra structure on your property, such as a garage or a shed, you’ll need additional coverage.

Possessions within your home are also covered. This can range from clothing, appliances, or furniture. You can apply for “off-premises” coverage that protects your possessions outside your home’s confinement. However, some of these come with a limit. It is best to confirm with your insurer beforehand.

A typical range in percentage for your possession compensation is 50% to 70% on the insurance amount you put on your home. This means if you pay premiums amounting to $200,000, you are eligible for coverage of $140,000 for your possessions.

If you have high-end jewelry, it is best to take out a separate policy.

Personal Liability for Injuries or Damages

This type of coverage protects you from lawsuits filed against you. For example, if your child kicks the ball over the yard through your neighbor’s window, your insurer will cover the cost of damage. The same applies if your pet injures your neighbor. Your insurance covers the medical costs.

Most policies offer coverage of $100,000. However, it is best to get a minimum coverage of $300,000. You can pay a few hundred dollars more and get $1 million worth of coverage with an umbrella policy.

Alternative Housing During Repair

Significant damage to your home can render you homeless. You may need to move out for it to be repaired. Insurance policies cover hotel rent and other living expenses, such as meals in most cases.

Find out the limits on your insurance policy. Don’t book a presidential suite or order a ton of room service without knowing your daily limit.

Type of Homeowners Insurance

Generally, there are eight types of NJ homeowner insurance policies to suit every homeowner. They are HO-1 through HO-8. Learn more about each below.

HO-1: Basic Form

This type of insurance coverage has the most limits. It provides coverage to your property and possessions at the actual cash value. However, the policy provides a limit on the perils it covers. These are aircraft damage, smoke, theft, vandalism, lightning or fire, hail or windstorm, falling objects, explosions, riots, or falling objects.

Most insurers, however, do not offer this type of insurance.

HO-2: Broad Form

These types of policies are an upgrade from the former basic policy. The broad form policy takes on six additional perils, which are;

  • Volcanic eruptions
  • Freezing
  • Power surges or accidental damage from electrical current
  • Overflow of water or a stream
  • Weight of sleet, snow, or ice
  • Sudden damage to an inbuilt appliance, such as an air conditioner.

This type of policy provides replacement costs for your home and actual cash value for your possession.

HO-3: Special Form

This type of policy is quite common among homeowners. The policy offers an open-peril policy coverage except for those enlisted in your policy. Common perils not covered include:

  • Intentional loss
  • Nuclear Hazard
  • Power failure
  • Neglect
  • Earth movement
  • Wear and Tear
  • Corrosion or Rust
  • Vandalism of property vacant for over three days
  • Theft of property under construction
  • Pests or vermin attacks

Like the HO-2 policy, an HO-3 policy will cover your home at the replacement cost and your possessions at the actual cash value.

HO-4: Contents Broad Form

Commonly known as renter’s insurance, this policy applies to those who lease houses and apartments. It ensures their property against the listed perils in HO-1 and HO-2 policies.

An advantage of this policy is that it covers you wherever you are. In addition, it covers your legal expenses and living expenses in case of property damage.

HO-5: Comprehensive Form

As the name suggests, a comprehensive form provides all-inclusive coverage on your property. The policy is quite similar to the HO-3 policy. The significant differences are:

  • HO-5 policies provide coverage for dwellings and personal property at replacement cost. However, for HO-3 policies, you may have to pay extra for replacement costs for possessions.
  • HO-5 policies cover all risks or perils your dwelling or personal property may incur. However, for HO-3 policies, personal property is limited to specific perils.
  • HO-5 policies typically cover high-end personal property with higher coverage limits.

It is best to take up this policy if you live in a high-risk area and possess a high-end property.

HO-6: Unit-Owners Form

This type of policy covers property under a condominium. People who live in such complexes typically purchase it. The insurance policy covers your the interior of your unit, along with your possessions. However, if you make any upgrades to your unit, your insurance won’t cover that. You may have to increase your dwelling coverage for your policy to cover upgrades.

This policy includes medical payments, personal liability, and loss assessment coverage.

HO-7: Mobile Home Form

This type of policy is basically an HO-3 policy for mobile homes. Some of the mobile homes that this policy covers include:

  • Modular homes
  • Sectional homes
  • Double-wide mobile homes and double-wide manufactured homes
  • Single-wide mobile homes and single-wide manufactured homes
  • Trailers
  • RVs and park model homes

HO-8: Modified Coverage Form

This type of policy covers homes that cannot meet most insurers’ demands. For example, if you own an old home and would like to keep its old state, this is the right policy for you.

Choosing Your NJ Insurance Policy

Insurance policies are a lifesaver. It may seem expensive to pay the premiums at first, but it will pay off after an unforeseen incident causes loss or damage to your property. Speak to an insurance agent from Anderson Insurance Agency today to determine the type of insurance coverage suitable for you.