…in 3 Steps.
The HO-3 and HO-6 policies.
If you said “Huh?” you’re in good company.
Whether you plan to buy homeowners insurance or already have a policy, you likely fall into either of these two buckets. The HO-3 (or Homeowners-3) is commonly known as “basic” homeowners insurance and HO-6 (or Homeowners-6) is commonly known as the “basic” condo insurance for the unit owner.
But what is basic?
If you purchased your home and purchased a policy, this will be review. If you haven’t, this will be a quick guide to finding the right homeowners insurance, hassle free.
Step #1: Do your homework
To start, familiarize yourself with these four terms:
- Dwelling coverage – this typically covers the pieces that are structural and permanently attached to the building such as the exterior, interior walls and windows.
- Liability coverage – your dog bites someone, someone slips and falls; this is where people do something stupid in your house and sue you. Just kidding (not really), but an important coverage that covers your personal liability.
- Loss of use – this is cost and inconvenience of not being able to use your home if there is a covered claim. If you have a house fire, you’ll likely need to rent a place until your home is repaired. The extra expenses you incur for being out of your home such as cost of rent, additional driving, eating out, etc. is paid by insurance.
- Personal property coverage – in general, anything that is not “real property” (land or real estate) is considered personal property. Personal property needs coverage as well – your laptop, expensive bags, computers, etc. Most standard policies cover personal property for 50% of the dwelling amount. Items such as jewelry, fine art, silver, coin collections must be insured separately as the coverage on these items is very limited unless specifically endorsed onto the policy.
Next, determine which category you fall under:
a. Single-family Home (SFH)
If your home is a standalone with a yard around it, you will likely fall into this category. A single-family home (a house with no common walls) will likely need a “standard policy” commonly known as the HO-3 policy. This is what you typically get when you talk to an insurance agent.
What will the typical HO-3 policy cover (or not cover)? According to the Insurance Information Institute:
- A house fire? Yes.
- Water damage? It depends. In most cases, sudden and accidental damages are covered. Water leaks as a result of delayed maintenance are not.
- Theft? Yes.
- Smoke damage? Yes.
- Wind/storm damage. Yes.
- Water seepage from the ground. No.
- Neighbor slips on your side walk and threatens to sue you for damages. Yes.
- A tree falls and damages your house. Yes.
- Earthquake? No.
- Flood? No.
For condo owners, you will likely need an HO-6 policy commonly known as the “condo coverage” or “walls-in”. The goal of this policy is to cover elements outside of the condominium master policy. You must choose a building item limit as well as a loss assessment limit. This should be determined from the condo bylaws which discusses what the master policy covers. Typically, the master policy covers common areas and elements of the condo such as hallways, structure, landscaping and the like. Sometimes it includes earthquake insurance as well.
Townhomes are a little trickier. Similar to single-family homes, you own the dirt underneath you (as opposed to a three-dimensional space in the air for condos). Contrary to single-family homes, you have at least one shared (or common) wall.
Some townhomes have HOA dues which include property/hazard insurance – and some don’t. Like condos, they key is to determine if there is a master policy and what it covers. You can request the bylaws or the look at the master insurance policy. Have a copy handy for your insurance agent to review what additional coverage you need.
Note: If the townhome is condominiumized, you can only purchase an HO-6.
Step 2: Get your first quote
No matter how automated our world gets, I always prefer talking to a person when making big decisions. Hazard insurance is one of them because it protects your investment.
Make your first call.
You can call an insurance company that someone has referred to you or choose from one in Step 3 below. The first quote will take a little longer as you determine your coverage type, limits, riders (additional insurance for items like engagement rings, etc.). After you determine all the variables, ask the agent to email you the quote. If they ask, let them know you want it for record keeping or that you want to keep a copy of the quote handy when shopping insurance coverage.
Step 3: Comparison Shop
Now, you’ve finished the hard part. Next, contact other prominent insurance companies you know such as the ones below and forward them the quote that you’ve received. This helps ensure you get apples-to-apples quotes. This will save you lots of time trying to get the other insurance companies match the coverage.
Make sure you get a quote from at least one in each category:
- Main street companies – get a quote from one of the major insurance companies such as AllState, State Farm and Farmers. You can also check out premium insurance companies like Chubb.
- “Discount insurers” – Geico and Ameriprise. I say discount because Geico is a “direct writer” and Ameriprise has sponsorship through Costco so in theory they have some cost advantages. This is not to say that you will necessarily get the best deal. It just means you will likely not get ripped off.
- Brokers – Recently, I’ve learned the beauty of working with brokers by working with Magnolia Insurance. As brokers, they offer a wider range of products to suit your needs because they offer a wide selection of insurance companies. And instead of just being order takers, they really educate you and go through the process. You can use Magnolia Insurance or find other local brokers near you by searching Google Local.
In my experience comparing three to four companies does the trick. You can do more if you like, though not necessary (unless you’re obsessive and freaky like that). J
By now you should have a good idea of the cost and coverage you can get. Price plays a major factor, but it’s not the only factor. Choose a company and work with an agent that has good customer service and knowledge. I believe in long-term relationships and love working with people that sharpen and continue to educate me.
There you have it, three simple steps to finding the right insurance company.