What home insurance does cover.
A standard home insurance policy covers the home and your belongings, as well as your liability for any injuries or property damage you, your family members or pets may cause others. It also provides additional living expenses in case you can't live in the home while it's being repaired after an insured disaster.
Policies are fairly standard among states, except Texas, which has its own policy definitions. Here are the basic types of home insurance in most states:
• HO-1, a bare-bones policy that protects against 10 perils. It has been discontinued in most places.
• HO-2, a broad policy that covers the house and contents against 16 disasters.
• HO-3, the most popular and broadest policy. It covers against all perils except those specifically excluded (earthquake, flood, nuclear accident, neglect, war, government action [such as seizure of the property], power failure, building code laws [it would not cover the cost to bring your house up to code, for instance], losses from faulty construction materials, defective maintenance, and faulty zoning.).
• HO-6, a policy for condominium and co-op owners. The policy provides coverage for liability, personal property and structural parts of the building you own.
• HO-8, a policy designed for older homes whose replacement cost far exceeds the property's value. The policy usually reimburses you for actual value--replacement cost minus depreciation, according to the Insurance Information Institute. Some older homes whose values have depreciated may not qualify for replacement cost coverage.
You need to understand the difference between actual cash value and replacement cost coverage, Bonelli says. Actual cash value coverage pays for the cost of replacement, minus depreciation. If your five-year-old sofa were destroyed, the payout under actual cash value coverage would equal the sofa's value, considering its age. Replacement cost coverage would pay for buying a brand new sofa.