Homeowners insurance (also known as home insurance) isn't a luxury; it's a necessity. And not just because it protects your home and possessions against damage or theft. Virtually all mortgage companies require borrowers to have insurance coverage for the full or fair value of a property (usually the purchase price) and won't make a loan or finance a residential real estate transaction without proof of it.

You don't even have to own your home to need insurance; many landlords require their tenants to maintain renter's insurance coverage. But whether it's required or not, it's smart to have this kind of protection. We'll walk you through the basics of homeowners insurance policies.

There are many aspects that influence whether your home insurance or condo insurance policy is the best policy for you. We will cover many of them for you right here, but the most important thing you need to know is: your insurance policy is only as good as the contract itself and the wording. As consumers, we tend to focus on the price of the insurance, but there are ways to balance price with value if you can understand the basics behind your home insurance policy. This is what we are setting out to help you with here.

The problem is insurance can be complicated and with so many clauses and things to think about, it is easy to get lost. Most often when people are upset with an insurance company, it is more about not having the right information before a claim happens, than about the insurance company itself. Insurance companies follow contract wordings and this is why it is so important to understand what you are signing up for.

Insurance company policies all contain limitations and clauses that can either enhance the coverage they provide, which equal bigger claim payments; or limit coverage which equals lower claim payments.

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Everything You Need to Know About Choosing a Good Home Insurance Policy

We're going to walk you through the hidden secrets of what's behind an insurance policy so you ask your insurance representative the right questions to make the best choice and take control of your policy coverage’s to get your money's worth in a claim, including:

• Understand What Special Limits Are In Every Policy and What Items Are Limited

• How Different Insurance Companies Are Tailored to Different Lifestyles

• Insurance Features or Clauses to Ask About Before Buying Home Insurance

• How Will the Claim Be Paid - What You Need to Know About Getting a Claim Paid

• What Does Personal Liability Cover

We already know about the insurance basics, like the values for the amount of insurance on your building or personal property, the mistake most people make is stopping there. There are several layers where the policy wording will make a difference for you. Before we dive into the three key differences in wording, you have first to start with understanding the basics of each policy form.

Understand the Difference Between Ho-2 vs. HO-3 vs. HO-5 and High-End Policies

Cutting Through the Insurance Jargon to Understand Home Coverages

The general coverage offered to you is often defined via policy form. For example, the Homeowners Broad Form (HO-2), Homeowners Special Form (HO-3), and the Homeowners Comprehensive Form (HO-5). Let's break this down into some simple information.

Each of these policy forms offers varying levels of coverage, the higher the HO number, the better the coverage. The HO-2 offers limited coverage, the HO-3 offers intermediate coverage giving all-risk on the building, but only named perils (limited coverage) on the contents, whereas the HO-5 is considered the best form which covers personal property and the building for full coverage on an all-risk basis.

• Tip: If you can't afford the highest level of coverage, ask if you can add the coverage you need by an endorsement, or increase your deductible.

It's easy to think that by buying an HO-5, you're getting the best, but you would be wrong because this is where the key differences come into play. Like:

The Trick to Find the Best Insurance Coverage

The trick to finding the best insurance policy for your home is discovering the one that will give you the most advantage in a claim, this goes beyond the policy form and where our tips come in handy, especially if this is your first home insurance policy, or if you are shopping around to find the best price. This information will help you to make the best decision.

You also want to look at the various value-added features, special limits, clauses and claims handling philosophy. If you are changing insurance company always consider getting a letter of claims experience if showing your insurance history will get you a lower price. Keep reading to review the three areas you need to know about before deciding on which insurance policy is right for you.

Frequently Asked Questions About Home Insurance

Why Is My Neighbours Insurance Better Than Mine?

This is a question we hear all the time in insurance; it is normal to compare to people you think are quite similar to you. People are always comparing themselves to a neighbour. In the case of claims, this is when you see a difference: while you sit waiting for your repairs to be done, you may find yourself watching your neighbour cashing out and back to normal much faster than you.

Many people do not realize that a big part of insurance is finding the insurance company that is most appropriate for your needs. Insurance companies develop their vision for target clients, and aside from the basics that all insurers stick to; each insurance company develops programs and discounts for pricing that attracts their target client. Where you may spend a few extra dollars on premium a year, you might make thousands more from a claim if the coverage suits your lifestyle more.

A Checklist to Learn About Home Insurance Special Limits

Special Limits in Home Insurance

Special Limits are clauses within your insurance policy that specify areas where the coverage will be limited in the event of loss.

Special Limits on Home Insurance Commonly Limited Items

Here is a checklist of items that typically have special limits or exclusions associated with them.

• Money

• Securities

• Trailers

• Watercraft

• Jewellery

• Collections and collectibles

• Antiques

• Furs

• Wine

• Fine Arts

• Silverware

• Sporting Equipment

• Bicycles

• Firearms

• Landscaping

• Swimming pools

• Electronic Data Restoration

• Business Property

If any of the above are relevant to you, make sure and ask your representative to take this into consideration when recommending coverage to you and find out if the policy you are looking at has limitations or exclusions. You can also ask to have coverage added by a rider or endorsement.

This is a starting point of the most common items, please note that there may be more, which is why a discussion about them is recommended before you make any home insurance purchase.

Choose Home Insurance to Fit Your Lifestyle and Needs

Home insurers tailor their offerings to their target clients. Insurance companies are just like other businesses, they have to come up with points of differentiation and will evolve by adding more options to the policy basics. You can get to the bottom of this by simply asking your insurance representative where the insurance they are quoting you is superior to their competitors. If you are dealing with a captive insurance agent, you may be at a disadvantage because they may not have this information at hand. Shopping your insurance with a representative that can compare various insurance companies for you will give you the best advantage.

Insurance Features or Clauses to Ask About Before Buying Home Insurance

• Does coverage apply if an item is misplaced or disappears?

• What happens if your home is underinsured? Is there a capped payout?

• What happens if after a claim the by-laws have changed and this increases the cost of rebuilding?

• How does the policy handle claims payments for items like antiques or fine arts?

• Is there a waiver of deductible if the loss reaches a certain amount? Does the policy contain certain coverages that are not subject todeductible? Waivers of deductible can be very advantageous. Having your deductible waived if a claim reaches a certain value can save you thousands of dollars. a

• How does your policy cover various forms of water damage?

Do you have small children at home, or maybe college aged kids? Do you have parents in a nursing home? We don't always think about these things when we are buying home insurance, but there are limits or special features that could work to your advantage by exploring these questions. It may even save you from having to spend more money on additional coverage elsewhere.

Do you have pets? What kind of coverage does your home insurance provide for your pets?

Do you travel often? Some high-end home insurance policies will have higher limits for contents off premises or temporarily removed. This could save you money on travel insurance.

How to Buy Insurance Like a Pro

If you ask all the right questions, you'll soon figure out if you are getting the best insurance coverage for your needs. Understanding the internal policy coverage limits will also let you know if you need to add a special rider or endorsement to your policy to add coverage.

Finally, even with all these variations, there is one more area to explore before you settle on the best insurance company for you.

Understanding the Basis of Claims Settlement

You have several possibilities in this area. All situations are usually subject to a deductible. It is critical for you to understand that when you buy a policy what you will get paid in a claim is not always clear.

How to Get Your Money in a Claim

• 1. Every claim is subject to you providing a proof of loss.

• 2. The insurance company will then assess or analyse your declaration in the proof of loss and will reserve the right to make their assessment. They will pay the claim based on the basis of claims settlement stated in your policy.

Understanding "Basis of Claims Settlement" Options

There are three kinds of possible "basis of claims settlement" :

• 1. Actual Cash Value

• 2. Replacement Cost

• 3. Replacement Cost with no obligation to replace, often referred to as a cash out option.

People often think this sounds amazing. Who doesn't love cash right? Well, this coverage is the least desirable settlement option. Actual cash value or depreciated value is what may to land you in a hole after a claim. ACV will offer you the depreciated value of property at the time of loss. So for example, to put it in simple terms, if you have a TV that is 5 years old, you will not get enough money to buy a new TV, you will only get enough money to buy a garage sale 5-year-old TV.

Understanding Replacement Cost: A Two-Step Process

Replacement Cost Insurance is the most common type of coverage and it is a fair settlement. However, keep in mind that you will not be getting a big check made out to your name so you can go out and buy all your stuff new. What you will get during the claims process is the option to provide a list of all the things you had (which should include: make, model, where you bought it and when) with an assigned value.

Then the insurance company may pay you a partial amount, sometimes half the value. When you replace the item(s), they will give you the difference. So, what does this mean? In a claim, be prepared to pay out half the value of the items you need to replace before you get fully compensated. You may get lucky and not have to do this, but in many cases, that's how the clause works. Getting compensated for your loss and replacing all your items turns into a two-step settlement process where the final payout may only happen at the end once you have replaced everything.

A lot of people become very frustrated with this. However, this is how the insurance contract works, so make sure you understand your wording and ask your insurance agent to explain the specifics to you fully. Also, be sure and ask how this applies to items you cannot replace.

Replacement Value With No Obligation to Replace: The Cash-Out Option

Offered by high-end insurers like ACE and AIG, whose premiums often cost more than regular HO-5 homeowner policies, the cash-out option could save you a lot of time and money in the long run. Not only do these high-end policies provide higher limits and more special clauses than the standard HO-5, but they will enable you to do as you wish in the event of a claim. The claim would play out similarly to the Replacement Cost option. However, no one will chase you down to see if you've replaced items or property. It's a one-step process: you declare your loss items, get the final tally of how much it will cost you to replace it all, and the cheque is written to your name.

It is important to note that this type of coverage is rather exclusive, for obvious reasons such as the potential for moral risk or hazard, insurers offer this coverage only to clients who meet insurance company underwriting criteria. It is quite likely that these types of insurers will have a minimum requirement for the home value insured, as well as review financial stability ratings of potential clients. However, if you can qualify for this type of policy, it is the insurance option with the strongest set of insurance coverages, giving you advantages in several areas, including liability insurance.

Understanding Your Insurance Before a Claim Will Get You the Best Claim Settlement

Insurance choices are complicated, but if you break it down into these various sections and understand not only what is available but how your insurance company will issue the payments if you have a claim, you will be in the best position to recover from a claim from the onset. Using these insurance ninja tips to dig deeper and understand what you are paying for may end up saving you thousands of dollars in a claim because you will get paid more since you chose the right insurance for what you have. Those extra coverages and clauses make all the difference.