The Different Types of Home Insurance

Optional coverage you may want to consider

No matter what type of homeowners insurance policy you buy, it may not provide all of the coverage you need or want. Here are a few additional coverages you may want to consider.

• Flood insurance. Most homeowner's insurance policies specifically exclude coverage for floods. People who live in one of 23,000 participating communities can buy flood insurance through the National Flood Insurance Program4 (NFIP), while people in nonparticipating communities can typically purchase flood insurance through a private insurance company. If you live in a flood-prone area, your mortgage company may require you to purchase flood insurance. But even if it's not required, you may want to consider purchasing it, since one in five flood claims5 originates outside of high-risk areas. If your community participates in the NFIP's Community Rating System program, you may be eligible for a discount on your flood insurance, which is based on the community's efforts to reduce the risk of flooding. FEMA maintains a list of communities6 and the corresponding discount available in each.

• Earthquake insurance. Most homeowners insurance policies specifically exclude damages due to earthquakes. If you live in an area prone to seismic activity, you may want to add it to your homeowner's coverage (if your home insurer offers an earthquake endorsement option) or purchase a stand-alone policy.

• Personal umbrella liability insurance. If you become the target of a lawsuit for a substantial sum of money, your standard auto or homeowner's insurance policy may not have high enough limits to cover your potential exposure. An umbrella policy picks up where these other policies leave off, providing excess coverage that kicks in after your other policies are maxed out. This coverage can help ensure you don't have to pay the excess out of your own pocket.

• Scheduled personal property. Although a standard homeowner's insurance policy provides personal property coverage, it may set a dollar limit on certain property categories, such as jewelry, artwork, sports equipment or musical instruments. This cap is known as the sublimit, and it might not provide enough coverage if you own expensive equipment or heirlooms. Fortunately, you may be able to get the coverage you need by adding a scheduled personal property endorsement to your existing homeowner's policy for an additional premium.

• Extended or guaranteed replacement cost coverage. Even policies that provide replacement cost coverage don't pay more than your policy limits. Some insurance companies offer extended replacement cost, which extends your limits by a certain percentage, such as 10% or 20%,7 if the cost of rebuilding exceeds your policy limits. Guaranteed replacement cost coverage pays to rebuild your home exactly as it was with no limit on costs.

• Small business insurance. Your standard homeowner's insurance policy might provide enough coverage if you work full time or operate a business from home. You might not need a separate policy if you just have a desk, chair, and laptop. However, if customers or employees come to your home or you store inventory and supplies there, you may need small business insurance to protect yourself fully.

If you currently have homeowner's insurance, it's a good idea to review your policy regularly to ensure it still meets your needs and discuss any gaps with your agent. The right coverage not only protects your home and belongings, it also offers peace of mind.