homeowner insurance

The cost of homeowner's insurance often depends on what it would cost to replace the house and which additional endorsements or riders are attached to the policy. The insurance policy is a legal contract between the insurance carrier (insurance company) and the named insured(s). It is a contract of indemnity and will put the insured back to the state he/she was in prior to the loss. Typically, claims due to floods or war (whose definition typically includes a nuclear explosion from any source) are excluded from coverage, amongst other standard exclusions (like termites). Special insurance can be purchased for these possibilities, including flood insurance. Insurance is adjusted to reflect the cost of replacement, usually upon application of an inflation factor or a cost index.

                                                                       Pricing

Further information: Replacement value § Home insurance in the United States

Major factors in price estimation include location, coverage, and the amount of insurance, which is based on the estimated cost to rebuild the home ("replacement cost").

If insufficient coverage is purchased to rebuild the home, the claim's payout may be subject to a co-insurance penalty. In this scenario, the insured will be subject to an out of pocket fee as a penalty. Insurers use vendors to estimate the costs, including CoreLogic subsidiary Marshall Swift-Boeckh, Verisk PropertyProfile, and E2Value, but leave the responsibility ultimately up to the consumer. In 2013, a survey found that about 60% of homes are undervalued by an estimated 17 percent. In some cases, estimates can be too low because of "demand surge" after a catastrophe.  As a safeguard against a wrong estimate, some insurers offer "extended replacement cost" add-ons ("endorsements") which provide extra coverage if the limit is reached.

Prices may be lower if the house is situated next to a fire station or is equipped with fire sprinklers and fire alarms; if the house exhibits wind mitigation measures, such as hurricane shutters; or if the house has a security system and has insurer-approved locks installed.

Typically payment is made annually. Perpetual insurance which continues indefinitely can also be obtained in certain areas.

                                                               Covered perils

Home insurance offers coverage on a "named perils" and "open perils" basis. A "named perils" policy is one that provides coverage for a loss specifically listed on the policy; if it's not listed, then it's not covered. An "open perils" policy is broader in the sense that it will provide coverage for all losses except those specifically excluded on your policy.

Basic "named perils" – this is the least comprehensive of the three coverage options. It provides protection against perils most likely to result in a total loss. If something happens to your home that's not on the list below, you are not covered. This type of policy is most common in countries with developing insurance markets and as protection for vacant or unoccupied buildings.

Basic-form covered perils:

Fire

Lightning

Windstorm or hail

Explosion

Smoke

Vandalism

Aircraft or vehicle collision

Riot or civil commotion

Broad "named perils" – this form expands on the "basic form" by adding 6 more covered perils. Again, this is a "named perils" policy. The loss must specifically be listed to receive coverage. Fortunately, the "broad form" is designed to cover the most common forms of property damage.

Broad-form covered perils:

All basic-form perils

Burglary, break-in damage

Falling objects (e.g. tree limbs)

Weight of ice and snow

Freezing of plumbing

Accidental water damage

Artificially generated electricity

Special "all risk"  – special-form coverage is the most inclusive of the three options. The difference with "special form" policies is that they provide coverage to all losses unless specifically excluded. Unlike the prior forms, all unlisted perils are covered perils. However, if something happens to your home, and the event is on the exclusions list, the policy will not provide coverage.

Special-form excluded perils:

Ordinance of law

Earthquake

Flood

Power failure

Neglect

War

Nuclear hazard

Intentional acts