Shortly after waking in a terror surrounded by three ticked-off bears, Goldilocks went off and bought her own place and some home insurance to protect it.

She wanted something that was "not too big, not too small, but just right." Finding a home that was "just right" she went on to choose the perfect furniture for her new home.

Just as Goldilocks sat down on her own comfy chair to enjoy a cup of perfectly warm porridge while admiring her just right home, full of all the right things, a horrific thought entered her golden head; what if something happens to my new home?

Homeowners Insurance to the Rescue

Goldi was first relieved, then confused. "Do I want an HO-2, HO-3 or HO-8?" she wondered. "Should I choose actual cash value, replacement cost or guaranteed or extended replacement cost?"

Need Help Deciding Which Home Insurance Policy?

Generally speaking, homeowner insurance policy types vary according to:

• The perils they cover
• The way value is calculated when it comes to repairing or replacing property

The 16 Perils

Think of perils as your individual horror story scenarios: they cover any event that results in damage or loss to your property. Depending on what type of homeowners insurance policy you choose, some or all of these are:

1. Fire or lightning
2. Windstorm or hail
3. Explosion
4. Riot or civil commotion
5. Damage caused by aircraft
6. Damage caused by vehicles
7. Smoke
8. Vandalism or malicious mischief
9. Theft
10. Volcanic eruption
11. Falling objects
12. Weight of ice, snow, or sleet
13. Accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning, or automatic fire-protective sprinkler system, or from a household appliance.
14. Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioning or automatic fire-protective system.
15. Freezing of a plumbing, heating, air conditioning or automatic, fire-protective sprinkler system, or of a household appliance.
16. Sudden and accidental damage from artificially generated electrical current (does not include loss to a tube, transistor or similar electronic component).

What's It Worth?

Another way policies differ is when it comes to how they factor the value of repairing or replacing your property, and how they pay you for those expenses.

Regardless of which type of insurance policy you wind up buying, you have three choices for factoring value:

Actual Cash Value

Pays the current value of your property. This is not necessarily what you paid for an item or what it will actually cost to replace it. It is its value now, today, in its current used condition, up to your policy limit.

Replacement Cost

Pays to repair or replace your property according to what it's actually going to cost you to do so, with no write off for depreciation, up to your policy limit. 
For example, if your 3-year-old computer is destroyed in a house fire, replacement cost would mean you get what it will cost to buy a new computer of the same kind. An actual cash value policy would only give you what you'd expect to pay today for a 3-year old computer, not a new one.

Guaranteed or Extended Replacement Cost


A guaranteed replacement cost pays whatever it costs to rebuild your home as it was before the fire or other disaster, even if it exceeds the policy limit.

An extended policy pays a certain percentage over the limit to rebuild your home. Generally, it is 20 to 25 percent more than the limit of the policy.

Note:
A guaranteed replacement cost policy may not be available if you own an older home.

Types of Home Insurance Policies

When you own your home, these are the types of policies you get to choose from.

• HO-2: This is a basic policy that will cover your house and the stuff in it against all 16 perils.
• HO-3: This is the most popular type of policy because it covers your house and the stuff in it from ALL perils (except those specifically listed in your policy as excluded.) So if something happens--whether or not it's on the 16 perils list--as long as it's not specifically excluded in your policy then you're covered.
• HO-8: This policy is meant for older homes. It covers the first 10 perils. But it pays only for repair cost or actual cash value, not replacement. This is a good option for a house that would cost more to rebuild than it would be worth on the market.

The Golden Choice

If she went with an HO-2 policy, her property and belongings may not be covered sufficiently. Her home is not too new, but it’s also not too old--it’s just right. Therefore an HO-8 policy also is not in order.

Like most homeowners, Goldilocks will certainly live happily ever after with an HO-3 home insurance policy.

Just to make sure she is able to replace all her things, Goldi is going to opt for a replacement cost policy and she's going to make sure that her limits are set high enough to cover it all.

How to Save

The Golden Rule when it comes to saving on home insurance is to make companies compete for your business. So be sure to get at least three home insurance quotes before you sign on the dotted line.

Ask About Discounts for:

• Multipolicy (home, car or other policies with the same company)
• Smoke detectors
• Fire extinguishers
• Sprinkler systems
• Burglar and fire alarms that alert an outside service
• Deadbolt locks and fire-safe window grates
• 55 years old and retired
• Long-time policyholder
• Upgrades to plumbing, heating and electrical systems
• Earthquake retrofitting to make the home safer
• Wind-resistant shutters

to find the homeowners insurance policy that is right for you, compare homeowners insurance quotes at InsWeb.com.