Many people do not understand the details of their homeowners insurance policy. Below are the different types of homeowners insurance policies and what perils (causes of loss) are covered or excluded. You can use this information when reviewing your own homeowner’s policy.
HO1 – Basic Form Homeowner Policy
A simple policy that provides coverage on a home against 11 listed perils including fire, lightning, riot and civil commotion, explosion, wind and hail, smoke, sprinkler leakage, sinkhole collapse, volcanic eruption, damage from vehicles or aircraft, theft and vandalism. This is a named perils policy listing the events that are covered. It excludes floods and earthquakes. It includes personal liability coverage. Some states no longer use this type of insurance policy.
HO2 – Broad Form Homeowner Policy
A broader form of insurance that provides coverage on a home against 16 listed perils (including all 11 on the HO1 plus water damage; weight of snow, ice and sleet; falling object, glass, and collapse). This is a named perils policy that lists what events are covered. It excludes floods and earthquakes. It includes personal liability coverage.
HO3 – Special Form Homeowner Policy
The typical, most comprehensive form used for single-family homes, especially those homes that have a mortgage. This policy is sometimes called an all risk policy or open peril, but it really covers all perils on the building except what is listed as excluded. Flood and earthquakes are two of the perils that are excluded. The contents of the home are covered on a broad form or named peril basis.
HO4 – Renter’s Insurance
A form that covers renter’s personal property on a broad form basis (under the same perils as the contents portion of the HO2 or HO3). An HO4 generally also includes liability coverage for the personal injury or property damage of others. It provides no coverage for structures because that is the landlord’s responsibility.
HO5 – Comprehensive or Premier Homeowner Policy
Provides the strongest and most expensive coverage. It includes the same coverage as HO3 plus more. The contents (personal property) are covered on an open peril basis which means as long as the cause of loss is not specifically excluded in the policy it will be covered.
HO6 – Condominium Policy
The form for condominium owners. It consists largely of personal property coverage, and includes a minimal amount of coverage for structural damage. The building is insured by the condominium association. It provides broad form property coverage for both structures and personal property.
HO8 – Older Houses
The “Modified Coverage” form is for the owner-occupied older home whose replacement cost far exceeds the property’s market value. It insures the structure for Actual Cash Value (ACV), or cost minus depreciation, instead of replacement cost. It provides Basic form property coverage for both structures and personal property.
For each insurance policy, there are typically 5 classifications of property coverage:
Coverage A – Dwelling
Protects the dwelling (home) itself, including attached structures like garages, but not the land. It also includes coverage for furnishings inside a house that are more or less part of the structure itself such as carpet or a furnace. Typically, a coinsurance clause states that as long as the dwelling is insured to a minimum of 80% of actual value, losses will be adjusted at replacement cost, up to the policy limits. This provides a buffer against inflation. Each policy states the specific dollar amount of protection provided for the dwelling structure. The value for Coverage A becomes the basis for calculating other coverages within the policy. HO-4 (renter’s insurance) typically has no Coverage A, although it has additional coverage for improvements. The HO6 has very small protection for Coverage A.
Coverage B – Other Structures
The most common “other structure” is the detached garage, but also includes fences, swimming pools, sheds, greenhouses, and any additional structures on the premises that are not attached to the house and are set apart by a clear space. It is in addition to the amount of Coverage A and is typically limited at 10% to 20% of the Coverage A, with additional amounts available by endorsement.
Coverage C – Personal Property
Provides coverage for personal property such as furniture, clothing, computers, televisions,etc. There are limits for the theft and loss of particular types of items such as $200 for money, banknotes, bullion, coins, medals, etc. Homeowners Coverage C is a percentage (such as 50%) of their Coverage A. This is considered additional insurance and the amount is in addition to the Coverage A limit of protection. For HO4 and HO6 policies Coverage C is a stated amount.
Coverage D – Loss of Use/Additional Living Expenses
Provides coverage for expenses associated with additional living expenses (i.e. rental expenses if the dwelling is uninhabitable due to the covered loss). It also compensates for the fair rental loss amount the insured suffers when a previously rented portion of the home becomes unrentable due to a covered peril.
Additional Property Coverages
Provides coverage for a variety of expenses such as debris removal, removal/preservation of property, costs to protect the property, reasonable repairs, damage to trees and shrubs for certain named perils (excluding the most common causes of damage — wind and ice), fire department charges, credit card and identity theft charges, loss assessment, collapse, landlord’s furnishing, and some building additions. These vary depending upon the form.
In a special/all risk/open perils policy, specific exclusions will be stated in the exclusions section. These generally include earth movement, water damage, power failure, neglect, war, nuclear hazard, septic tank back-up expenses, intentional loss, and concurrent causation (for HO-3).