A recent survey established that the average number of household accidents per year resulting in property damage is around 21,000 per 100,000 homes. In most cases the damage has rendered the homes uninhabitable or irreparable. At least 30% of these cases reported didn’t have the adequate amount of insurance coverage to recover the losses. Needless to say, it would have made significant difference if these properties were covered under the right policy. Homeowners insurance is extremely important for the purpose of safeguarding your property against various accidents and perils. Selecting the right policy for your needs is important and most homeowners tend to be ill informed about the details of the various policies available.
What are the different kinds of policies?
Here is a brief overview of the most common types of homeowners insurance policies:
- Basic form homeowners policy (HO1) – It is the basic form of insurance available to homeowners and covers the 11 most common perils which can damage your home. It is a ‘named peril’ policy wherein coverage is extended for only those perils which have been explicitly enumerated in the policy document. The list of perils include fire and lightening, explosions, riot or civil commotion, damage caused by vehicles or aircrafts, glass breakage, smoke, vandalism, theft, windstorm and hail, volcanic eruption and personal liability. HO1s usually limit theft coverage to the amount of $10,000. The personal liability clause includes coverage for legal defense costs. The policy also includes coverage for damages rendered by a third party.
- Broad form homeowners policy (HO2) – This policy expands on the coverage provided under the HO1 policy. It includes coverage for all the 11 perils named in a HO1 along with 6 other perils. This includes three categories of water damage, ice/snow/hail damage, falling objects and electrical damage caused by surges. This too is a named peril policy.
- Special form homeowners policy (HO3) – Most single family homes usually opt for this particular policy. It is an open peril or ‘all risk’ policy which covers all sorts of direct damage to the home. It also covers other structures on the property unless specifically excluded. The policy also includes coverage for personal property on a named peril basis. Although there are certain constraints and restrictions, covered losses on realty is insured for full replacement value without any depreciation deduction. The policy excludes coverage for losses due to intentional loss, ordinance or law, birds, vermin’s, rodents and insects.
- Content broad form policy/Renter’s insurance (HO4) – This is a variation of the HO2 policy designed for renters and tenants. Similar to the HO2 policy, this is a named peril policy as well and only covers personal belongings, both insid3e and outside of the rented space. The policy also includes liability coverage for property damage and third party injuries. The coverage usually amounts to $100,000.
- Comprehensive form policy (HO5) – It is an expansion of the HO3 policy wherein coverage for the property as well as contents are on an open peril basis. The insured is granted coverage against losses, unless and until the cause of loss is specifically excluded from the policy. The coverage pattern can also be achieved by pairing a HO3 and a HO15.
- Unit owner’s form policy/Condominium insurance (HO6) – This policy is purchased to fill in the gaps within the master insurance policy of the condominium. It covers damage to personal property within the condominium as well as personal liabilities. It uses the master policy's deductible to cover losses, upgrades and super-buildups unlike the master policy itself which only covers the original structure and value of the property. It is inexpensive and has a low deductible. The policy needs to be modified specifically for supplementing the master insurance policy. It sometimes comes with additional liability coverage to protect against accidental damage or injury to others.
- Mobile homeowners insurance policy (HO7) – This policy is specifically meant for mobile and manufactured homeowners. It is very similar to the HO3 policy and provides coverage for the same perils.
- Modified coverage form (HO8) – This policy is designed to cover risks specifically associated with older homes. Since the replacement cost of these particular homes are greater than their actual market value, the policy is designed to provide coverage at functional replacement cost. Insures employ this tactic to avoid the moral hazard associated with insuring the home for full replacement value which far exceeds the actual cash value.
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