Chapter 4 What Are the Different Standard Policies?

It’s no secret that home insurance provides important protection if some sort of disaster leaves you without your home and property. Most home insurance policies cover damage caused by fire, theft, vandalism, windstorms, and more. However, insurance companies may offer several home insurance policies that provide greater coverage for specific incidences. It’s important to know the difference between the types of policies so that you don’t buy too much, or not enough, coverage for the area in which you live.

It’s important to note that there is a difference between home insurance for townhomes and condominiums. Typically, a townhome owner possesses the structure of the home as well as other property on their land. Meanwhile, condominium owners have just the space they purchase within a complex. Therefore, home insurance for townhomes covers damages to the structure of the home, the property within it, and other structures on the land, while home insurance for condominiums covers the property inside of the unit, as well as the interior.

H01 – Basic Homeowner Policy

The HO1, or basic homeowner policy, covers the structure of a home, the property within it, and the structures on the land from damage caused by:

  • Fire/Lightning
  • Windstorm/Hail
  • Vandalism
  • Malicious mischief
  • Vehicles
  • Aircraft
  • Explosions/Riots
  • Glass breakage
  • Smoke
  • Volcanic eruption
  • Personal liability

Damage caused by flooding and earthquakes are not covered by basic homeowner’s insurance policies, which is something to keep in mind when you’re shopping for coverage. Most HO1 policies function on a replacement cost basis, which is the cost to rebuild your home or repair damages using materials of the same quality, according to the National Association of Insurance Commissioners (NAIC).

HOA – Basic Homeowner Policy

HOA homeowner’s insurance policies provide the same coverage as HO1 policies, except they replace items on an actual cash value basis. An actual cash value policy replaces or repairs property at its current value, not what it was purchased for originally. Therefore, an actual cash value policy may not reimburse the homeowner for the full cost of their lost items, according to the NAIC.

HO2 – Broad Form Homeowner Policy

An HO2 home insurance policy provides broader coverage for homeowners than the HO1 policy. In addition to the 11 perils covered by the basic policy, HO2 insurance covers:

  • Falling objects
  • Weight of ice, snow, and sleet
  • Accidental discharge or overflow of water/steam
  • Sudden and accidental tearing apart, cracking, burning, bulging
  • Freezing
  • Sudden, accidental damage from artificial generated electrical current

However, this type of policy doesn’t include coverage for water damage related to water backup, foundation, or slow leaks, and it doesn’t include open perils such as floods or earthquakes. HO2 insurance policies may also include mechanical breakdown coverage, which provides financial protection to a homeowner if their heater, air conditioner, or water heater fails. This type of coverage doesn’t apply to kitchen and laundry appliances, televisions, sound systems, or computers. You can purchase HO2 coverage with either a replacement cost or actual cash value policy.

HO3 – Special Form Homeowner Insurance

An HO3 policy is the one of the most comprehensive home insurance policies available. It covers the structure of your home, but not the contents within, from all perils unless specifically excluded. The contents within the home are usually covered by a named perils policy. The typical exceptions are:

  • Earth movement
  • Ordinance/Law
  • Water damage
  • Power failure
  • Neglect
  • War
  • Nuclear hazard
  • Intentional loss
  • Government action
  • Collapse
  • Theft to a dwelling under construction
  • Vandalism/Malicious mischief (only if vacant more than 60 days)
  • Mold, fungus, wet rot
  • Wear/Tear deterioration
  • Mechanical breakdown
  • Smog, rust, corrosion
  • Smoke from agricultural smudging and industrial operations
  • Discharge, dispersal, seepage of pollutants
  • Settling, shrinking, bulging, expanding
  • Birds, vermin, rodents, insects
  • Animals owned by insured

If something happens to your home and it isn’t listed as an exclusion, then it is probably covered by your insurance policy. Some HO3 insurance plans have a named perils policy, which means it specifically lists what is covered. Regardless of the type of coverage, HO3 insurance typically does not include floods and earthquakes in its perils coverage, according to the NAIC.

HO5 – Premier Homeowner Policy

This type of coverage includes everything that is included in an HO3 policy, but its applied to the structure and the property within your home, including your furniture, clothes, and appliances. Although an HO5 policy is the most comprehensive available, it does not include coverage for earthquakes or floods. HO5 insurance policies are available to homes that were either built within the last 30 years or renovated within 40 years, and they typically cover any damages at replacement cost, according to the Greater Baltimore Community Housing Board.

HO6 – Condominium Policy

In many ways, a condominium insurance policy works like a renter’s insurance policy. HO6 insurance policies cover the interior of the condominium, including the walls, floors, ceiling, and property from the same perils covered by HO2 home insurance policies, according to the NAIC. The exterior building, and everything around it, is typically covered by the condominium community manager, which is why HO6 policies only cover what is within the unit. This type of insurance also includes reimbursement for additional living expenses and personal liability protection, which covers you if someone is injured on your property and you’re found responsible. Liability coverage pays for the cost of legal representation, court fees, and medical expenses.

HO8 – Older Houses Policy

An HO8 home insurance policy is meant for homeowners whose homes are considered too old to insure under a normal policy. An older houses policy is a hybrid of open and named perils. Your home is covered by an open perils policy, while the contents are insured by a named perils policy. Generally speaking, an HO8 policy covers everything included in an HO3 policy, while your contents are covered from everything included in an HO1 policy.

Additional Coverages

Most home insurance policies also include displacement coverage, which comes into play if a person’s home becomes uninhabitable and they have to temporarily move elsewhere while it is repaired. Displacement coverage, also known as additional living expense (ALE), pays for food, housing, and other essentials. The amount of displacement coverage is specified in the homeowner’s insurance policy. It typically pays for the difference between what it costs the homeowner for housing and food before the loss and what it costs after the incident, according to the Insurance Journal. Because many families end up staying in a hotel or renting an apartment, and eating most of their meals in restaurants, they’re encouraged to hold on to all of their receipts. The amount of coverage depends on the policy, but typically it is 20% of the amount of insurance on the home, according to the Insurance Journal.

However, flood insurance isn’t typically included on most homeowner’s insurance policies. But it can be purchased through your insurance provider or the cover National Flood Insurance Program (NFIP). Flood insurance covers your home and other dwellings, including garages, interior and exterior walls, roofs, furniture, clothes, and appliances that are directly damaged by water, mold, and mudslides, cover according to the SF Gate. If you have a basement, then only items that are normally stored in a basement are covered by insurance. That excludes televisions, furniture, and other items not considered to be normally stored in a basement. It does cover walls, foundation insulation, electrical junctions, fuel tanks, heat pumps, light fixtures, water heaters, and so on, according to the SF Gate.

Homeowners who operate a business from their home may want to consider purchasing a home business insurance endorsement. According to the Greater Baltimore Community Housing Resource Board, most home insurance policies cover up to $2,500 of damage to business property, which may not be enough to meet your needs. The Rocky Mountain Insurance Information Association (RMIIA) states that protection for your business property can be doubled by paying only $14 a year. For about $200 a year, your coverage will be increased to $10,000. General liability is included in an in-home business policy, and if it is shut down because of damage to your home, the policy will cover lost income and payroll, as well as other expenses, for up to one year, according to the RMIIA.

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