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                                                                        Welcome To Home Insurance 201 - Part 1

In Homeowners Insurance 101 we discussed the essentials of what a standard policy contract does and does not cover. As previously mentioned, it’s important to understand that no two Insurance policies are created equal and vary by carrier as well. In this section we will discuss the differences and what items insurance consumers need to look for and look out for when seeking a Homeowners Insurance policy to protect their home.

To begin with, there are different policy forms or contracts that are used when a carrier designs a Home Owners Insurance product these are commonly referred to in the industry as Basic, Broad, Special and Open Perils.

HO1 and HO8 (Basic Form) Home Insurance Policies

The Most Basic form used by the Insurance industry is referred to as an HO1 or HO8 Home Insurance Policy. Less common is the HO8 form of coverage and is generally used for older homes. Most homeowners that purchase basic Home insurance coverage are insuring for larger or catastrophic losses only. The HO1 and HO8 Home Owners insurance policies are also referred to as “Named Perils” policies and only protect the dwelling and personal belongings for the most common perils or losses that occur. Named perils can also mean that in many cases the burden of proof is on the consumer to prove that the loss is actually covered. Additionally, under this form of coverage personal belongings are also covered for their Actual Cash Value or ACV (See below)

Named perils policies specify or name the Perils that are covered by your Home Insurance. In order for a loss to be covered it has to be specifically named as being covered. So if something happens to your home or personal property that is not on the list of covered perils, you do not have coverage under the HO1 Homeowners insurance policy.

There are 10 perils or types of losses that the basic, HO1 and HO8 Home Owners Insurance Policies will protect your home and belongings from. These include:

  1. Fire or Lightning
  2. Windstorm or Hail
  3. Explosion
  4. Riot or Civil Commotion
  5. Aircraft
  6. Vehicles
  7. Smoke
  8. Vandalism or Malicious Mischief
  9. Theft
  10. Volcanic Eruption

Losses Not Typically Covered By Basic Home Insurance Policies

Essentially, If a peril or type of loss is not in the list above then it’s generally not covered. There are a couple of things that are important to be aware of when considering an HO1, HO2 or HO8 Homeowners Insurance Policy: Water Damage is generally not covered, this includes water damage from leaky pipes, weather, or an appliance and are the most common type of claim filed. Also, damage from Falling Objects like trees and aircraft debris is generally excluded.

Lastly, HO1, and HO8 Basic Homeowners Insurance policies can either include Replacement Cost coverage or Actual Cash Value coverage. Under Replacement Cost coverage the structure is insured up to the Dwelling Coverage policy limit minus the deductible only. Under Actual Cash Value coverage, the structure is insured up to the dwelling coverage policy limit minus depreciation and the deductible. It’s important to ask which type of coverage is included.

HO2 (Broad Form) Home Insurance Policies

An upgrade from the Basic coverage Home Owners Policy is the Broad Form coverage policy generally referred to as an HO2 policy. The broad form policy is also a Named Perils policy however the coverage is expanded to cover 16 instead of only 10 common perils or types of losses.

The 16 perils or types of losses that the Broad Form HO2 Home Owners Insurance Policies will protect your home and Personal belongings from are listed below:

  1. Fire or Lightning
  2. Windstorm or Hail
  3. Explosion
  4. Riot or Civil Commotion
  5. Aircraft
  6. 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 Stream
  14. Sudden & Accidental Tearing Apart, Cracking, Burning, or Bulging
  15. Freezing
  16. Sudden & Accidental Damage from Artificially Generated Electrical Current

Another upgrade from the Basic HO1 or HO8 Homeowners Insurance Policy is that the HO2 or Broad Form home insurance policy is normally written to provide Replacement Cost coverage for the dwelling or structure as opposed to Actual Cash Value coverage.

Even though the HO2 or Broad Form home insurance policy will protect you from a broader range of perils, there are also a couple of things to be aware of: Under the Water Damage provision of coverage certain types of damage from water are not covered. For example damage that results from “Water Backup” in water drainage lines under the foundation that are not maintained and certain types of leaks where water accumulates over a longer period of time which are not “sudden and accidental” can be excluded from coverage. Some carriers however allow the policy to be endorsed to cover water backup on the policy for an additional premium.

HO3 (Special Form) Home Insurance Policies

The HO3 Home Insurance Policy is the most common home insurance policy offered by most insurance carriers. It provides “Special” or “Open Perils” coverage for the home and Broad coverage for your personal belongings.

The HO3 homeowners insurance policy is a blend of an open perils policy and a named perils policy. With the HO3, the main home structure is covered on an open perils basis and the personal belongings are covered on a named perils basis. An open perils policy does not specifically list the perils your home insurance covers; rather, it lists the perils your home insurance does NOT cover. If the damage to your home is not caused by something on the exclusion list, then you have coverage. A named perils policy specifically lists the perils for which your personal property is covered. If something happens to your belongings and is not on the list of covered perils, you do not have coverage.

What’s Not Covered by an HO3 Home Insurance Policy?

The following list is a general list of items that are excluded on most HO3 policy forms and can vary by carrier and state.

  1. Earth Movement or Seismic Activity (Earthquakes)
  2. Ordinance or Law (unless otherwise endorsed or added)
  3. Water Backup (Unless otherwise endorsed or added)
  4. Power Failure
  5. Acts of War or Terrorism
  6. Nuclear Disaster or Hazard
  7. Intentional Loss
  8. Government Action
  9. Theft to a Dwelling Under Construction
  10. Pathogenic Organisms - Mold, Mildew, Fungus, or Dry Rot (Unless otherwise endorsed or added)
  11. Wear & Tear, Deterioration
  12. Mechanical Breakdown
  13. Smog, Rust & Corrosion
  14. Smoke from Agricultural Smudging & Industrial Operations
  15. Discharge, Dispersal, Seepage of Pollutants
  16. Settling, Shrinking, Bulging, or Expanding
  17. Insects & Vermin, Rodents, or Birds
  18. Animals Owned by Insured

Perils Insured Against for Your Personal Belongings

The 16 perils that your belongings are protected from are:

  1. Fire or Lightning
  2. Windstorm or Hail
  3. Explosion
  4. Riot or Civil Commotion
  5. Aircraft
  6. 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 Stream
  14. Sudden & Accidental Tearing Apart, Cracking, Burning, or Bulging
  15. Freezing
  16. Sudden & Accidental Damage from Artificially Generated Electric Current

As mentioned before, the HO3 Home Policy is the policy type offered by most carriers today as it provides good overall protection. However, it still has some limitations primarily when it comes to claims due to some more common losses such as Water backup from sewers or drains, Building Code or Ordinance changes, and Mold remediation. In the next section we will introduce the most comprehensive policy available.

HO5 (Open Perils) Home Insurance Policies

The HO5 Home Insurance Policy is the most comprehensive Homeowners insurance policy available. It provides the best type of coverage for both your home and personal property.

The HO5 Insurance Policy is an Open Perils Policy

The HO5 insurance policy is an open perils policy which means the policy does not specifically list the perils for which your home and personal belongings are covered. By contrast it only lists the perils that are not covered. If the home or personal belongings are damaged by something that is not on the list of excluded items, then you have coverage for the loss. The Open Perils policy is a very exclusive type of policy. This type of coverage is only offered by a few Insurance Companies.

List of Exclusions for the HO5 Open Perils policy

The following list of exclusions is a general list and can vary to some degree by the carrier offering the coverage. The perils that are excluded under the HO5 Home Owners Policy are:

  1. Earth Movement (earthquake coverage can be purchased separately)
  2. Ordinance or Law (Limited coverage may be provided in your policy)
  3. Water Backup (In many cases some coverage for this is included)
  4. Power Failure
  5. Neglect
  6. War
  7. Nuclear Hazard
  8. Intentional Loss
  9. Government Action
  10. Collapse (some coverage may be provided in your policy)
  11. Theft to a Dwelling Under Construction
  12. Mold, Mildew, Fungus, or Dry Rot (In many cases some coverage for this is included)
  13. Wear & Tear, Deterioration
  14. Mechanical Breakdown
  15. Smog, Rust & Corrosion
  16. Smoke from Agricultural Smudging & Industrial Operations
  17. Discharge, Dispersal, Seepage of Pollutants
  18. Settling, Shrinking, Bulging, or Expanding
  19. Insects, Vermin, Rodents or Birds
  20. Animals Owned by Insured

For more information and tips on how to find the best value for Home Insurance see Home Insurance 201 Part 2.

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