Get to Know Your Homeowner’s Insurance

Published In Insurance

This is the first of several articles that we’ll feature on homeowner’s insurance. Homeowner’s insurance is, in my opinion, pretty neat because of all the things that it can do and how it can come to the rescue in times of need. This article will focus on the main varieties of it.

How Homeowner’s Policies are Classified

Homeowner’s insurance policies are available in different varieties. While they all apply to residential properties, they differ in the breadth of coverage provided, the capacity of the proposed insured and the type of structure that is the residence. Often, the differences are nuanced, so you should get the help of a licensed insurance professional who is versed in homeowner’s insurance. Homeowner’s insurance is a variety of property and casualty insurance, so the insurance agent must be licensed to sell property and casualty insurance in your state (rather than, for example, life and health insurance).

Homeowner’s insurance policies are normally classified by form number. By that I mean that the insurance industry has created a naming system for homeowner’s policies and assigned a number to each name. Each form number correlates with a range of covered perils and a target type of residential property for which the insurance is intended. A “peril” is an event or group of events that causes a loss or damage. Although many homeowner’s insurance policies contain a component of liability coverage, we will discuss here only the property damage aspect of them.

Main Policy Designations and Perils Insured

  • HO-1: This is the most basic policy, covering the structure of the house and the insured’s belongings against ten perils:
  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

Because it is so basic, many insurance companies have discontinued issuing this form.

  • HO-2: This is a homeowner’s policy that insures the structure and contents against a total of 16 perils:

Perils 1-10 above, plus

  1. Falling objects
  2. Weight of ice, snow or sleet
  3. Accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning, or automatic fire-protective sprinkler system
  4. Sudden or accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioning or automatic fire-protective system
  5. Sudden and accidental damage from artificially generated electrical current (not including loss to a tube, transistor or similar electronic component)
  6. Freezing of a plumbing, heating, air conditioning or automatic, fire-protective sprinkler system, or of a household appliance

An HO-2 policy may be appropriate for a Senior who lives in his or her own single family home. However, there are many factors that go into the selection of the right version of homeowner’s insurance. Therefore, you need to get the advice of an insurance and/or financial professional to determine if it is right for you.

  • HO-3: This is a homeowner’s policy that insures the structure and contents against all perils except those that are specifically excluded. The excluded perils include:
  1. Flood
  2. Earthquake
  3. War
  4. Nuclear accident
  5. Landslide
  6. Mudslide
  7. Sinkhole
  8. Others specified in the insurance policy

An HO-3 policy is among the most popular and widespread homeowner’s policy because of its breadth of coverage. While we are not promoting and cannot promote this level of homeowner’s coverage, we will say that for Seniors, this form may provide the greatest peace of mind because a broad range of perils are covered.

  • HO-4: This is a policy designed for people who rent, not own, their residence. Therefore, it does not cover the structure of the building because the building is owned by someone else. Instead, the benefits usually include:
  1. Contents coverage for your personal property
  2. Liability coverage for your negligence that is the legal cause of harm to others, such as guests in the rented residence
  3. Additional living expenses that you incur if the premises become uninhabitable due to a covered peril

The perils covered by the HO-4 are normally the same as those covered by the HO-2. However, the perils affect you as a tenant, rather than as the owner of the property.

  • HO-5: This policy offers the broadest coverage of any homeowners insurance policy, including the more common HO-3 policies.  An HO-5 policy covers all damages (perils) on your house plus personal belongings as long as the peril is not listed as an exclusion on your policy (i.e., lightning, explosions, nuclear hazard, war, theft, riots, animal damage etc.). The owner will be reimbursed for personal property losses based on the item’s current replacement cost, not its depreciated value.

The perils covered by the HO-5 are normally the same as those covered by the HO-3.  But because the HO-5 policy provides broader coverages, they will cost more than the HO-3 policy. 

  • HO-6: This is a policy designed for people who own condominiums or co-ops. Therefore, many are sold to Seniors who have downsized from single-family homes to condominiums or co-ops that they own, not rent. The perils insured against are generally the same as the HO-2 and the HO-4. However, because of some oddities of condominium and co-op ownership (such as the legal relationship between the unit owner and the association) and the physical structure of some of residential units (such as common walls), it is a specially designed insurance product. Therefore, the Senior who owns a condominium or co-op needs this form of homeowner’s insurance to ensure appropriate coverage.

(This article has been reviewed in February 2024 since it originally published August 2016.)

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