Seniors, Cocktails, and Homeowner’s Insurance

Published In Insurance

Sound like a strange combination? Not really. Here’s why.

Rose and George are in their early 60’s and have worked all of their lives. The magic day of retirement has come: kids are married, Rose and George have saved their money by living in a rented house, and are ready to depart the snowy Midwest. They want warm weather — California, Florida, Arizona — anywhere as long as it is warm most of the year. It’s now time for them. So, they take a few long weekends to visit possible retirement spots.

Searching for Homeowner’s Insurance

They settle on Arizona and take a long house-hunting trip, staying in hotels as they explore. What a nice break: good weather, hotels, the chance to have a few drinks in the hotel room before dinner. Maybe a little romance.

Rose and George find two affordable homes that suit their styles and budget. One is a free-standing house and the other is a condominium. But never having owned a residence, they also have never bought homeowner’s insurance. They’ve heard about it and know they may need it, but where to start? Compared to buying the insurance, choosing between the house and the condo will be pretty easy.

George goes to a few insurance agents’ offices and explains what he and his wife are doing. The agents try to be helpful, but they might as well be speaking a foreign language. They graciously give him some brochures and sample homeowner’s insurance policies which he takes back to the hotel to ponder with Rose. After looking through them, it becomes cocktail hour. Good thing. Reading the policies could drive them to drink — or to take a Berlitz foreign language course.

Comparing Policies

From what Rose and George can figure out, it seems that three main types of insurance policies might fit their needs.

One is called a “dwelling policy” (an HO-1) which is very basic. Broadly, it covers the building and things permanently affixed to it, such as heating and cooling systems, water heaters and water softeners. The agent said that this basic policy might be available, but that it is rarely issued, especially with newer houses. George would like to try to rehab an old house, but Rose is not for that so they look at newer places only, and the HO-1 is eliminated.

The second type is a true homeowner’s insurance policy. The most commonly issued version is an HO-3, which is also called a Special Form. Rose and George are not sure whether they will pay cash for their new home or get a mortgage. That issue is important, because lenders usually require at least an HO-3 to close on a loan. That’s because the lender needs the collateral for the loan to be protected from a wide range of risks. Either way, it is a safe bet for Rose and George to get at least an HO-3 if they are buying a house, given the breadth of coverage provided. Even better, and if the agent can find one for Rose and George, is an HO-5 (also called a Special Form). If the home is new and up-scale, this may be the way to go. While more expensive, it gives an even wider range of coverage and higher dollar limits of protection.

But if Rose and George decide on the condo, their only real choice is the HO-6, which is designed for condominium owners. The HO-6 recognizes the differences in risks and potential perils between a single family home and a condo. While the condominium association will have its own insurance coverage for common areas, Rose and George will need a policy that covers common walls between their unit and others and build-outs within their unit that might be damaged by a peril covered by the policy. Coverage for Rose and George’s personal property (up to specified limits) is also provided. This kind of policy also protects Rose and George from liability for injuries to other people caused by carelessness, such as leaving a cord on the floor that causes a visitor to trip and fall.

Homeowner’s insurance policies are available in different varieties. For further information on understanding insurance coverage for your home and belongings, read, Get to Know Your Homeowner’s Insurance.

(This article has been updated March 2024 since it originally published on September 2016.)

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