Homeowners’ Insurance is required for any homeowner who has a mortgage. And those lucky few who do not have a mortgage, it is highly recommended to hedge against a catastrophic loss. But, do you know enough about your policy?
Over the next few weeks, we will provide a description of the basics of Homeowners’ Insurance and provide some information for you to think about including in your policy or even the opposite – that it is an added feature of your policy that you do not need.
First, there are two basic parts of the insurance policy: Property Coverage and Liability Coverage.
Today, we will cover the types of Property Coverage that are available.
All of the basic levels of coverage have acronyms which begin with HO (for, naturally, Homeowners).
HO-2: This is “broad” coverage which protects against named perils. A peril is the cause of damage to property and Broad coverage policies cover:
• Fire, Lightning, Explosion,
• Smoke,
• Windstorm & Hail
• Weight of Snow, Ice or Sleet
• Riot & Civil Commotion,
• Falling Objects
• Aircraft & Vehicle Damage
• Sprinkler Leakage
• Volcanic Action
• Certain Collapses
So, what does that leave out? Obviously, anything not on the list. The most common cause of homeowner loss, BY FAR, is water damage and more specifically, roof leaks. This is NOT generally covered by an HO-2 policy.
HO-3: This is “special” coverage which protects against all perils except those specifically excluded. The age-old example often provided is if someone were to spill a bottle of red wine on your snow white carpeting, YES, your HO-3 policy would cover that! Water is not specifically excluded unless it is considered a flood. So, what is considered a flood? Any rising water. So, if it rains 11 inches in 3 hours and the ground becomes totally saturated and you have an inch of water in your basement – that IS a flood. Flood is specifically excluded from all homeowners’ policies as is Earth movement (earthquake, sink hole collapse). Flood and Earthquake insurance is a special program maintained by FEMA in the federal government and a separate policy needs to be purchased for those coverages.
• Sink hole collapse is an added coverage that you can place on your policy. Do you have it? Should you?
• Water and Sewer Back Up is an added coverage that you can place on your policy. Do you have it? Do you need it?
HO-4: This is also called “Renter’s Insurance.” It is the homeowner’s type policy you should have if you rent your apartment, condominium or house from a landlord. It covers your belongings (furniture, clothing and other contents you bring to the property).
HO-5: This is an HO-3 policy with more premium coverages and higher coverage limits than a typical HO-3. By way of example, the sink hole collapse and water and sewer back-up are included coverages on this policy.
HO-6: This is also called “Condo Insurance.” Condominiums have a level of coverage on the building that is owned by the Condominium Association (most often, from the outside walls/roof to the dry wall of the unit). The HO-6 policy, then, is designed to provide coverage for that which is not included on the Condominium Association’s policy.
HO-7: This is mobile home coverage similar to the HO-3 coverage for a house.
HO-8: This is coverage for certain older homes. In particular, this type of policy is designed for situations where the replacement cost of a home is substantially higher than its market value or where the restoration costs using antiquated and inefficient materials and methods would exceed current and common materials and methods. So, instead of covering the cost to replace the home, this policy covers the actual cash value of the home.
Next up in this series: The types of property covered on the policy and what exactly do the terms “replacement cost,” “actual cash value,” and coinsurance mean?