UNDERSTANDING DIFFERENT TYPES OF HOMEOWNERS INSURANCE

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Different circumstances call for different types of homeowners insurance coverage. There are eight options for homeowners insurance available and you want to ensure you have the appropriate coverage for your individual needs. Having the wrong coverage could leave you with catastrophic liabilities that could endanger your financial security or independence.

This is the most basic form of homeowners insurance. HO-1 policies provide actual cash value coverage only on your home’s structure — and does not cover damage to attached structures to your home or personal property and doesn’t cover homeowner liability. H0-1 only covers 10 named perils, which is an insurance term meaning events or circumstances that result in property damage. Therefore, if damage is caused by an event not listed in the 10 named perils, the insurance company will not cover the damage. This type of coverage is rarely offered or sought out in this day in age because of the lack of coverage.

HO-1 10 named perils:
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1. Fire or lightning
2. Windstorm or hail
3. Explosion
4. Riot or civil commotion
5. Aircraft
6. Vehicles
7. Smoke
8. Vandalism and mischief
9. Theft
10. Volcanic eruptions

HO-2 coverage is a step up from HO-1 and is typically referred to as broad form of coverage. HO-2 covers your house with the replacement cost value and personal property with actual cash value. HO-2 is typically less expensive and has less comprehensive than HO-3 and HO-5 coverage. HO-2 provides coverage on a 16 named peril basis. The 16 named perils include the 10 named perils listed in HO-1 coverage plus an additional six perils.

​HO-2 6 additional perils:
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1. Falling objects
2. Freezing of plumbing, HVAC, or appliances
3. Weight of snow or ice
4. Accidental overflow or discharge of water and steam
5. Damage from artificially generated electricity
6. Sudden or accidental cracking, bulging, or burning

HO-3 is referred to as “special form” coverage and is the most common homeowners insurance coverage for residences. HO-3 works on an open peril’s basis, meaning all risks are covered except risks listed as an exception to the open perils. HO-3 offers replacement cost value on your house and actual cash value on personal property.

Some HO-3 excluded perils:
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• Neglect
• War
• Power failure
• Mold, fungus, or wet rot
• Flooding
• Earthquake
• Birds, vermin, rodents and pets
• Wear and tear
• Nuclear hazard
• Pollution

Earthquake and flood insurance coverage can usually be added separately. HO-3 policies typically allow the insured to upgrade their personal property coverage to replacement cost value instead of actual cash value for a higher premium.

HO-4 is only for people who rent their living dwelling. This coverage does not insure the rented unit itself. HO-4 covers the renter’s personal property on a 16 named perils basis. These are the same 16 perils listed in H0-2 coverage.  HO-3 also covers the renter’s liability and additional living expenses if they’re unable to reside in the residence after a covered event. The renter also has the option to select the amount of coverage on their personal property as well as upgrade to an open perils basis vs. the named 16 perils.

Also referred to as “comprehensive coverage” because this policy offers the highest amount of insurance coverage out all policies. HO-5 covers your dwelling, added structures, and personal property on an open perils basis. HO-5 policies do carry the excluded perils listed in HO-3 policies. This extensive coverage does come at cost as the HO-5 policy is the most expensive coverage and may not be needed by all homeowners.

Better known as “Unit Owners Form” , HO-6 coverage is tailored to condo and cooperative apartment owners. This is also referred to as “walls-in” or “studs-in” coverage because HO-6 policies cover only inside the walls of the insured’s unit. Typically, a homeowner’s association will carry their own insurance coverage on the building that the unit is in. It is important to know what is and what is not covered by the homeowner’s association insurance to ensure there are no gaps in your coverage. HO-6 policies also cover personal property, personal liability, and loss-of-use with coverage on a 16 named perils basis. Additionally, these policies cover unit or “walls-in” on a replacement cost value and personal property being covered by actual cash value.

​HO-7 policies cover mobile homes, manufactured homes, sectional homes, and RVs. HO-7 offers an open perils basis on the structure of the home and a named perils basis on personal property. HO-7 carries the same traits as HO-3 policy but is intended for the use of mobile homes that would not qualify for another type of HO coverage.

​This type of coverage is for older or historic homes where the replacement cost of the home exceeds the market value. An example of an “older” home would be a home that is a historical landmark or a home that is not built up to today’s codes and would have to be replaced up to current codes. This type of policy covers your house and personal property on a 10 named perils basis and has standard liability coverage. The 10 named perils are the same offered in the HO-1 policy. HO-8 policies provide actual cash value reimbursements rather than replacement cost.

Replacement Cost – The amount needed to repair your home or personal property at current market rates. Replacement cost will replace damaged property with a similar item.

Actual Cash Value – The amount needed to repair your home or personal property but takes depreciation into consideration. Actual cash value will reimburse you for the value of the item minus depreciation due to age or use.