Coverages
The standard homeowner’s insurance policy is divided into two sections. Property Insurance Section I provides protection for various types of property damage losses, including the following: (1) damage to the dwelling, (2) damage to other structures on the property, (3) damage to personal property and dwelling contents, and (4) expenses arising out of a loss of use of the dwelling (for example, food and lodging). Additional coverages are usually provided for such items as debris removal, trees and shrubs, and fire department service charges.
An important variable related to Section I of a policy involves the number of losscausing perils that are covered. Named-perils policies cover only those losses caused by perils that are specifically mentioned in the policy. All-risk (or open-perils) policies cover losses caused by all perils other than those specifically excluded by the policy. All-risk policies provide broader coverage because hundreds of perils can cause property losses, but only a few would be excluded
Liability Insurance Section II deals with liability insurance. Whenever homeowners are negligent or otherwise fail to exercise due caution in protecting visitors, they may potentially suffer a liability loss. Homeowner’s general liability protection applies when you are legally liable for the losses of another person. Homeowners often wish to take responsibility for the losses of another person regardless of the legal liability. Consider, for example, a guest’s child who suffers burns from touching a hot barbecue grill. Homeowner’s no-fault medical payments protection will pay for bodily injury losses suffered by visitors regardless of who was at fault. In the preceding example, such coverage would help pay for the medical treatment of the visitor’s burns. Homeowner’s no-fault property damage protection will pay for property losses suffered by visitors to your home. An example of such a loss might be damage to a friend’s leather coat that was chewed by your dog.
Types of Homeowner’s Insurance Policies
Six distinct types of homeowner’s insurance policies exist: HO-1 through HO-4, HO-6, and HO-8. They are described in detail in Table 10.2 on page 280 and more generally in the sections that follow. The same terms and identifying numbers are generally used by most insurance companies.
Basic Form (HO-1) The basic form (HO-1) is a named-perils policy that covers 11 property-damage–causing perils and provides three areas of liability-related protection: personal liability, property damage liability, and medical payments. The most common perils that can cause property damage fire and lightning, windstorm, theft, and smoke are covered in the basic homeowner’s policy. People who have finished basements (perhaps a TV room or spare bedroom) should purchase additional sewer backup coverage, as this possibility is not one of the 11 named perils.
Broad Form (HO-2) The broad form (HO-2) is a named-perils policy that covers 18 property-damage–causing perils and provides protection from the three liability-related exposures.
Special Form (HO-3) The special form (HO-3) provides open-perils protection (except for the commonly excluded perils of war, earthquake, and flood) for four types of property losses: losses to the dwelling, losses to other structures, landscaping losses, and losses generating additional living expenses. Contents and personal property are covered on a named-perils basis for 17 of the 18 common homeowner’s perils (the exception is glass breakage). In terms of liability protection and in all other respects, the coverage under HO-3 is the same as under HO-2.
Renter’s Contents Broad Form (HO-4) The renter’s contents broad form (HO-4) is a named-perils policy that protects the insured from losses to the contents of a dwelling rather than the dwelling itself. It covers 17 perils and provides liability protection. HO-4 is ideal for renters because it provides protection from losses to dwelling contents and personal property and provides for additional living expenses if the dwelling is rendered uninhabitable by one of the covered perils. Although insurance is relatively inexpensive, only one-fourth of all renters carry HO-4 protection.
Condominium Form (HO-6) The condominium form (HO-6) is a named-perils policy protecting condominium owners from the three principal losses they face: losses to contents and personal property, losses due to the additional living expenses that may arise if one of the covered perils occurs, and liability losses. (The building itself is insured by the management of the condominium.) Two additional coverages are included in the HO-6 policy as necessary to meet the specific needs of the condominium unit owner. The first is protection against losses to the structural alterations and additions that condominium owners sometimes make when they remodel their units. The second is supplemental coverage for the dwelling unit to protect the condominium owner if the building is not sufficiently insured.
Older Home Form (HO-8) The replacement value of an older home may be much higher than its market or actual cash value. The older home form (HO-8) is a named-perils policy that provides actual-cash-value protection on the dwelling. It does not provide that the dwelling be rebuilt to the same standards of style and quality, as those standards may be prohibitively expensive today. Instead, the policy provides that the dwelling be rebuilt to make it serviceable.
The standard homeowner’s insurance policy is divided into two sections. Property Insurance Section I provides protection for various types of property damage losses, including the following: (1) damage to the dwelling, (2) damage to other structures on the property, (3) damage to personal property and dwelling contents, and (4) expenses arising out of a loss of use of the dwelling (for example, food and lodging). Additional coverages are usually provided for such items as debris removal, trees and shrubs, and fire department service charges.
An important variable related to Section I of a policy involves the number of losscausing perils that are covered. Named-perils policies cover only those losses caused by perils that are specifically mentioned in the policy. All-risk (or open-perils) policies cover losses caused by all perils other than those specifically excluded by the policy. All-risk policies provide broader coverage because hundreds of perils can cause property losses, but only a few would be excluded
Liability Insurance Section II deals with liability insurance. Whenever homeowners are negligent or otherwise fail to exercise due caution in protecting visitors, they may potentially suffer a liability loss. Homeowner’s general liability protection applies when you are legally liable for the losses of another person. Homeowners often wish to take responsibility for the losses of another person regardless of the legal liability. Consider, for example, a guest’s child who suffers burns from touching a hot barbecue grill. Homeowner’s no-fault medical payments protection will pay for bodily injury losses suffered by visitors regardless of who was at fault. In the preceding example, such coverage would help pay for the medical treatment of the visitor’s burns. Homeowner’s no-fault property damage protection will pay for property losses suffered by visitors to your home. An example of such a loss might be damage to a friend’s leather coat that was chewed by your dog.
Types of Homeowner’s Insurance Policies
Six distinct types of homeowner’s insurance policies exist: HO-1 through HO-4, HO-6, and HO-8. They are described in detail in Table 10.2 on page 280 and more generally in the sections that follow. The same terms and identifying numbers are generally used by most insurance companies.
Basic Form (HO-1) The basic form (HO-1) is a named-perils policy that covers 11 property-damage–causing perils and provides three areas of liability-related protection: personal liability, property damage liability, and medical payments. The most common perils that can cause property damage fire and lightning, windstorm, theft, and smoke are covered in the basic homeowner’s policy. People who have finished basements (perhaps a TV room or spare bedroom) should purchase additional sewer backup coverage, as this possibility is not one of the 11 named perils.
Broad Form (HO-2) The broad form (HO-2) is a named-perils policy that covers 18 property-damage–causing perils and provides protection from the three liability-related exposures.
Special Form (HO-3) The special form (HO-3) provides open-perils protection (except for the commonly excluded perils of war, earthquake, and flood) for four types of property losses: losses to the dwelling, losses to other structures, landscaping losses, and losses generating additional living expenses. Contents and personal property are covered on a named-perils basis for 17 of the 18 common homeowner’s perils (the exception is glass breakage). In terms of liability protection and in all other respects, the coverage under HO-3 is the same as under HO-2.
Renter’s Contents Broad Form (HO-4) The renter’s contents broad form (HO-4) is a named-perils policy that protects the insured from losses to the contents of a dwelling rather than the dwelling itself. It covers 17 perils and provides liability protection. HO-4 is ideal for renters because it provides protection from losses to dwelling contents and personal property and provides for additional living expenses if the dwelling is rendered uninhabitable by one of the covered perils. Although insurance is relatively inexpensive, only one-fourth of all renters carry HO-4 protection.
Condominium Form (HO-6) The condominium form (HO-6) is a named-perils policy protecting condominium owners from the three principal losses they face: losses to contents and personal property, losses due to the additional living expenses that may arise if one of the covered perils occurs, and liability losses. (The building itself is insured by the management of the condominium.) Two additional coverages are included in the HO-6 policy as necessary to meet the specific needs of the condominium unit owner. The first is protection against losses to the structural alterations and additions that condominium owners sometimes make when they remodel their units. The second is supplemental coverage for the dwelling unit to protect the condominium owner if the building is not sufficiently insured.
Older Home Form (HO-8) The replacement value of an older home may be much higher than its market or actual cash value. The older home form (HO-8) is a named-perils policy that provides actual-cash-value protection on the dwelling. It does not provide that the dwelling be rebuilt to the same standards of style and quality, as those standards may be prohibitively expensive today. Instead, the policy provides that the dwelling be rebuilt to make it serviceable.
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