The most common type of residence in the United States is a detached single-family home, which can be insured under one of five different policy forms. These forms all have varying coverages, and use cases. Our team of agents can help you choose which homeowners insurance coverage best suits your needs. Let our team in Ohio, Maryland, West Virginia and Indiana work with you to help you decide which coverage options are best for your situation!
What are my coverage options?
Almost all insurance policies that protect your living space fall into one of these five categories. Each of these categories have varying coverage options, and your lender may require additional coverages as well.
The HO-1 policy, also known as basic form policies, provides the most limited homeowners insurance, limited to a specific list of 11 designated risks. The most common hazards covered by the HO-1 form are the following perils:
- Fire and/or smoke
- Hail and/or windstorms
- Damage from vehicles
- Damage from aircraft
- Riots and civil commotion
- Volcanic eruption (in case you live near an active volcano!)
It does not include any unnamed hazards, only those hazards that are explicitly listed. Sometimes the HO-1 policy does not cover personal belongings in the home, and these coverages must be purchased additionally. Also, these coverage options are limited and don’t cover additional perils, such as sleet or falling snow, earthquakes or flooding. HO-1 coverage is typically not offered in most states anymore. It is best to check with your lender to determine what their homeowner insurance requirements are as well.
Do you live in an active flood zone? Learn about when flood insurance might be necessary for your home.
The HO-2 policies, also known as broad-form policies, are another basic homeowners insurance policy. It covers the 10 hazards listed in the HO-1 policy, as well as some additional hazards which includes:
- Falling Objects
HO-2 policies do provide some additional protection for your house; however, they don’t provide comprehensive coverage such as the HO-3 coverage option. Additionally, HO-2 does not cover floods or earthquakes, and these are coverages you’ll want to consider if you’re living in an active flood zone or if your area is prone to earthquakes.
HO-3 policies are the most common type of insurance policies. They cover a variety of additional perils and provide broader coverage for personal property as well. HO-3 coverage has 6 different coverage areas which are:
- Your House: Often referred to as ‘dwelling coverage’, this will protect you from damage to the house and its accessories, such as your garage, fireplace, inground pool, and more.
- Personal Property: Your personal property is typically anything that is owned by you. In addition to providing protection for your personal items (such as computers, phones etc.), it also includes protection when those items aren’t at your house. Let’s say for example your phone is stolen from your car. In that case, your personal property coverage will protect you from stolen items regardless of where they are. There are limits to this however for valuable items, such as jewelry and artwork, and it’s important to make sure any higher value items have additional coverage!
- Other Structures: Which includes fences, sheds or any other structures that exist on your property – don’t forget to protect your she-shed!
- Additional Living Expenses: If one of these perils occurs and your house is uninhabitable, you will get ‘loss of use’ coverage for any additional living expenses you might incur. Your insurance company can help pay for temporary housing and basic living expenses, such as food, laundry, hotel costs and more. In these cases, your deductible isn’t applicable.
- Personal Liability: This refers to coverage in case anyone gets injured on your property, and it’s your fault. Additionally, this also provides protection if you or anyone on your policy causes damage to someone else’s property. In these cases, your policy will have you covered. Keep in mind that these coverages don’t cover injury to yourself or anyone covered in your insurance policy.
- Medical Fees: Liability insurance covers damages in the event you’re sued. However, medical fees can cover injuries that others may sustain when they’re at your house. It will help to cover any medical bills they incur and is a quick way to settle injuries
The HO-1 and HO-2 policy are examples of ‘named risk strategies’. This means that they only cover the perils clearly listed in the policy. An HO-3 policy is the ‘Open Risk Policy’. This means it will cover all perils except those that are specifically excluded in the policy document. Most HO-3 policies do not cover the following types of damage:
- Nuclear accident
- Mold and fungus
- Insect damage
- General wear and tear
Exclusions may depend on whether your home is at high risk for some types of damage. For example, the HO-3 policy for homes in areas with a high wildfire risk generally excludes fire damage. HO-3 insurance generally includes home protection insurance, other structural insurance, personal property insurance, and liability insurance. Many also include loss-of-use insurance. However, personal property insurance is generally limited to a narrower risk range than dwelling coverage protection.
Learn more about different types of homeowner’s insurance.
HO-5 policies are similar to HO-3 policies in that they cover almost all risks that should not be specifically excluded. But unlike HO-3, HO-5 is more comprehensive and covers almost all dangerous personal property, unless the item is specifically excluded. The depth of coverage makes this policy more expensive than other policies.
The HO-8 policy form is designed for old houses whose replacement cost exceeds the actual cash value of the house. For this reason, HO-8 policy forms are often used to protect recorded landmarks and structures with architectural significance.
If a loss occurs in this situation, the actual cash value paid will be much lower than the replacement cost. Due to the smaller payment amount, the HO-8 policy is more affordable. Houses are usually more than 40 years old and do not qualify for the HO-3 policy. Like HO-1, HO-8 only covers the 11 common perils.
How much dwelling coverage should I get?
You must have adequate homeowners insurance to cover the cost of rebuilding the home and any ancillary structures (such as garages) if they are destroyed due to coverage risk. When determining your residential coverage needs, remember to consider replacing built-in appliances, such as water heaters. If you own a condo, certain elements of your residential structure (such as the walls) may or may not be covered by the general policy of the condominium. Consult your primary policy to determine the structure you are responsible for insuring. Your policy will include one of three levels of coverage. Unfortunately, some homeowners do not realize that their policy limits are not high enough to completely replace their homes. In short, these include the following coverage (actual cash value, replacement cost value and guaranteed replacement costs) which we’ll cover below.
Does your homeowner’s insurance cover you if you work remotely?
How much personal liability coverage should I get?
The liability coverage in homeowners insurance covers claims for personal injury or property damage caused by you, your family or pets to others, as well as court costs and damages awarded. You must have adequate liability insurance to protect your assets. Most homeowners insurance policies provide liability insurance with a minimum value of $100,000, but higher amounts are available, and homeowners are increasingly advised to consider at least $300,000 to $500,000 in liability insurance. If you own property and/or investments and savings that exceed the policy liability limit, please consider purchasing an additional liability insurance policy or a separate general insurance policy.
Do I need umbrella insurance?
Umbrella insurance or excess liability policies provide coverage that exceeds the limits of standard family (or car) liability insurance policies. These policies start to pay after you have exhausted the liability insurance of the base policy. In addition to providing additional protection, umbrella insurance usually provides more comprehensive protection than standard insurance policies. The cost of a general insurance policy depends on the amount of basic insurance you have and the type of risk it represents. The higher the basic liability insurance you have, the cheaper the umbrella or excess insurance policy will be.
Additional coverage for natural disasters
Depending on the policy you selected and the area you live in, you may want to consider additional coverage for natural disasters that aren’t listed including:
Buying additional coverage makes sense if you live in areas that are prone to these natural disasters.
Actual cash value vs. replacement cost value vs. guaranteed replacement cost
The actual cash value, or ACV is the market value of your house minus any depreciation. While the actual value of the land you purchased might have increased, the materials that make up your house (plumbing, floorboards foundation) have likely aged and depreciated over time. That’s why the ACV likely will not cover the entire cost to rebuild your home with new materials.
The replacement cost value or RCV is the cost to rebuild the home at the current price of labor and materials. A policy that covers the RCV of your home will have a higher premium than a policy that covers only the ACV. If you need to replace all or part of your home, RCV coverage can provide a great additional compensation. However, it is still subject to policy restrictions.
Guaranteed Replacement Cost or Extended Replacement Cost is like RCV, plus a guarantee that the insurance company will pay a certain percentage beyond your policy limit to rebuild your house. This is relevant if regional disasters temporarily increase the cost of labor and construction materials. However, this often is more costly than RCV, and comes with higher premiums.
At Maholtra & Assoc. Insurance, we’re dedicated to helping you choose the options that make sense to protect your largest investment. Let our team of agents in Ohio, Maryland, West Virginia and Indiana work with you to select the best homeowner insurance policies to fit your unique situation.
Disclaimer: This blog post is meant for general informational purposes only and may not reflect your specific policy.
About the Author: Alekha is an expert in the insurance space and has been with the Malhotra & Assoc. Insurance team since its inception. Alekha works to provide expertly written and researched content for the Maholtra & Assoc. Insurance agency.