What does Homeowners Insurance Cover?

If you own a home, homeowner’s insurance is an absolutely must have  in your financial plan. If you have a mortgage on your house, you are required to have it as a part of your loan agreement.

Homeowners insurance plans are complex and consist of multiple components. It is vital as a homeowner to know what is in your plan. This includes deductibles, coverages, liability, and endorsements.

What is in Homeowners Insurance Polices?

By definition, homeowners insurance covers land and anything attached and affixed to it. It includes dwellings, and those things permanently attached to buildings. Real property is subject to loss from many perils.

A Homeowners insurance policy will have one of eight standard forms, they include: 

  1. HO-1—Basic Form: Provides coverage for 12 named perils, insuring the house, other structures, and personal property. Insurance companies define perils as risks that can cause an insurance loss such as a fire or a storm.
  2. HO-2—Broad Form: Provides coverage for 18 named perils, insuring the house, other structures, and personal property.
  3. HO-3—Special Form: Provides open perils coverage for insuring the home and other structures.
  4. HO-4—Contents Broad Form: HO-4 is designed for renters. It has no dwelling coverage. Provides named perils coverage (18 perils—broad form) for personal property.
  5. HO-5—Comprehensive Form: Provides open perils coverage for house, other structures, and personal property.
  6. HO-6—Unit-Owners Form: HO-6 is designed for the owners of condominiums. Provides named perils coverage for 18 perils for personal property.
  7. HO-8—Modified Coverage Form: Provides protection for dwellings that have a fair market value (FMV) less than the replacement value of the dwelling. Reduced named perils coverage for 12 perils, insuring home, other structures, and personal property.
  8. HO-15—Homeowners Special Personal Property Coverage Form: Provides open perils coverage of personal property and is used in combination with an HO-3 policy.

Depending on what form you have on your policy, premiums are determined by the coverage types, they include: 

  1. Coverage A for the dwelling
  2. Coverage B for the other structures
  3. Coverage C for personal property
  4. Coverage D for loss of use
  5. Additional coverage that provides protection for assorted situations

Section II provides liability and medical payment coverage.

Putting it all together makes it even more complicated. Each section (A, B, C, D) has % coverages across each HO form. Below is an example of coverages across the HO forms:

Coverage HO2 HO3 HO4 HO6 HO8
A-Dwelling Amount based on replacement cost Amount based on replacement cost Not covered $1000 on owners additions Amount based on fair market value of home
B- Other structures 10% of part A 10% of part A Not covered Included in part A coverage 10% of part A
C- Personal property 50% of part B 50% of part B $6000 minimum $6000 minimum 50% of part A
D- Loss of use 30% of part A 30% of part A 40% of part C 40% of part C 10% of part A
Perils covered Perils 1-18 All perils except those specifically excluded from buildings; perils 1-18 on personal property Perils 1-18 Perils 1-18 Perils 1-12

Perils 1-12 include: fire, lightning, windstorm, hail, riot, aircraft, vehicle, smoke, vandalism, explosion, theft, and volcanic eruption.

Perils 1-18 include 1-12 and: falling objects, weight of snow or ice, accidental overflow of water or steam, accidental tearing apart, freezing of plumping, heating, or air conditioning, and damage from artificially generated electricity.

Chart source: Rattiner, Jeffrey H. (2009-04-27). Rattiner’s Review for the CFP(R) Certification Examination, Fast Track, Study Guide (Rattiner’s Review for the CFP Certification Examination) (p. 64). John Wiley and Sons. Kindle Edition.

If you are fortunate enough to read through this complexed web of information, then hopefully it will inspire you to open up your policy and see what type of coverages you have. The HO forms and sections are standard, but the percentages and amounts of coverages are not.

Question: If you had to file a claim for a fire or storm, do you know how much or what is covered in your homeowners policy?

photo credit: Rev. Xanatos Satanicos Bombasticos (ClintJCL) via photopin cc

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