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Home insurance

What is home insurance?

Home insurance is an insurance policy combining various personal insurance protections. This can include losses occurring to one's home, contents, loss of use (additional living expenses), or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.

A homeowner policy is referred to as a multiple-line insurance policy, meaning that it includes both property insurance and liability coverage with a single premium, meaning that only one premium is paid for all risks.

The cost of home insurance often depends on what it would cost to replace the house and which additional endorsements or riders are attached to the policy. The insurance policy is a legal contract between the insurance carrier (insurance company) and the named insured(s). It is a contact of indemnity and will put the insured back to the state he/she was in prior to the loss. Typically, claims due to floods or war, amongst other standard exclusions (check the terms before signing so that you are safe) are excluded. Special insurance can be purchased for these possibilities. Insurance should be adjusted to reflect replacement cost, usually upon application of an inflation factor or a cost index.

The home insurance policy is usually a term contract—a contract that is in effect for a fixed period of time. The payment the insured makes to the insurer is called the premium. The insured must pay the insurer the premium each term. Most insurers charge a lower premium if it appears less likely the home will be damaged or destroyed. There is also Perpetual insurance, a type of home insurance without a fixed term, can also be obtained in certain areas.

What are the types of policies?

The Insurance Services Office has standardized homeowners insurance forms in general use, These are the normal polices used:

HO0 – Dwelling Fire Form Homeowner Policy

A form that provides coverage on a home against fire, smoke, windstorm, hail, lightning, explosion, vehicles, and civil unrest. It does not cover your personal property, personal liability, or medical expenses. It is the type of policy your mortgage lender will buy for you if you let your homeowner policy lapse.

HO1 – Basic Form Homeowner Policy

A basic policy form that provides coverage on a home against 11 listed perils; contents are generally included in this type of coverage, but must be explicitly enumerated. The perils include fire or lightning, windstorm or hail, vandalism or malicious mischief, theft, damage from vehicles and aircraft, explosion, riot or civil commotion, glass breakage, smoke, volcanic eruption, and personal liability. Exceptions include floods, earthquakes. Most states no longer offer this type of coverage

HO2 – Broad Form Homeowner Policy

A more advanced form that provides coverage on a home against 17 listed perils (including all 11 on the HO1). The coverage is usually a "named perils" policy, which lists the events that would be covered.

HO3 – Special Form Homeowner Policy

The typical, most comprehensive form used for single-family homes. The policy provides "all risk" coverage on the home with some perils excluded, such as earthquake and flood. Contents are covered on a named peril basis. (Note: "All Risk" is poorly termed as it is essentially named exclusions (ie, if it is not specifically excluded, it is covered)).

HO4 – Tenants Form Homeowner Policy

The Tenants form is for renters. It covers personal property against the same perils as the contents portion of the HO2 or HO3. An HO4 generally also includes liability coverage for personal injury or property damage inflicted on others.

HO5 - Premier Homeowner Policy

Covers the same as HO3 plus more. On this policy the contents are covered on an open peril basis, therefore as long as the cause of loss is not specifically excluded in the policy it will be covered for that cause of loss. (can also be achieved by endorsing an HO15 to the HO3)

HO6 – Condominium Unit Owners Form

The form for condominium owners. It insures your personal property, your walls, floors and ceiling against all of the perils in the Broad Form.

HO8 – Older Houses

The "Modified Coverage" form is for the owner-occupied older home whose replacement cost far exceeds the property's market value.