Types Of Homeowners Policies

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Homeowners policies are numbered to indicate the type of coverage they provide. Some policies, such as the HO-1, are older contracts that are rarely offered today. The most common types of homeowners policies are listed below and what they cover are described in Standard Policies Available In Most States.

• HO-2. Named-risk policy that covers 16 basic perils for your home and contents. A version of this policy is available for mobile home owners.
• Special HO-3. Popular, because it provides some of the broadest coverage. HO-3 covers your home against all perils except those specifically excluded, such as flood, earthquake and landslide. Contents are covered for the 16 basic perils.
• HO-5 Comprehensive. Offers even broader coverage than an HO-3, covering both your home and its contents for all risks, except those specifically excluded.
• HO-6. Designed for condominium or co-op owners, this policy covers 16 basic perils for your contents and for structural parts of the building that you own or improvements that you have made to your unit.

It is important to understand the provisions of both your individual homeowners policy and what is covered through the co-op or condominium association policy because there can be some overlap or gaps in coverage. It also is a good idea to become familiar with the procedure for making a claim through your condominium association policy.

• HO-8. Named-risk policy for older or historic homes that generally covers only ten basic perils for the dwelling and personal property.

Many older homes would be difficult to repair or rebuild because of special features, such as crown molding or hand-carved banisters. Finding the materials or the craftsmen to install them as they were in the original structure could be cost-prohibitive.

Levels Of Coverage

• Named-Risk Vs. All-Risk Policies
  • Named-risk policies pay only for certain perils that are listed in the policy. While they are usually less expensive, named-risk policies give you less coverage, so you assume the risk in the event of a loss not caused by a named risk.
    
    
  • All-risk (sometimes referred to as “open perils”) policies cover all perils, unless they are specifically excluded. Since all-risk policies cover more than named-risk policies, they are more expensive.
  
  
• Actual Cash Value Vs. Replacement Cost Coverage
  • Actual cash value coverage pays to replace your home or property minus depreciation. For example, if your dishwasher shorted out because of a lightning strike, your insurance company would settle the claim by taking the current cost of the dishwasher, then decreasing payment on the claim according to the age of the dishwasher.
    
    
  • Replacement cost coverage would pay you what you actually spent to replace the dishwasher at today’s prices, with no depreciation. To claim replacement cost, you must actually replace or repair the item. Replacement cost policies will always cost slightly more than actual cash value policies, because insurance claims filed on replacement cost policies usually cost the company more than those filed on actual cash value policies.
  
  
• Deductibles
  • When your insurance company pays a claim, you participate in the loss through a deductible, which is an agreed-upon amount of money, often 1 percent of the value of your dwelling coverage. If your home is insured for $200,000 and your deductible is 1 percent, you would pay the first $2,000 before the insurance company would pay the rest of the claim. Raising your deductible is a good way to lower your annual premiums. By asking your insurance company to raise your deductible, however, you agree to assume more for each loss.