Blonch

Standardized Forms

Although there are different policies for homeowners and tenants (renters) and even condominium owners, in the U.S. there are standardized basic forms that insurance companies must use for most homeowner’s insurance (with the exception of Texas, which still makes state unique forms available, too.) This makes comparing coverage offers from different insurance companies somewhat easier if you know which coverage forms they are quoting and what limits/deductibles they include. You also need to know if they have any special endorsements restricting or broadening coverage.

Basic

For homeowners, policies that include your home and personal property come in three flavors – basic, broad, and special. All three are “package” policies including property coverage and liability coverage. The big difference is in the property coverage. Property coverage under the basic form (HO-1 or HO-A in Texas) covers “Named Perils” such as damage resulting from Fire, Lightning, Wind, Hail, Explosion, Riot or civil commotion, damage caused by aircraft or vehicles, smoke, vandalism, theft, and even volcanic eruption. This most basic coverage is not what you want, and some states don’t make this limited form available.

Broad Form

The broad form (HO-2 or HO-B in Texas) adds a few more perils to the covered list, like falling objects; the weight of ice, snow or sleet; freezing of plumbing; accidental discharge or overflow of water or steam. There is even a version of this form specifically for mobile homes. This is what you buy if you can’t get the special form due to underwriting requirements or market conditions.

Special or All Risk

Beyond the broad form, special forms (HO-3 or HO-C in Texas) work in reverse. Rather than list every imaginable source of damage, the special form lists what is not covered. Then, everything else IS covered, and these are sometimes loosely referred to as “all risk” policies. Even so, earthquake, war, nuclear and flood are excluded. They weren’t covered on either the basic or broad form, but they are specifically excluded on the special form because if they weren’t listed as exclusions, they would be covered. Spilled strawberry milkshake is not listed an exclusion, so damage from spilling your shake would be covered. All coverage is subject to a deductible, and just how much damage can you do with a milkshake? Usually only the building is “all risk”, with contents on a named peril (usually broad) basis.

Deductibles

Your homeowner’s policy will have a deductible for building damage and for personal property damage. It will also have a deductible for damage from wind and hail. They may all be set to the same level, but due to weather losses where I live, I don’t really get to choose my deductible for wind and hail. It is set as a percentage of the coverage limit, which they increase every year to keep up with replacement costs. They seriously don’t want to buy me another roof.

Actual Cash Value or Replacement Cost

Property insurance limits are written based on either the replacement cost of the property, or its actual cash value (cost new less depreciation). You get more recovery with replacement cost coverage, but you have to buy higher limits, too.

Optional Coverages

There are several optional endorsements for adding specialized liability coverage for teachers or your own business operated from the home. You can schedule property such as jewelry or fine art that would have severe limitations under the policy unless specifically added. This also goes for securities or cash.  There is a lot more to discuss and we will get into these in more detail later.

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Insurance by PecosJack