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Home insurance, also commonly called hazard insurance or homeowner's insurance (often abbreviated in the US real estate industry as HOI), is a type of property insurance that covers a private residence. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one's home, its 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.
The cost of homeowner's 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 contract 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 (whose definition typically includes a nuclear explosion from any source) are excluded from coverage, amongst other standard exclusions (like termites). Special insurance can be purchased for these possibilities, including flood insurance. Insurance is adjusted to reflect the cost of replacement, usually upon application of an inflation factor or a cost index.
HO0 – Dwelling Fire Form, a form that provides coverage on a home against fire, smoke, windstorm, hail, lightning, explosion, vehicles, and civil unrest. It does not cover the assured's personal property, personal liability, or medical expenses. It is the type of policy a mortgage lender will buy for a borrower if the latter's homeowner policy lapses.
HO1 – Basic Form, 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, a more advanced form that provides coverage on a home against 16 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, 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 (i.e., if it is not specifically excluded, it is covered).)
HO4 – Contents Broad Form, the Contents Broad, or 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 – Comprehensive Form, 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.
HO6 – Unit-Owners Form, the form for condominium owners. It insures personal property, walls, floors and ceiling against all of the perils in the Broad Form.
HO8 – Modified Coverage Form, the form is for the owner-occupied older home whose replacement cost far exceeds the property's market value.
Landlord Insurance Policy
Policies for rental units have various names depending on the company, but they generally are referred to as dwelling policies, and fall into three categories: DP-1, DP-2 and DP-3. A DP-1 policy is basic and covers simple things like fire and vandalism. A DP-2 policy is broader, "It covers named perils like damage from a windstorm, hail, fire or vandalism. A DP-3 policy is a 'special form' or an open peril policy, Unless a peril is specifically excluded, it's covered. Most insurance brokers suggest landlords opt for a DP-3 policy. For example, a DP-1 gives you only actual cash value on the house, where a DP-3 will give you its replacement cost, With cash value, a roof that's 10 years old will be written down because of its age. With replacement value, you get the cost of a new roof. It's more common for landlords to get a DP-3 policy. Another area to consider coverage for is loss of rental income, should the building have to be emptied for repairs, there has to be a covered loss that causes you to lose income while the property is being fixed, also make sure you have sufficient liability coverage.
Coverage A – Dwelling Covers the value of the dwelling itself (not including the land). Typically, a coinsurance clause states that as long as the dwelling is insured to 80% of actual value, losses will be adjusted at replacement cost, up to the policy limits. This is in place to give a buffer against inflation. HO- 4(renter's insurance) typically has no Coverage A, although it has additional coverages for improvements.
Coverage B – Other Structures Covers other structures around the property that are not used for business, except as a private garage. Typically limited at 10% to 20% of the Coverage A, with additional amounts available by endorsement.
Coverage C – Personal Property Covers personal property, with limits for the theft and loss of particular classes of items (e.g., $200 for money, banknotes, bullion, coins, medals, etc.). Typically 50- 70% of Coverage A is required for contents, which means that consumers may pay for much more insurance than necessary. This has led to some calls for more choice.There are two types of policies for personal property: cash value policy and replacement cost policy. Cash value policy will pay the cost to replace belongings, minus deprecation. Replacement cost policy will reimburse the assured for the full, current cost of replacing belongings.
Coverage D – Loss of Use/Additional Living Expenses Covers expenses associated with additional living expenses (i.e. rental expenses) and fair rental value, if part of the residence was rented, however only the rental income for the actual rent of the space not services provided such as utilities.
Coverage E – Personal Liability Covers damages which the insured is legally liable for and provides a legal defense at the insurer's own expense. About a third of the losses for this coverage are from dog bites
Covers a variety of expenses such as debris removal, reasonable repairs, damage to trees and shrubs for certain named perils (excluding the most common causes of damage, wind and ice), fire department charges, removal of property, credit card / identity theft charges, loss assessment, collapse, landlord's furnishing, and some building additions. These vary depending upon the form.
Additional Living Expense - or Loss of use
Coverage under a homeowner's, condominium owner's or renter's insurance policy that covers the additional costs of living that are incurred by the policy holder should the policy holder be temporarily displaced from their place of residence when your house is uninhabitable. Such coverage is usually at about 10% to 20% of the insurance that covers the dwelling. Additional living expense insurance can cover things like the increase in a monthly food bill due to having to eat-out at restaurants or even the loss of income that might be incurred if the insured person were renting out part of their space to a tenant. Essentially the insurance is intended to cover the insured person for the extra expenses he or she may incur due to being temporarily displaced from their home, such as in the case of a fire or flood.
In an open perils policy, specific exclusions will be stated in this section. These generally include earth movement, power failure, neglect, war, nuclear hazard, septic tank back-up expenses, intentional loss, and concurrent causation (for HO3). The concurrent causation exclusion excludes losses where both a covered and an excluded loss occur. In addition, the exclusion for building ordinance can mean that increased expenses due to local ordinances may not be covered.
Flood damage is typically excluded under standard homeowners' and renters' insurance policies. Flood coverage, however, is available in the form of a separate policy both from the National Flood Insurance Program (NFIP) and from a few private insurers