WHAT IS HOMEOWNER’S INSURANCE?
• TYPES OF HOMEOWNER’S POLICIES
WHAT IS HOMEOWNER’S INSURANCE?


Homeowner’s insurance, sometimes referred to simply as property insurance, covers a
wide array of misfortunes that might befall the policy owner. Homeowner’s insurance,
like auto insurance, is a packaged deal of various types of coverage. For example, if
one went on vacation and lost their camera, property insurance would cover the loss.
Property insurance also covers legal liability in instances where something
happens on the policyholder’s property which results in a lawsuit.

Example

If Mike, the pizza delivery boy, delivers a pizza to a policyholder’s house, trips on
a gardening tool, and sues for damages, their property insurance would cover
this.

Important Point

. The main intent of property insurance is that it insures property. It covers one's
house, garage, and other structures on the property, such as tool sheds, from
damages. Also if something occurs to the house and it became uninhabitable for
a time, property insurance covers the living expenses for the policyholder and his
or her family until the house is inhabitable again.
Property insurance covers a large number of unfortunate occurrences that may befall
the policyholder. This protection is paid for in a package deal with one premium. This
premium also includes all family members and pets, so if one of the children should hit
and injure another child on the property, it is covered by the property insurance.
Similarly, if one's dog should bite the mailman and a suit is filed, the property insurance
would cover that, as well.

TYPES OF HOMEOWNER’S POLICIES

Let’s look at the basic types of homeowner’s insurance policies. These particular
policies are not found with every insurance company, but generally these are the
standard options available with most companies.

HO-1

This is the "basic" plan of homeowner’s insurance. It is the cheapest and protects
against certain named perils that usually are:
􀂃 Fire, lightning, and smoke damage
􀂃 Windstorm and hail
􀂃 Burglary and theft
􀂃 Explosion
􀂃 Glass breakage
􀂃 Vehicle or aircraft damage
􀂃 Riot or civil commotion
􀂃 Vandalism and malicious mischief
􀂃 Bodily injury liability
􀂃 Damage to property of others
􀂃 Cost of legal defense in liability cases
􀂃 Medical payments
􀂃 Personal property located at home
􀂃 Personal property located away from home, while traveling
􀂃 Additional living expenses.
Usually this policy is not enough, and it is recommended that another policy with better
coverage be used for the best protection. States are trying to phase out this program
and replace it with one more like HO-2.

TYPES OF HOMEOWNER’S POLICIES CON’T
HO-2

This is referred to as the "broad" plan. It includes everything that the HO-1 does, plus a
few extra benefits for about 5 to 10% more in price. The extra benefits include
protection from:
􀂃 Falling objects
􀂃 Damage from weight of ice or snow
􀂃 Water damage from the house's plumbing system
􀂃 Freezing of the plumbing system
􀂃 Electrical damage to appliances
􀂃 Rupture of water heaters and heating systems.

HO-3

This plan is referred to as the “special” policy. It covers all risks except for a few,
specifically excluded risks. It generally does not cover normal wear and tear,
mechanical breakdown, and vandalism if the house has been unoccupied for more than
thirty days, and continuous water seepage over a specified time period. One benefit of
this plan is that the coverage is very extensive for the actual dwelling, but does not
cover personal belongings as much as HO-2. This is a benefit if one does not have
many items of any particular value and one could easily replace them with the smaller
amount of coverage that this policy provides.
Important Point

The HO-3

 policy is the one most commonly used by homeowners. This offers all
risk coverage to the dwelling. This is a particularly valuable facet of this policy
and is what really sets the HO-3 policy apart from the HO-1 and HO-2.

HO-4

This plan is specifically for people who rent an apartment. It covers belongings and
damages against the renter. The landlord should have coverage for the building if
anything catastrophic occurs, but they are generally not responsible for the belongings
of their tenants.

HO-5

􀂃 This plan is the most comprehensive coverage available. It is known as the "all-risk"
policy.
􀂃 It covers everything except specifically named disasters that are:
Flood (that has it's own policy), Earthquake, War, and Nuclear Accident.
􀂃 This plan is not always necessary because usually the other policies provide enough
coverage, but often cautious consumers will choose this policy because it is the
most conservative, though it also boasts the highest premiums.

HO-6

This policy is specifically for the owners of condominium apartments and works in the
same way as HO-4 for apartment buyers.

HO-7

There is no HO-7.

HO-8

This policy is a specialized plan for the owners of older buildings that are irreplaceable.
These structures are insured for the cash value of the home and not the replacement
value.

HOMEOWNER’S LIABILITY COVERAGE
• HOMEOWNER’S INSURANCE DISCOUNTS
HOMEOWNER’S LIABILITY COVERAGE

Most homeowner’s policies include liability protection that covers the homeowner for
incidents inside or outside the home. Homeowner’s policies come with a standard
amount, but, since each individual has different amount of assets to protect, this amount
can be varied.

Types of Coverage

There are two basic liability protections. Like all liability protections, they cover one
against injury to other people -- but not to the homeowner or any member of his or her
household. These liability protections are not subject to a deductible and include:

• Coverage E as Personal Liability
• Coverage F as Medical Payment

Coverage E

This plan protects the homeowner from claims and suits that are brought against him or
her because of bodily injuries or property damage to people other than the homeowner
or members of the household. Situations where Coverage E would apply are when a
golf ball hits an individual, or when someone is injured within the residence premises.

Coverage F

This plan applies to the payment of medical expenses that are the result of an accident
within the residence premises, regardless of fault. Coverage F will pay all reseanable
medical expenses for a period of three years from the date of the accident.
HOMEOWNER’S INSURANCE DISCOUNTS
Insurance is a very competitive business and the price one pays for his or her
homeowner’s insurance can vary by hundreds of dollars, depending on the insurance
company one buys the policy from. Companies offer several types of discounts, but they
do not offer the same discount or the same amount of discount in all states. Here are
some elements that the consumer will probably consider before he or she makes a
decision to purchase a homeowner’s insurance policy:
Shopping
After one option is presented to a consumer by an insurance agent, he or she will
probably go shopping around to get advice from friends, insurance companies, state
insurance department, and consumer guides. The wise consumer usually wants quality
even if it costs a bit more.
Deductibles
The consumer will probably want to lower the deductible in order to save some money.
Deductibles start at about $250 and by increasing it to $500, the homeowner could save
up to 12%; to $1,000, up to 24%; to $2,500, up to 30 percent; and to $5,000, up to 37%.
Group Purchase
A consumer will have many advantages to purchasing both auto and home insurance
policies from the same insurance company. An individual can save 5 to 15% of the
premium if he or she buys two or more policies from the same insurance company.

HOMEOWNER’S INSURANCE DISCOUNTS
T PRINCIPLES OF COVERAGE
T EXCLUSIONS

Security

An individual can get discounts of at least 5% for a smoke detector, burglar alarm, or
dead-bolt locks. Some insurance companies give discounts on the premiums by as
much as 15 or 20% if an individual installs a sophisticated sprinkler system and a fire
and burglar alarm that rings at the police station or other monitoring facility. Jewelry,
currency and important papers are very costly to replace, so if the homeowner decides
to keep these things in a safety deposit box, insurers may offer a discount as high as
five percent.

Loyalty

If an individual keeps coverage with a company for several years, he or she may
receive special reductions in their premiums. If a policy owner has had insurance with
the same company for three to five years, he receives 5% reduction. If the policy owner
has had insurance with the same company for six years or more, he or she receives a
10% discount.

Quality

New houses are generally built with new and improved features that older houses do
not incorporate, such as general fireproofing of building materials. Insurance
companies recognize this and sometimes give a discount on the premiums because
these houses are safer.
PRINCIPLES OF COVERAGE
There are a number of options for coverage that enhance a homeowner’s policy, either
by adding or removing certain coverage. These are also called endorsements. These
endorsements include:
• Broadened Coverage for Contents
• Contents Replacement Cost Coverage
• Valuable Items Plus
• Additional Coverage Endorsement
• Water Back Up of Sewers or Drains

EXCLUSIONS

A homeowner’s policy does not provide coverage for the following perils:
• Loss due to flood, or water that backs up through sewers
• Loss to building by earthquake, aftershocks and mudslides
• Loss by enforcement law or ordinance regulating construction, repair or
demolition
• Loss due to power interruption when the interruption takes place off the
residence
• Loss due to neglect of the insured to save and preserve property following
a loss
• War and nuclear perils
• Intentional loss