Homeowners insurance is a standardized package policy including property coverage for perils such as fire, wind or hail, vandalism and associated events such as loss of use of the home. Homeowners insurance also covers theft and the homeowner’s exposure to personal liability.
Homeowners coverage is considered a “package” because different lines of insurance are bundled into one policy.
The primary insurance coverages in the homeowners policy are divided into two general categories:
- Section I—Property Damage
- Section II—Liability
picture of family, including husband, wife, and girl sitting on grass in front of their home smiling.
A homeowners policy must have at least two parts:
- Declarations page (or “dec”)
- Policy form
The amounts of insurance provided to the insured are listed on the sample declarations page following the name and address of the insured. A separate limit of liability of insurance is shown for each of the coverages we mentioned earlier.
Although homeowners policies are standardized and pre-printed, they need to be flexible enough to meet a variety of requirements.
The ISO Homeowners Policy Program accomplishes this goal by offering six different versions of the policy form.
|Standard Form Number||Homeowner Insurance Form Name|
|HO 00 02 06 14||Homeowners 2 Broad Form|
|HO 00 03 06 14||Homeowners 3 Special Form|
|HO 00 04 06 14||Homeowners 4 Contents Broad Form|
|HO 00 05 06 14||Homeowners 5 Comprehensive Form|
|HO 00 06 06 14||Homeowners 6 Unit-Owners Form|
|HO 00 08 06 14||Homeowners 8 Modified Coverage Form|
The current edition date of the homeowners forms is 06 14, but any time ISO makes a major revision to a form, the edition date of that form will change accordingly. For example, if you saw a form numbered HO 00 03 07 15, you would know that the HO 00 03 form was revised in July of 2015.
Basic, broad and special terms used to describe the perils in these forms have very specific meanings in the property coverage section of the homeowners policy.
Basic, Broad, and Special Coverage
HO 00 04 and 06, provide only contents coverage. These forms are designed for renters who rent instead of own, or owner-occupants of condominium units, cooperative units, mobile homes, or house trailers. Unless otherwise turned into real property, mobile homes and house trailers are considered personal property.
Each state has a specific minimum limit of liability (the smallest amount of insurance sold in a homeowner’s policy) for property coverage under the homeowners forms.
The minimum amount applies to Coverage A for the home or dwelling. This means a house must have a certain insurable value in order to be covered by the homeowners forms. Because the state establishes the minimum permitted, you will find this amount in the State Rate Pages of the Homeowners Policy Program Rules. One state’s Coverage A minimum limits are $25,000 for a primary residence and $15,000 for a secondary residence.
Secondary and Seasonal Residences
A secondary residence may be covered under a homeowners form, but a separate policy, apart from any policy issued on the insured’s principal residence, is required.
A seasonal residence may also be covered under a homeowners policy, and a separate policy is not required. The homeowners program defines a seasonal residence as a dwelling with continuous unoccupancy of three or more consecutive months during any one-year period.
Wind & Hail Deductibles – In areas where windstorm and hail is the norm, you will most likely be presented with a higher deductible for these perils. This is usually listed on your policy as a percentage of the dwelling coverage. For example, having a 1% deductible seems negligent at first, but if the dwelling amount is $350,000, that will translate to a $3,500 deductible on your wind or hail claim. That is a substantial out of pocket burden to carry. I find it interesting that this is not very conspicuous on your quote or declarations page. Protect yourself by asking about the deductibles before committing to a purchase.
Roof Surface Endorsement – this is something that raised its ugly head in 2012. A few of the major insurance companies are placing an endorsement (coverage change) on their policies that reduce the valuation of a wind or hail claim on the roof surface by using a depreciation scale. If, for example, your 10 year old roof needs replacing after a wind or hail storm, the insurance company is going to pay the value of a 10 year old roof, not a new roof. This is referred to as “actual cash value” and could leave you paying thousands of dollars to have your roof replaced. And remember, that 1 or 2% deductible comes right off the top before they depreciate the value of your roof.
It’s interesting that lenders are not screaming about this issue. They are lending money on a very expensive asset that is often not insured to value. If your agent isn’t using replacement value without you knowing about it, you may want to ask why.