Question

Comparing homeowner’s policy forms. (HO-2, HO-3, HO-4, HO-5, HO-6, and HO-8)

A).In what ways is the coverage for each of the forms similar?

B) How does the coverage differ among the policies? Address the types of coverage in each, perils covered, benefits provided, types of “homeowners” that each one is tailored for, etc.

Answer 1

here are many types of homeowner’s insurance policies available to fit our unique lifestyles and needs, including plans for those who choose to rent apartments or single-family homes. Homeowner’s policies can be thought of as your personal liability insurance and the insurance for your personal and real property. They cover your home, its contents, and the occupants’ liability.

The differences between the policies lie with what is actually covered in a property and liability sense, and what perils (or causes of loss) the policy will cover against.

Ultimately, you can choose from the HO-1, HO-2, HO-3, HO-4, HO-6, and HO-8. I know, it sounds like Christmas.

To make sense of it all, let’s review the basics of these policies. Remember to speak to your insurer or an independent agent for advice on which policy best suits your individual needs.

HO-1: This is the most basic of homeowners’ policies. Those of us with home mortgages would not get by with this policy. It only covers damage to the dwelling as a result of fire and lightning. There are few places in the U.S. where this limited coverage would be satisfactory.

Also note that there is not personal liability included in this policy format. So if you’re sued by someone who slips on your property, your insurance company won’t defend you in court or pay the plaintiff if you are found to be at fault.

HO-2: This is known as the Broad Form policy. The HO-2 is similar to the HO-3 described next because it covers the dwelling (house) and other structures (detached garage, fence), but it insures against only named perils (causes of loss).

For example, you will only be reimbursed for damages that occur if they are caused by one of the acceptable perils listed explicitly on the policy. If something damages your home and is not listed as an acceptable cause of loss, you will not receive any money. However, this policy does include personal liability coverage.

HO-3: This is known as the “Special Form Homeowner’s policy.” This is the most common HO policy sold today. It’s designed for 1-to-4-unit, owner occupied homes. It covers your home against a wide variety of perils, even if not listed specifically in the policy.

Of course, it’s more expensive than the HO-2, but probably substantiated because your home may be the largest debt you have. Also included in this policy is personal liability coverage.

HO-4: This is the only insurance policy designed for renters. It is however, part of the homeowner’s policy group; know as the tenant homeowner’s policy. Known as the “Contents Broad Form policy,” it covers only the contents of the home, which makes sense, because the person who owns the home should have their own insurance policy on the actual dwelling.

Personal liability is included in the HO-4 in addition to the coverage for the property insured. This is necessary because your lease probably states the landlord is not responsible for bodily injury that may occur in your apartment or rented home.

The policy limits on the remaining coverage are reduced in some cases versus what they would be in the HO-3 policy. Unfortunately, very few renters have this very inexpensive insurance, which means everything they own may be destroyed in a fire and they will receive no compensation whatsoever.

HO-6: This is known as the condominium owners’ policy. The HO-6 policy is similar to the HO-4 because the policy holder does not own the actual dwelling. Condo owners typically own the building jointly with the other condo owners in the co-op.

Basically, the HO-6 covers just the specific unit and contents within. This policy includes liability insurance as well, which means you’ll be covered if someone is injured in your unit.

HO-8: Finally, the “Modified Coverage Form Homeowners policy.” Put simply, you need this insurance if the cost to rebuild your home far exceeds its current market value. Your home may currently be valued at $250,000, but costs $350,000 to rebuild if completely destroyed by fire.

For example, if you live in a very old home built using methods unique to the period it was built, this policy would be your best option. Some of these lesser-used methods include hand carved wood throughout the home. Victorian homes are a good example of this type of construction.

Note that some states have modified versions of these policies. In Texas for example, instead of the basic HO-3, you can purchase the HO-A or the HO-B. The difference between the two lies in the perils, or causes of loss your home is insured against, namely back-up water damage and wind-driven rain.

The best tip I can give is similar to automobile insurance: have the highest policy limits and broadest coverage you can possibly afford. Your home and all of your worldly possessions are not something to be skimped on.

it’s interesting that many homeowners we’ve talked to were previously unaware of the different types of homeowner’s protection available and how one policy differs from another. In an effort to provide some clear-cut guidance we’ve put together a comprehensive explanation of the two most common types of homeowner’s coverage. You can find it here in a chart entitled HO-3 vs HE-7/21 Comparison.

Don’t be confused by the numbers. If you own a conventional house, as opposed to a mobile home, condo, apartment, houseboat or other type of alternative dwelling, your two best options for homeowners insurance are HO-3 or HE-7/21. These policies were (and are) developed by ISO, the Insurance Services Office, and are part of a collection including:

• HO-1, rarely used because of its narrow coverage
• HO-2, or Homeowners 2, Broad Form
• HO-3, or Homeowners 3, Special Form
• HO-4, or Contents Broad Form (renter’s insurance)
• HO-6, for condo owners

HO-3 policies are the ones most commonly sold because the coverage they provide are the minimum required by most mortgage companies. Most mortgage lenders require mortgage holders to purchase and maintain a minimum amount of insurance in order to protect the company’s security interests and the HO-3 is the most affordable means for meeting this requirement (without dropping down to a “Fire” or Dwelling Policy).

HO-3 vs HE-7/21                                             

The HE-7/21 homeowner’s insurance policy is a significant upgrade to the provisions of the HO-3 coverage and not something offered by most large national insurance carriers. It is mostly offered by Independent Insurance Agents, and is something that sets them apart from the competition.

As seen in the accompanying chart, HE-7/21 offers coverage either not available in the HO-3 policy or, if available, at an extra charge. Both policies are what’s known as “open perils” coverage on the dwelling and structures on the property, meaning that any direct damage is covered unless specifically excluded in the policy terms. Coverage for contents (personal property), while open perils (all risk) for the HE-7/21 is only for “named perils” under the HO-3 policy. This means types of contents damage covered must be specifically stated in the policy terms.

Big Differences

Obvious differences between the HO-3 vs HE-7/21 can be seen in the first two items in the comparison chart. The HE-7/21 includes full replacement coverage for both structures and contents. This is optional with the HO-3 coverage, for an extra charge, and with a percentage cap in place.