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No matter what type of policy you have, there are some significant common elements of every policy that you should be aware of. In general, there are two types of policy coverage:
ACV (Actual Cash Value) or RCV (Replacement Cost Value)
As a policy holder we encourage you to choose the RCV type of policy.
While it will most likely result in a higher premium, at the time of loss you will be paid the full replacement cost. With an ACV type of policy, the settlement is based on an Actual Cash Value basis – meaning the amount of depreciation is not recoverable (you will not be compensated fully after the loss). If your home is your primary residence, most likely you will have an RCV type of policy. A Renter’s Policy may be an ACV type. It is a good idea to check your policy type with your insurance carrier.-Endorsements
This is an optional package to the standard policy that extends your coverage. We strongly recommend the following endorsements to be part of your homeowner’s policy:
- Ordinance or Law (Code Upgrade)
- Sewer Backup
Remember that Flood Damage is not covered under a standard policy. It is optional insurance. It doesn’t cost much but it is good idea to have it even if you don’t live near water (flood area)
Below you can find a brief description of the policy types:
HO1 – Basic Form Homeowner Policy
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 and earthquakes. Most states no longer offer this type of coverage.
HO2 – Broad Form Homeowner Policy
A more advanced form that provides coverage on a home against 17 listed perils (including all 11 on the HO1). The coverage is usually a “named perils” policy, which lists the events that are covered.
HO3 – Special Form Homeowner Policy
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 – Renter’s Insurance
The “Tenants” form is for renters. It covers personal property against the same perils as the contents portion of the HO2 or HO3. A HO4 generally also includes liability cover for personal injury or property damage inflicted on others.
HO5 – Premier Homeowner Policy
Covers the same as HO3 plus more. In this policy 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 (can also be achieved by adding a HO5 stipulation to a HO3 policy).
HO6 – Condominium Policy
The form for condominium owners.
HO8 – Older Houses
The “Modified Coverage” form is for an owner-occupied older home,the replacement cost of which far exceeds the property’s market value.
For each policy, there are typically 5 classifications of property coverage. These are based on standard Insurance Services Office or American Association of Insurance Services forms.
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 the actual value, losses will be adjusted at replacement cost, up to the policy limits. This is in place to give a buffer against inflation. HO4 (renter’s insurance) typically has no Coverage A, although it has additional coverage for improvements.
Coverage B – Other Structures
Covers other structures around the property which are not used for business, except a private garage. Typically limited at 10% to 20% of Coverage A, with additional amounts available by endorsement.
Coverage C – Personal Property
Covers personal property, with limits regarding the theft and loss of particular classes of items (e.g. $200 for money, banknotes, bullion, coins, medals, etc.).Typically 50 to 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.
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 covers the rental income of the space not services provided such as utilities.
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.
In an open perils policy, specific exclusions will be stated in this section. These generally include earth movement, water damage, power failure, neglect, war, nuclear hazard, septic tank back-up expenses, intentional loss, and concurrent causation (for HO3).