Home Insurance Protects You From What?

Home insurance is something we scramble to buy before we close on a new house. But how much do you really know about your home insurance? You might buy the minimum required by your mortgage company or follow the recommendations of your insurance agent. Rarely do we sit down and consider what type of coverage we need or even what options are available.

Home insurance provides peace of mind that if your home were a total loss due to a fire, for instance, your insurance would provide sufficient funds to rebuild your home, and replace your personal belongings … minus a deductible. That's the concept. In reality, the insurance industry has gotten very aggressive in identifying which “perils” they'll cover and depending on where you live, you will need more that just home owner insurance. Earthquake and flood insurance need to be purchased separately, or as additional endorsements to your standard policy and in Florida you need 3 insurance policies – home owner, flood plus wind and hail. Want to learn more?

Home Insurance Policies Reflect Your Home

Each insurance company has their own home insurance policies, and they vary according to the state you live in. You have to work with your insurance agent to understand exactly what you're buying, so the table below is only used to illustrate differences between the most common home insurance policies.

HO-1 is a basic insurance policy and only covers damage to the dwelling as a result of listed perils. It does not include homeowners personal liability insurance, i.e. if someone slips on your property, your insurance company won't defend you in court or pay if you are found at fault.

HO-2 which is sometimes called a broad (home insurance) coverage policy, because it covers the dwelling (house) and other structures (detached garage, fence), but only against named perils . It also covers personal liability coverage.

HO-3 is called the special form (home insurance) policy, covering your home and detached structures against loss or damage from any peril. This is very different – everything is covered except for those specifically excluded in the policy. You should review your policy to see what's excluded as you can cover many of these with special home insurance riders.

Most homeowners buy HO-3 home insurance.

HO-4 is designed for renters and covers the contents of the home and personal liability for the insured tenant.

There are more home insurance policies covering condominium owners (to compliment the condo association policy), older homes and more. It's best to work with your home insurance agent to define what coverage you need and then they can research policies that meet your needs.

Home Insurance Coverage: Included or Excluded?

This table makes it appear as if home owner insurance policies 1, 2 and 3 are almost the same — they're not! There is a huge difference and it's not intuitive

HO-1 and HO-2 … ONLY cover the listed perils, i.e. this table illustrates although your policy's list might be slightly different.
HO-3 covers everything listed AND ANYTHING else not excluded, i.e. read the next to bottom row in the table which says “All perils except for flood, earthquake, war, nuclear accident” and of course, your policy might have slightly different exclusions.

Once you review the list of what's excluded, you might be wondering what's left and personally, I feel like I get at least 1 or 2 new exclusions every year, and many of them make sense, i.e. war or nuclear hazard. Admittedly, the one I personally don't like is “Mold, Fungus, or Wet Rot” as often these problems are hidden inside your home's walls for years and if you're nervous about how watertight your home is, or the quality of the plumbing in an older home, you can often add coverage to your home insurance policy (costs more).

3 Most Common Home Insurance Policies and What They Cover
Type of Perils Covered by Home Insurance	HO-1	HO-2	HO-3
Fire or lightning	X	X	X
Loss of property on premises due to fire or other perils	X	X	X
Vehicles	X	X	X
Windstorm or hail	X	X	X
Smoke	X	X	X
Explosions	X	X	X
Theft	X	X	X
Vandalism and malicious mischief	X	X	X
Riot or civil commotion	X	X	X
Aircraft	X	X	X
Breakage of glass constituting part of the building	X	X	X
Collapse of building(s)		X	X
Weight of ice, snow or sleet		X	X
Freezing of plumbing, heating and air conditioning systems and domestic appliances		X	X
Falling Objects		X	X
Accidental discharge, leakage or overflow of water or steam from within a plumbing, heating or air conditioning system or domestic appliance		X	X
Sudden and accidental tearing apart, cracking, burning or bulging of a steam or hot water heating system or of appliances for heating water		X	X
Sudden and accidental damage from artificially generated currents to electrical appliances, devices, fixtures and wiring		X	X
All perils except for flood, earthquake, war, nuclear accident. (Check your policy for complete list of perils.)			X
Coverage for jewelry, art, antiques, etc. May also include coverage for building code upgrades and sewer backups.	Can be added to any policy for an additional charge.