Home Owners Policies (HO)
Homeowners insurance
Dwelling policies were a precursor to the homeowners policy. A homeowners policy provides much of the same property coverage as dwelling policies, but it has evolved to address two needs at the same time:
- Property insurance for the home and personal property
- The insured’s legal responsibility for bodily injury or property damage to others
Because it combines property and liability coverages, a homeowners policy is considered multi-line coverage.
Section I of a homeowners policy provides property coverage. The personal liability coverage of the homeowners policy is referred to as Section II.
This chapter follows the Insurance Services Office (ISO) homeowners forms, 2011 edition. Dollar amounts can differ in other editions and in an insurer’s own forms.
Eligibility and purpose
The purpose of a homeowners policy is to insure, in one package, a family’s home, its contents and its personal liability. It is written for a residence, not a business, and the insured must have a personal stake in the home as an owner who lives there, as a tenant, or as the owner of a condominium unit.
Eligibility is set by the insurer’s underwriting rules (in the ISO program, the homeowners manual), not by the policy form. Under the standard rules:
- HO-2, HO-3, HO-5 and HO-8 may be issued only to an owner-occupant of a one- to four-family dwelling used mainly as a residence. A buyer living in the home under a long-term installment contract, a person living there under a life estate, and the intended owner-occupant of a home under construction are also eligible.
- An owner who does not live in the dwelling, such as a landlord, is not eligible for these forms and insures the building under a dwelling policy instead.
- HO-4 is for tenants, who may live in any kind of building. It is also available to an owner who lives in a building that is not eligible for an owner form, such as the owner-occupant of a larger apartment building.
- HO-6 is for owners of condominium units and cooperative apartments. Unlike the other owner forms, it does not require the owner to live in the unit.
- Homeowners forms may not be issued on property to which farm rates apply. A mobile home can be insured only by adding a mobile home endorsement or under a separate mobile home policy.
Homeowners policy coverage forms
There are 6 primary policy forms. These policy forms vary based on the perils insured against and the exposure being insured.
| Form | Who it is for | Dwelling and other structures (A, B) | Personal property (C) |
|---|---|---|---|
| HO-2 Broad | Owner-occupant | Named perils (broad) | Named perils (broad) |
| HO-3 Special | Owner-occupant | Open perils | Named perils (broad) |
| HO-4 Contents broad | Tenant | Not covered | Named perils (broad) |
| HO-5 Comprehensive | Owner-occupant | Open perils | Open perils |
| HO-6 Unit-owners | Condominium or cooperative unit owner | Named perils (broad), Coverage A only | Named perils (broad) |
| HO-8 Modified coverage | Owner-occupant | Named perils (basic) | Named perils (basic) |
The broad named perils, used by HO-2, HO-4, HO-6 and for Coverage C of HO-3, are 16: fire or lightning; windstorm or hail; explosion; riot or civil commotion; aircraft; vehicles; smoke; vandalism or malicious mischief; theft; falling objects; weight of ice, snow or sleet; accidental discharge or overflow of water or steam; sudden and accidental tearing apart, cracking, burning or bulging; freezing; sudden and accidental damage from artificially generated electrical current; and volcanic eruption.
Broad (HO-2)
The homeowners insurance equivalent of the Dwelling Property Broad form is the HO2 form, and it is available for owner-occupied homes.
HO-2 covers the dwelling, other structures and personal property against the 16 broad named perils. They are the same perils as the Dwelling Broad Form (DP-2), except that the DP-2’s “damage by burglars”, which does not include theft of property, is replaced by theft.
Example, using the standard limits:
- If the insured covers the home for $100,000, Coverage B automatically provides $10,000 of coverage.
- Coverage C would provide $50,000 of coverage.
Section II functions the same as all HO policy forms.
Special (HO-3)
This policy form provides open-peril coverage on Coverages A and B. Coverage C, however, is protected on a named peril basis.
The HO3 policy provides all-risk protection on the dwelling and other structures, which is the broadest of the forms that keep Coverage C on a named peril basis.
Open perils means the policy covers direct physical loss to the dwelling and other structures from any cause that is not excluded. Coverage C is limited to the 16 broad named perils.
This homeowners form includes the four coverage areas of Section I. The percentage limitations allocated to Coverages B, C, and D are the same as the HO2.
Contents broad (HO-4)
This policy form is known as an HO4. It provides coverage for:
- A renter’s unscheduled personal property (Coverage C)
- Loss of use (Coverage D)
It is a broad form peril policy.
HO-4 does not insure the building. It does pay up to 10% of Coverage C for building additions and alterations, the improvements a tenant made or bought at the tenant’s own expense, and that amount is additional insurance.
Example, using the standard limits:
- If the insured tenant carries $10,000 of coverage on personal property, the policy will provide up to $3,000 of coverage for loss of use under Coverage D.
Comprehensive (HO-5)
The HO5 is available for owner-occupied homes. It provides open-peril coverage on all of Section I: Coverage A, Coverage B, and Coverage C.
This makes it the broadest of the homeowners forms, since the HO3 protects Coverage C on a named peril basis.
The percentage limitations allocated to Coverages B, C, and D are the same as the HO2 and HO3.
Section II functions the same as all HO policy forms.
Unit-owners (HO-6)
This policy is also a broad form peril plan. It is designed for condominium unit owners and protects against loss to personal property arising from a covered peril. It also covers, under Coverage A and against the same named perils, the parts of the building the unit owner is responsible for, such as improvements and fixtures within the unit. HO-6 has no Coverage B.
HO-6 Coverage A covers:
- Alterations, appliances, fixtures and improvements that are part of the building within the unit
- Real property that belongs only to the unit
- Property the condominium association’s agreement makes the unit owner responsible for insuring
- Structures owned solely by the unit owner at the same location
Under the standard rating rules, HO-6 Coverage A is provided automatically at $5,000, and the insured may buy a higher limit for an additional premium. The form itself states no amount; the limit is shown in the declarations.
Example, using the standard limits:
- If the insured carries $20,000 on Coverage C, 50% (or $10,000) of coverage would be provided for loss of use coverage.
Modified coverages (HO-8)
HO-8 is the modified coverage form. It is used for owner-occupied homes, often older ones, whose replacement cost is much higher than their market value, so that insuring them for full replacement cost would be impractical.
HO-8 covers the dwelling, other structures and personal property against 10 named perils: fire or lightning; windstorm or hail; explosion; riot or civil commotion; aircraft; vehicles; smoke; vandalism or malicious mischief; volcanic eruption; and theft, which is covered only on the residence premises and only up to $1,000 a loss.
Losses to the dwelling and other structures are not paid at full replacement cost. If the insured repairs or replaces the building at the same site, for the same use, within 180 days, the policy pays the amount actually spent, up to the limit, but no more than the cost of common construction materials and methods that do the same job, a functional replacement cost basis. Otherwise it pays the least of the limit, the building’s market value (not counting the land), or the cost to repair the damage less depreciation (its actual cash value).
Definitions
The homeowners policy’s defined terms, such as “you,” “insured,” “residence premises” and “insured location,” decide who is covered, where and for what. They are covered in Homeowners Policy Definitions and Conditions.
Section I — Property coverages
There are several homeowners policy forms, and they differ based on the protection provided. Section I is comprised of four coverage sections that insure the insured’s residence and personal property. HO-4 has only Coverages C and D, and HO-6 has Coverages A, C and D.
Coverage A — Dwelling
Coverage A provides property insurance on the owner-occupied dwelling used for residential purposes. The location of the residence premises is identified in the declarations.
Coverage A protects against loss to:
- The dwelling
- Any structure attached to the dwelling
- Materials and supplies located on or next to the described premises that are used to construct, alter, or repair the dwelling or other structures on the residence premises
Coverage A appears in an HO-2, HO-3, HO-5, HO-6, and HO-8 policy.
Coverage B — Other structures
Coverage B provides a specific limit of insurance for detached structures on the residence premises.
- Under HO-2, HO-3, HO-5 and HO-8, the limit for other structures is 10% of the Coverage A amount. The form itself sets this limit, and using it does not reduce the Coverage A limit.
- HO-4 and HO-6 have no Coverage B. HO-6 covers structures owned solely by the unit owner at the location under Coverage A, and common property is insured by the association’s master policy.
This coverage functions in a similar fashion to Coverage B under a DP form.
Coverage C — Personal property
Coverage C protects the insured’s unscheduled personal property while it is located anywhere in the world.
- Under HO-2, HO-3, and HO-5, Coverage C is typically 50% of Coverage A. That percentage is the standard limit in the insurer’s rating rules and is shown in the declarations; the insured may choose a different amount.
- Coverage C includes special limits for certain types of property, such as $200 for money and $1,500 for theft of jewelry, watches and furs.
Coverage C applies worldwide, but property usually kept at another residence of the insured, and property in a self-storage facility, is limited to 10% of Coverage C or $1,000, whichever is greater. Under HO-8, all personal property away from the residence premises is limited to that amount. This differs from Dwelling (DP) policies, where off-premises personal property is typically limited to 10% of Coverage C.
Several property exclusions apply to Coverage C. For example, the policy does not cover loss to animals, birds, or fish, autos, itemized articles insured separately, or property of roomers, boarders and other tenants (except roomers and boarders who are related to an insured).
Coverage D — Loss of use
Coverage D is referred to as loss of use or additional living expense. It functions in the same manner as the corresponding coverage in a dwelling property policy and is considered an indirect loss coverage.
Coverage D applies when:
- The residence premises are unlivable due to a covered peril, and
- The insured incurs additional expenses while living elsewhere
Only expenses above the insured’s normal monthly living expenses are paid.
Coverage D also pays fair rental value, the rent lost on part of the residence premises rented to others while it is unfit to live in, and covers both when a civil authority prohibits use of the residence premises because of direct damage to a neighboring premises by a covered peril, for no more than two weeks.
The form does not set a percentage for Coverage D. The standard limits in the rating rules are:
- 30% of Coverage A under HO-2, HO-3 and HO-5
- 30% of Coverage C under HO-4
- 50% of Coverage C under HO-6
- 10% of Coverage A under HO-8
Additional coverages
All homeowners forms include supplementary coverages under Section I, similar to those provided under DP forms. The list below gives the HO-3 coverages and amounts. HO-4 and HO-6 base trees, shrubs and plants on 10% of Coverage C and have no landlord’s furnishings coverage, and HO-4 adds building additions and alterations. Some are paid in addition to the policy limits; the others are paid within the limit that applies to the damaged property:
- Debris removal (within the limit, plus an extra 5% of that limit if it is used up; tree removal up to $1,000 a loss and $500 a tree, in addition)
- Reasonable repairs (within the limit)
- Trees, shrubs, and plants (5% of Coverage A, not to exceed $500 per item)
- Fire department service charge (up to $500, in addition, no deductible)
- Property removed (covered against any cause of loss for up to 30 days while removed to protect it, within the limit)
- Credit card, electronic fund transfer card, forgery and counterfeit money (up to $500, in addition, no deductible)
- Loss assessment (up to $1,000, in addition)
- Collapse (within the limit)
- Glass or safety glazing material (no coverage if property is vacant for over 60 days)
- Landlord’s furnishings (up to $2,500 in each apartment regularly rented, within the limit)
- Ordinance or law (up to 10% of Coverage A, in addition)
- Grave markers (up to $5,000, within the limit)
Homeowners policy exclusions
Section I — Property exclusions
The exclusions found in a homeowners form include:
- Ordinance or law (the extra cost of meeting building codes, beyond the ordinance or law additional coverage)
- Earth movement (fire, explosion or theft that results from earth movement is covered, and glass broken by earth movement is paid under the glass additional coverage)
- Water damage, including flood, sewer, or sump pump backup
- Power failure that originates off the residence premises
- Neglect
- War
- Nuclear hazard
- Intentional loss (a loss an insured causes or conspires to cause on purpose; no insured is covered for it)
- Governmental action (destruction or seizure of property by order of a government authority, except to stop a fire from spreading)
Section II — Liability exclusions
The Section II exclusions are listed under Section II below: those that apply to both Coverage E and Coverage F, those that apply only to Coverage E, and those that apply only to Coverage F.
Section II — Liability coverages
Section II of a homeowners policy provides:
- Personal liability protection
- Medical payments to others
Section II of all homeowners forms is identical in the scope of coverage provided.
Coverage E — Personal liability
Coverage E protects the insured if a legal suit is brought against the insured due to legal responsibility for bodily injury BI or PD property damage to others.
- Under the standard rating rules, the basic Coverage E limit is $100,000 per occurrence, and it can be increased. The limit is shown in the declarations.
- Coverage E applies to bodily injury or property damage caused by an occurrence anywhere, on or away from an insured location, subject to the exclusions.
The exam may test unusual examples. Cemetery plots and burial vaults are insured locations, as is a hotel room or other place where an insured is temporarily residing, or a hall occasionally rented for a non-business purpose.
Liability coverage extends to every insured under the policy. The named insured is the person named in the declarations; “you” means the named insured and a resident spouse. Resident relatives, other residents under 21 in the care of you or a resident relative, and qualifying full-time students are also insureds, not named insureds. All of them are covered if they become legally responsible for BI or PD to others arising out of personal, nonbusiness activities.
Supplementary payments for legal defense costs are also provided. The insurer provides a defense at its own expense, even if the suit is groundless, false or fraudulent.
Exclusions that apply to both Coverage E and Coverage F
- Liability arising out of ownership, maintenance, use, loading, or unloading of aircraft, watercraft, and motor vehicles beyond the limits allowed by the policy (e.g., small boats or vehicles used to service the premises may be covered).
- Intentional injury or damage as defined by the policy
- BI and PD arising out of business pursuits or the rendering or a failure to render professional services, with some exceptions
- BI and PD arising out of renting an insured location to others, except occasional rental of it as a residence, rental of part of it as a residence (with no more than two roomers or boarders in a single-family unit), and rental of part of it as an office, school, studio or private garage
- Premises an insured owns, rents or rents to others that are not insured locations
- War
- Communicable diseases
- Sexual molestation, corporal punishment, physical or mental abuse
- Controlled substances
Coverage E exclusions
- Any loss assessment charged against the insured as a member of an association, corporation, or community of property owners
- Any loss assumed under a contract or agreement except contracts that relate directly to the insured location or contracts where the liability of others is assumed prior to an occurrence
- Property damage to property owned by an insured
- Property damage to property rented to, occupied or used by, or in the care of an insured, except damage caused by fire, smoke or explosion
- Bodily injury to a person eligible for workers’ compensation benefits an insured provides or must provide
- Nuclear energy liability
- Bodily injury to you or another insured
Coverage F — Medical payments to others
Also known as guest medical, Coverage F pays when someone is injured in the insured’s home or due to activities of the insured or the insured’s family.
Negligence does not have to be established for medical expenses to be paid.
Coverage F pays necessary medical expenses incurred or medically ascertained within three years of the accident, within its own limit.
- Under the standard rating rules, the basic Coverage F limit is $1,000 per person, and it may be increased for an additional premium.
- Medical expenses are defined in the policy.
Coverage Applies to the Following Injuries:
- Sustained while at the insured location with the insured’s permission
- Sustained off the insured location but arising out of a condition on the insured location or the ways immediately adjoining it
- Sustained off the insured location and caused by the activities of an insured, by a residence employee in the course of employment by an insured, or by an animal owned by or in the care of an insured
Exclusions applying only to Coverage F
- Bodily injury to a residence employee that occurs off the insured location and does not arise out of or in the course of work the employee performs for the insured
- Anything covered by Workers’ Compensation
- Bodily injury due to nuclear reaction, radiation, or radioactive contamination, including any consequential injuries
- Injury to you or to anyone, other than a residence employee, who regularly lives on any part of the insured location
Section II additional coverages
Section II also pays, in addition to the limits:
- Claim expenses: the insurer’s costs of defending a suit, premiums on bonds, and reasonable expenses an insured incurs at the insurer’s request, including up to $250 a day for lost earnings
- First aid to others at the time of an injury
- Damage to property of others caused by an insured, at replacement cost up to $1,000 an occurrence, regardless of fault
- Loss assessment, up to $1,000
Lesson Summary
Homeowners insurance policies offer both property insurance and personal liability coverage for homeowners. Here are the key points regarding homeowners insurance:
- Homeowners insurance originated from Dwelling policies, covering property insurance and personal liability.
- HO-2, HO-3, HO-5 and HO-8 are for owner-occupants of one- to four-family dwellings; HO-4 is for tenants; HO-6 is for condominium and cooperative unit owners. A landlord insures a rental dwelling under a dwelling policy.
- There are six homeowners policy forms: HO-2 (broad named perils), HO-3 (open perils on A and B, named on C), HO-4 (tenant’s contents), HO-5 (open perils on A, B and C), HO-6 (unit owners) and HO-8 (modified coverage, for homes whose replacement cost far exceeds market value).
- “You” is the named insured and resident spouse. Insureds also include resident relatives, residents under 21 in their care, and qualifying full-time students.
- Policy includes Sections I (property coverage) and II (personal liability coverage).
- Section I consists of coverage areas for dwelling (A), detached structures (B, 10% of A), personal property (C, typically 50% of A), and loss of use (D, typically 30% of A).
- Additional coverages are available under Section I, such as debris removal and fire department charges.
- Exclusions in homeowners policies include neglect, war, earth movement, water damage (flood or sewer backup), and intentional loss.
Section II of homeowners policies offers personal liability and medical payments coverage:
- Coverage E (Personal Liability) protects against legal responsibility for injury or property damage to others. It includes defense costs.
- Coverage F (Medical Payments to Others) covers medical expenses for injuries occurring on the insured premises or due to insured activities.
- Coverage F applies to injuries caused by the insured, family, residence employees, or animals but not to the insured or other residents of the household, except residence employees.
- Exclusions under Coverage E include losses covered by contracts, property damage to insured property, or injuries from business pursuits.
- Coverage F excludes injury to a residence employee that occurs off the insured location and is not related to the work, and injury to anyone eligible for workers’ compensation benefits.