What Are ISO HO Homeowners Policies?

Standard forms from the Insurance Services Office.

Protect Your Home?

Protect Your Home?

Often when speaking with insurance agents and brokers about Homeowners insurance, they will throw around terms like HO3 or HO5 or a DP-1. These are terms of art in the industry and actually refer to form insurance policies that were developed by the Insurance Services Office, Inc. (“ISO”). These forms have become a standard in the insruance industry but generally the insured does not understand what they mean or what coverage they provide. Many just trust their agent and to make sure that their risks are covered. However, it is important to understand the coverage you are buying and if your agent or broker is not explaining such in plain language then its time to get another agent. Unless you simply just don’t care.

The ISO which developed these forms is an insurance industry think tank that keeps track of all sort os insurance related data including policies.  The ISO has a wealth of information and this was well suited and trusted by the industry to develope such forms.  These forms for homeowner’s policies include:

HO-1 policy, include basic coverage for fire and it is rarely sold today because of its narrow coverage.

The HO-2, HO-3, and HO-5 are the most prevelant for homeowners today with the the least coverage of the HO-2 policy to the most comprehensive policy of HO-5. These 3 policies also cover other physical structures on the property and personal property for the same covered perils for the main residence.

The HO-2 (Broad Form) policy is a named-perils policy that covers on the risks that are expressly stated in the policy. Perils usually covered include windstorm, lightning, or hail, and fire or explosion. If the peril is not included, then it is excluded. HO-2 also provides living expenses if the insured dwelling is uninhabitable.

The HO-3 (Special Form) is the policy most homeownder purchase. It is an open perils policy that covers any direct damage to the house or other structures on the property unless it is specifically excluded. The H)-3 however is more limited as to personal peroperty coverage and provides coverage only on a named peril basis like the HO-2 for the structure. Covered losses on realty are insured for full replacement value with no depreciation deduction (some restrictions do apply though).

The HO-5 (Comprehensive Form) policy is an open perils policy like the HO-3 but also provides coverage for direct damage or loss to personal property in the same manner. Thus, personal property is covered by an open perils clause rather than the more restricted named perils coverage of HO-2 and HO-3—any direct damage or loss to realty or personal property is covered, unless it is specifically excluded.

See our article on Open Perils Often misnamed as “all risk.”

The HO-8 (Modified Coverage Form) policy is for older homes that have a replacement cost that is much higher than its market value. To prevent moral hazard, insurers will not insure a home for more than what it is worth. The HO-8 policy solves this problem by paying what it would cost to repair or replace damaged property, using common construction materials and methods. HO-8 provides functional replacement, which is cheaper. For instance, plaster walls may be replaced with drywall and hardwood floors could be replaced with plywood. Theft coverage is restricted to $1,000 per occurrence from the main residence only.

The HO-6 (Unit-Owners Form) is a modified HO-2 policy specifically designed for owners of condominiums or cooperatives. Two insurance concerns arise with condos. These include the building and common areas, and property specific to each unit owner. This is a named-perils policy which covers certain structural items or fixtures, such as carpeting, wallpaper, built-in appliances, and kitchen cabinets, but it does not cover the structure itself or common areas. Generally the condo association has insurance to cover common areas, which is part of the association fees.

The HO-4 (Contents Broad Form or renters insurance) is a modified HO-2 policy for renters of rooms, apartments, or houses. This named-perils policy not only covers personal property, both within the rented dwelling and outside, but also includes liability insurance of at least $100,000 for damage to the property or for injuries to other people in the rented dwelling. Coverage is also provided for any alterations to the structure by the renter, but is limited to 10% of the purchased coverage for personal property.

So, depending on your living arrangements, you may require a different type of homeowners insurance. Again, your agent or broker should clearly explain such coverage. And, don’t try and navigate these issues on your own. There are professionals in the insurance injury that can help. Use your resources to fully understand the coverage you need and the coverage you are getting.

Types of Coverage in Homeowners Policies

Oddly in the Insurance industry agents and brokers will use confusing codes in letters to refer to certain types of coverage.  Even more confusing Coverage A for one type of insurance may have an entirely different meaning in another type of insurance.  As to Homeowners Insurance, the following describes the types of coverage that are typically found in such policies:

MAKE SURE TO READ YOUR POLICY TO KNOW YOUR COVERAGES.

CoverageType

Description

Coverage A:
Damage to House
Covers damage to the house. The face amount of the policy (for example $100,000) is the most you will receive if your house is totally destroyed.
Coverage B:
Other Structures
Covers damage to other structures or buildings, such as a detached garage, work shed, or fencing.
Coverage C:
Personal Property
Covers damage to, or loss of personal property. Personal property includes household contents and other personal belongings used, owned or worn by you and your family.
Coverage D:
Additional Living Expense
Covers additional living expenses when incurred. This means that the policy covers the necessary living expenses up to the stated limit, incurred by the insured to continue, as nearly as possible, the normal standard of living when the house cannot be occupied due to a covered loss.
Coverage E:
Comprehensive Personal Liability
Covers personal liability. This coverage protects you against claims arising from accidents to others on property that you own or rent. With a few exceptions, such as auto or boating accidents, it is an all purpose liability policy that follows you wherever you go.
Coverage F:
Medical Expense
Covers medical expenses. Coverage is limited to an amount per person and per accident for injuries occurring on your premises to persons other than an insured, or elsewhere, if caused by you, a member of your family, or your pets. An important feature of this coverage is that payment is made regardless of legal liability.

 

 

 

Homeowners vs. Dwelling Policies

Often our clients will say they need Dwelling insurance for their home when they really mean they need broader coverage provided in a homeowners policy. Dwelling insurance generally protects your home structure only from many natural perils, except floods or earthquakes. In addition to the structure, Homeowners insurance also protects additional structures on the property, such as detached garages and backyard sheds. Unlike dwelling coverage, homeowners insurance also protects your personal property and included liability coverage is included, where such coverages must be bought separately or added to dwelling policies.

Structures

Both property dwelling and homeowners insurance cover structures attached to the main house, such as garages or decks. But homeowners insurance will also protect detached structures, such as detached garages and sheds. Most homeowners insurance policies allow the owner to identify and add detached items, even barns and swimming pools, to their coverage. Both insurance types cover electrical, plumbing and heating systems inside the home.

Liability

Liability refers to the risk that may arise from a third person or where a visitor suffers injury or property damage while on your property. Homowners includes such coverage. As to standard Property dwelling insurance, you must purchase a separate liability policy or add this coverage to your policy with a rider for a separate additional premium and such coverage does not come with dwelling protection.

Personal Property

Also called “contents,” personal property is covered in most standard homeowners policies, but is not included in property dwelling coverage. Your personal property includes your furniture, clothing, large and small appliances and other items not considered structures. However, if you have expensive jewelry, art or antiques, you should consider separate policy riders that specifically cover these items. Property dwelling insurance does not cover your property’s contents unless you add this coverage to the policy. If you purchase property dwelling insurance with contents coverage, you’ll be reimbursed for damaged, destroyed or stolen personal items.

Temporary Living Expenses

Typically called “loss of use” coverage, this feature of homeowners insurance reimburses you for temporary expenses to live if you can’t ramain in the house while it’s being repaired. Most insurance policies specify that your home must be damaged by a covered peril. For example, should your home suffer fire damage, costs you incur for temporary living expenses that maintain a “normal standard of living” will be reimbursed. Standard property dwelling insurance does not cover these expenses.

Perils

Insurance policies refer to “perils,” which are the events that cause losses. Homeowners and property dwelling insurance often differ in covered perils. Property dwelling insurance offers “named perils” coverage, providing protection for specific causes of loss, with other disasters excluded from protection. Most homeowners insurance provides “all perils” coverage for your home, which protects against all causes of loss, except those specifically excluded from the policy. However, even many “all perils” homeowners insurance policies cover your personal property for “named perils” only. A careful read of the fine print will reveal what type you have. See our article on the difference between HO3 and HO5 policies which are the type of policies most lenders require.