Standard forms from the Insurance Services Office.
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.