The most common homeowner’s insurance policy is the Basic Homeowners Insurance Policy, formally known as Homeowners Policy Special Form 3 – but you’ll know it as HO-3 for short. Second to HO-3 is HO-6. HO-6 is a “walls in” only policy that is structured similarly to HO-3 but covers condominiums and co-ops. It’s important to understand what these policies both cover and don’t cover.
Both policies comprise of six distinct coverages that help keep money in your pocket in case of damage to your property or personal belongings, or exposures to certain liabilities:
- Coverage A: Dwelling coverage – protects your home, including the structure and any permanent fixtures like plumbing and cabinetry – the stuff that’s physically part of, and attached to, the house
- Coverage B: Other Structures coverage – applies to structures on the insured property, but not a part of the home itself (i.e., a detached garage or a shed)
- Coverage C: Personal Property coverage – covers all your personal property. It covers your property wherever it’s located. Anywhere in the world, not just in your home!
- Coverage D: Loss of Use coverage – applies when your insured premises are considered uninhabitable due to things like a fire or tornado. It covers living expenses as well as fair rental value if you’re renting out the property.
- Coverage E: Liability coverage – covers costs (up to a certain limit) for damages in which you are considered “at fault”… and typically provides legal defense.
- Coverage F: Medical Payments to Others coverage – Often called “Good Neighbor” coverage, this pays for the medical bills of third parties injured on your property, regardless of fault.
When you receive your insurance quote and policy, make sure your agent walks you through each of these coverages. Each one will have a defined coverage limit – the maximum the insurance company will pay for a certain type of damage – and it is important to understand and adjust these limits as needed.
Your agent will also walk you through perils. Perils are events or incidents that cause damage or loss to your property. Your HO-3 policy will cover your home on what is known as an “open perils” basis. That means it will cover anything EXCEPT for what it specifically lists it won’t cover. Confusing? Yes. But the policy will also include “named perils – fire, theft, etc. – that it will cover you against.
To put it into perspective, if you need to make a claim, your insurance company will pay to either repair or replace your damaged property so long as it is the result of a listed “named peril” or a peril explicitly not excluded in writing.