Home insurance

Home insurance, also commonly called hazard insurance or homeowner’s insurance is a type of property insurance that covers a private residence. It is an insurance  policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of use (additional living expenses), or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.

Homeowner’s policy is referred to as a multiple-line insurance policy, meaning that it includes both property insurance and liability coverage, with an indivisible premium, meaning that a single premium is paid for all risks. In the US standard forms divide coverage into several categories, and the coverage provided is typically a percentage of Coverage A, which is coverage for the main dwelling.

The cost of homeowner’s insurance often depends on what it would cost to replace the house and which additional endorsements or riders are attached to the policy. The insurance policy is a legal contract between the insurance carrier (insurance company) and the named insured(s). It is a contract of indemnity and will put the insured back to the state he/she was in prior to the loss. Typically, claims due to floods or war (whose definition typically includes a nuclear explosion from any source) are excluded from coverage, amongst other standard exclusions (like termites). Special insurance can be purchased for these possibilities, including flood insurance.  Insurance is adjusted to reflect the cost of replacement, usually upon application of an inflation factor or a cost index.

The home insurance policy is usually a term contract, i.e. a contract that is in effect for a fixed period of time. The payment the insured makes to the insurer is called the premium. The insured must pay the insurer the premium each term. Most insurers charge a lower premium if it appears less likely the home will be damaged or destroyed: for example, if the house is situated next to a fire station or is equipped with fire sprinklers and fire alarms; if the house exhibits wind mitigation measures, such as hurricane shutters; or if the house has a security systems and has insurer-approved locks installed. perpetual insurance a type policy of home insurance without a fixed term, can also be obtained in certain areas.

The first homeowner’s policy per se in the United States was introduced in September 1950, but similar policies had existed in Great Britain and certain areas of the United States. In the late 1940s, US insurance law was reformed and during this process multiple line statutes were written, allowing homeowner’s policies to become legal

Prior to the 1950s there were separate policies for the various perils that could affect a home. A homeowner would have had to purchase separate policies covering fire losses, theft, personal property, and the like. During the 1950s policy forms were developed allowing the homeowner to purchase all the insurance they needed on one complete policy. However, these policies varied by insurance company, and were difficult to comprehend.

The need for standardization grew so great that a private company based in jersey city, New Jersey, Insurance Services Office, also known as the ISO, was formed in 1971 to provide risk information and it issued simplified homeowner’s policy forms for reselling to insurance companies. These policies have been amended over the years.

Modern developments have changed the insurance coverage terms, availability, and pricing. Homeowner’s insurance has been relatively unprofitable, due in part to catastrophes such as hurricanes as well as regulators’ reluctance to authorize price increases.  Coverage  have been reduced instead and companies have diverged from the former standardized model ISO forms. Water damage due to burst pipes in particular has been restricted or in some cases entirely eliminated. Other restrictions included time limits, complex replacement cost calculations (which may not reflect the true cost to replace), and reductions in wind damage coverage.

Policies:

The Insurance Services Office has standardized the following homeowner’s insurance policy forms in general use   (names of the forms are given per the following reference):

HO0 – Dwelling Fire Form

A form that provides coverage on a home against fire, smoke, windstorm, hail, lightning, explosion, vehicles, and civil unrest. It does not cover the assured’s personal property, personal liability, or medical expenses. It is the type of policy a mortgage lender will buy for a borrower if the latter’s homeowner policy lapses.

HO1 – Basic Form

A basic policy form that provides coverage on a home against 11 listed perils; contents are generally included in this type of coverage, but must be explicitly enumerated. The perils include fire or lightning, windstorm or hail, vandalism or malicious mischief, theft, damage from vehicles and aircraft, explosion, riot or civil commotion, glass breakage, smoke, volcanic eruption, and personal liability. Exceptions include floods, earthquakes. Most states no longer offer this type of coverage.

HO2 – Broad Form

A more advanced form that provides coverage on a home against 16 listed perils (including all 11 on the HO1). The coverage is usually a “named perils” policy, which lists the events that would be covered.

HO3 – Special Form

The typical, most comprehensive form used for single-family homes. The policy provides “all risk” coverage on the home with some perils excluded, such as earthquake and flood. Contents are covered on a named peril basis. (Note: “all risk” is poorly termed as it is essentially named exclusions (i.e., if it is not specifically excluded, it is covered).)

HO4 – Contents Broad Form

The Contents Broad, or Tenants, form is for renters. It covers personal property against the same perils as the contents portion of the HO2 or HO3.^[10] An HO4 generally also includes liability coverage for personal injury or property damage inflicted on others.

HO5 – Comprehensive Form

Covers the same as HO3 plus more. On this policy the contents are covered on an open peril basis, therefore as long as the cause of loss is not specifically excluded in the policy it will be covered for that cause of loss.

HO6 – Unit-Owners Form

The form for condominium owners. It insures personal property, walls, floors and ceiling against all of the perils in the Broad Form.

HO8 – Modified Coverage Form

The form is for the owner-occupied older home whose replacement cost far exceeds the property’s market value.