You probably think that you only need homeowners insurance if you own a duplex or a bungalow, but that misconception has cost hundreds of homeowners a lot of money. If you own a house, you should insure it. There are 8 types of homeowners insurance, commonly called “forms,” that cover different types of homes. Of these, however, two are more commonly bought due to their comprehensive coverage: HO3 and HO5.
HO3: Special Form
Special form policies are what most people refer to when they talk about basic policies. This type of policy is quite affordable and more comprehensive than its less popular counterparts. Special form policies are classified as “open peril policies,” which means that the insurance company will cover any condition or “perils,” except for those specifically stated as exemptions. To give you an idea, exemptions typically include:
- Ordinance of law
- Water damage
- Power failure
- Wear and tear
- Birds, vermin, rodents, and insects
- Government action
- Nuclear hazard
- Intentional loss
However, while a special form policy covers conditions outside a home, it does not cover the personal property inside a home. HO3 policies only cover personal property that you specify upon buying the policy.
For most people, a special form policy is sufficient since it covers a good number of incidents that could happen to one’s home. An HO3 policy usually includes:
- Your house
- Other structures on your property
- Personal property
- Loss of use
- Personal liability
- Medical payments
HO5: Comprehensive Form
Comprehensive form policies are more costly than special form policies because of the extent of their coverage. This type of homeowner's insurance is also an open peril policy, so it covers the same things an HO3 policy does. However, comprehensive form policies also cover personal property. You don’t need to mention any of your personal possessions upon buying the policy—you may identify them during a claim.
Under HO5 policies, there are different levels of coverage for personal property claims. These vary depending on your premium. By far, the most affordable and common types of HO5 policies are those that reimburse based on actual cash value (ACV). In an ACV policy, the insurance company will compute the reimbursement amount based on the replacement cost minus depreciation. The more costly policy is the replacement cost value (RCV), which calculates reimbursement based on the amount needed for you to replace an item.
Variations on the coverage for certain personal property exist among insurance companies. For instance, different insurance companies offer different limits for jewelry and electronics, so it’s important to go over every detail of an insurance policy before buying one.
How To Choose Which Type Of Homeowners Insurance To Buy
New homeowners may be confused about which type of homeowner's insurance to buy. It’s important to consider the type of coverage you will need—for instance, do you have expensive personal property? But, of course, price is a big factor as well. Your homeowner's insurance should fit within your overall budget.
As a homeowner, you need to make smart, well-informed decisions about your property. Speak with an expert from Panorama, who can understand your needs and guide you toward the right homeowners insurance.