Homeowners Insurance

Homeowners (HO) Policies - Key Definitions

• Abandonment: Insured cannot abandon damaged property to the insurer.
• Additional Living Expenses: Covers necessary increase in living expenses to maintain normal standard of living.
• Bodily Injury (BI): Bodily harm, sickness, disease, including care, loss of services, and death.
• Business: Trade, profession, or occupation on a full, part-time, or occasional basis for money or compensation. Doesn't include volunteer work or unpaid in-home childcare for relatives.
• Debris Removal: Covers removal of volcanic ash and debris from tree removal due to covered perils (windstorm, hail, ice, snow, sleet).
• Employee: Employee of the insured or leased through a labor agency, not related to resident employee duties.
• Fair Rental Value: Pays rental value of rented premises, minus expenses that don't continue while unfit to live in.
• Fire: Combustion producing spark, flame, or glow (court-defined).
• Grave Markers: Up to 5,000 coverage for grave markers/mausoleums (on/off premises) for Coverage C perils (limits not increased).
• Insured:
  • Named person in policy declaration.
  • Any resident relative.
  • Person under 21 in your/relative's care.
  • Named insured's spouse (if a resident).
  • Child at college (full-time student), up to age 24.
• Insuring Agreement Clause: Insurer's promise to provide coverage as stated in policy.
• Insurer: Insurance company assuming risk.
• Landlord's Furnishings: Up to 2,500 for landlord's premises rented to others for covered peril losses (not theft) to carpeting, appliances, and furnishings.
• Landscape: Covers trees, shrubs, plants, lawns up to 5% of dwelling (Coverage A) with a maximum of 500 per tree/shrub/plant.
• Ordinance or Law: No coverage if property condemned due to poor maintenance.
• Pro Rata Cancellation: Termination with premium adjusted proportionally; unearned premium returned.
• Pro Rata Liability Clause: Method of sharing loss among multiple applicable policies (other insurance clause).
• Property Damage: Insured's liability for damage to others' property or loss of its use.
• Salvage: Property taken by insurer to reduce loss; insurer can dispose of it.
• Subrogation: Transfer of insured's right to collect damages to the insurer; prevents double collecting.
• Theft: Named peril in homeowner's policies but also considered additional coverage.
• Time Element Coverage: Protection for indirect loss following a direct property loss.
• Unoccupancy: Dwelling has contents but no people for a continuous number of days.
• Vacancy: Dwelling has no people and no contents for a specified continuous number of days.
• You, Your, We and Us: You/your refer to the insured and spouse (if residing at the same address). We/us refer to the insurance company.

Introduction to Homeowners Insurance

• Homeowners insurance provides comprehensive coverage for a home's contents, structure, and liability protection.

• Learning Objectives:

  • Understand the history and purpose of homeowners insurance.
  • Identify eligible purchasers.
  • Explain perils covered under Basic, Broad, and Special Cause of Loss forms.
  • Differentiate between the six homeowners policy forms.
  • Explain the structure and coverages of a standard policy.
  • Describe general policy conditions.
  • Identify and describe common endorsements.

Overview of Homeowners Insurance Policy

• Fundamentals of homeowners insurance coverage.
• Common elements of a standard policy.
• Conditions, exclusions, and endorsements.
• Divided into the following sections:
  • Overview.
  • Perils insured against.
  • Coverage forms.
  • Section I: Property Coverages (A, B, C, D).
  • Section II: Liability Coverages (E, F).
  • Exclusions.
  • Conditions.
  • Cancellation/Non-renewal.
  • Selected Endorsements.

Purpose and History of Homeowners Insurance

• Prior to the 1950s, the Standard Fire Policy (SFP) was the primary residential property contract.
  • It only covered property loss due to three causes.
  • No liability coverage options.
• Criticized for being too basic.
  • To secure adequate coverage, property owners paid additional premium for 10 extended coverage (EC) perils.
• Insurers were prohibited from selling multiple lines of insurance.
  • Major carriers created separate companies (life, accident/health, property, liability).
  • No crossover of coverage within a policy; all were monoline policies.
• Consumers frustrated with multiple policies, lack of coverage options, and higher costs.
• 1950: Insurance regulations changed to allow multiple lines of insurance together (multiline policies).
• The modern homeowners policy expands perils insured against compared to the SFP, offering coverage on all of the original 13 perils available under the SFP while adding an additional nine perils.
• Modern policies designed for homeowners, renters, condo owners, and historic homes.
• Offers many endorsements for customization.

Characteristics of Homeowners (HO) Insurance Policies

• Multiline policy (property and liability).

  • Protects individuals and families who own/occupy residential buildings.
  • Not for commercial residences (e.g., apartment complexes).

• Split into two parts:

  • Declarations Page:
    • Insured's name/address.
    • Property description
    • Policy term.
    • Coverage limits.
    • Discounts/surcharges.
    • Lienholders (banks).
  • ISO Policy Form:
    • Insuring Agreement.
    • Definitions.
    • Section I: Property Coverages.
    • Section II: Liability Coverages.
    • Sections I & II Conditions.
    • Endorsements.

Homeowners Policy Parts - Key Elements

• Insuring Agreement Clause:

  • States that in return for premium paid and the insurance compliance with all applicable provisions of the policy, the insurer agrees to provide the insurance described in the policy.
  • In return for premium and compliance with policy, insurer provides insurance.

• Definitions:

  • Clarifies terms used throughout the policy for clarity.

• Section I - Property Coverages:

  • Coverages.
  • Perils Insured Against.
  • Exclusions.
  • Conditions.
  • Coverages A, B, C, D
    • Coverage A (Dwelling): Resident's listed on the declarations page and Permanently attached to structures or equipment (water heaters).
    • Coverage B (Other Structures): Unattached structures on the property (tool shed, swimming pool).
    • Coverage C (Personal Property): Homeowner's personal property coverage includes contents on and off the property.
    • Coverage D (Loss of Use): Additional living expenses if the insured residence is uninhabitable due to a covered loss. Civil authority order to evacuate.

• Section II - Liability Coverages:

  • Comprehensive Personal Liability (CPL).
  • Covers bodily injury/property damage to others due to insured's negligence.
  • Unrelated to business activities or auto use.
  • Coverage E and F
    • Coverage E (Personal Liability): Legal representation and legal counsel claims due to injury or damage to the property of a third party.
    • Coverage F (Medical Payments to Others): Medical and Funeral expenses for others (regardless of fault).

• Exam Tip:

  • Remember that SECTION I = PROPERTY coverages.
  • SECTION II = LIABILITY coverages.

• Conditions:

  • Responsibilities of insurer and insured after a covered loss.
  • Deductibles, loss assessment and loss payment.
  • Section I conditions apply to property; Section II to liability.
  • Some conditions are Section I & II.

• Endorsements:

  • Forms added to alter a standard policy.
  • Bring policy into compliance with laws, restrict/expand coverages.
  • Review carefully to ensure accuracy.

Eligibility for Homeowners Insurance

• At least one named insured must occupy the home.
• Applicant must purchase both property and liability coverage.
• Eligible Insureds Include:
  • Named Insured and household relatives.
  • Persons under 21 in the care of the insured or a resident relative.
  • Full-time student (under 24) who was a resident before moving out to attend school.
  • Any person or organization legally responsible for animals or watercraft, the policy applies to when the animals or watercraft are owned by an insured
  • Persons employed or using a motor vehicle, the policy applies to on the insured location with permission of the insured.
• Eligible Properties Include:
  • Used exclusively as a residence with one-to-four unit dwelling structures.
  • Owner-occupied.
  • Must not have abnormally high loss exposure.
  • Meeting minimum valuation threshold (>$25,000) with up to two borders or rumors per family.
  • Mobile homes are also not eligible for homeowner's insurance without a mobile home endorsement
• Properties That May Qualify:
  • Homes under construction.
  • Being purchased under installment contract.
  • Occupied under trustee or life estate.
  • Secondary/seasonal residences.
• Dwelling policies (DP) are more expensive with extra premiums vs. standard homeowner's.
• Situations for DP Coverage:
  • Non-owner-occupied dwellings, vacant property, property with high loss exposure, and those not meeting minimum property value requirements.

Definitions in Homeowners Policies

• Clarify the meaning of various terms used within the policy to avoid ambiguity or confusion regarding what is covered.
• Common Definitions:
  • You, Your: The named in red and spouse (if residing in the same household).
  • We, Us, Our: The insurance company.
  • Bodily Injury (BI): Bodily harm, sickness, or disease including care, loss of services and death.
  • Business: Trade, profession, or occupation on a full, part-time, or occasional basis; providing in-home daycare to a relative of the insured.
  • Employee: Employee of an insured whose duties are not related to performance by a resident's employee.
  • Insured Location: Includes your residence premises, additional premises, Any premises, structure, and grounds used by an insured as a residence.
  • Location Exceptions: Any property owned by the insured property not listed in the declarations of the homeowner. The insured cemetery plot and vacant land is owned or rented to an insured.
  • Motor Vehicle: Land or amphibious vehicle that is self-propelled OR any trailer/semi-trailer being towed.
  • Occurrence: An accident, including continuous/repeated exposure to harmful conditions.
  • Property Damage (PD): Destruction or loss of use of tangible property.
  • Residence Employee: Employee leased employee insured is one form similar duties the main of the resident's premises.
  • Residence Premises: One-to-four unit dwelling structure where the insured resides (identified in the declarations).

Perils Insured Against

• The perils insured against under a homeowner's policy can be divided into basic, broad, and special perils with each building upon the list that came before it.

• Basic, Broad, and Special Perils.

• Different forms have different perils insured against.

• Basic Perils (Historically):

  • Only fire and lightning, but now includes a set of additional coverages
  • 12 total basic perils. Fire, lightning, and 10 additional REVVC SHAW perils.
  • Automatically included, no extra premium.
  • REVVVC SHAW acronym for these common perils. *Friendly fire turning hostile
    • Example: A fire burning in a fireplace is considered a friendly fire. However, if a hot ember explodes off of a roaring fire and flies through the room onto drapes and has started a fire that burnt down the dwelling, then the friendly fire turned hostile and the direct loss is covered.

• *Civil commotion same concept as riot

• vehicles
  The peril covers all physical damage to the covered property caused by vehicles, as well as objects thrown by vehicles that cause damage to the insured property. It does not matter whether or not the driver is an insured. The policy does not cover the vehicle, just the damage caused by the vehicle. Example. If the insured damages the insured House a garage while parking his or her own card, the policy still covers the damage to the structure, not the car itself. *

• Volcanic eruption covers damages done by lava flow and airborne particles* ASH from eruption excludes any damages done by an earthquake land shock or tremors. Any eruptions occurring within a 72-hour period considered a single eruption.

• *Vandalism and malicious mischief damage or intended to cause harm B damage excluded if dwelling remains vacant for 60 days. Also, the spill protects the insured premiums and excludes loss by theft, burglary, and pilferage.

• *civil commotion an uprising a disturbance by a Group Of People Who Then damage the insured property The group's anger is not necessarily targeted at the insured's property. Instead, the property becomes collateral damage in a broader civil disturbance.

• Smoke loss is covered When defined as sudden or accidental damage caused by smoke from any source. *Smoke from agricultural smudging and industrial operations are not covered because the effect of these operations would be certain and anticipated.

• Hail Damage Damage caused by the direct action of hail striking insured property.

• *Aircraft damage calls to the insured property caused by contact with airborne items. Contact with missiles, balloons, airplanes, etc.

• *Windstorm damage property results from the direct action of wind. Tornado, high winds, cyclones, etc

• Broad Perils:

  • 10 new perils, never before offered in property policy.
    New perils are losses to the insured dwelling and detached structure in the HO2 policy form. They also cover personal property that is included in the HO two, HO, three, HO or HO6 policy forms along with theft coverage, burglar, damage, ice, snow and sleet weight, glass breakage, accidental discharge, falling objects, freezing of pipes, electrical damage, collapse tearing apart, and theft. Remember with the use of the acronym BIG EFFECT burglar damage, it causes a repair or replace property that is damaged. This peril covers loss to all glass in the building including windows and storm doors. This apparel does not cover glass breakage. If the dwelling has been vacant for 60 consecutive days covered. Excludes a plumbing system that does not include some pumps.* Accident discharge away from off premises is not covered.

• Gradual preventable and foreseeable loss is not covered. Freezing of pipes system causes damage the insured to take reasonable steps to maintain The Building heat or shut off the water supply in drain the system. Ex electrical damage Ensure the property is covered when sudden and accidental. Collapse of the wall or the entire structure is covered if caused by a peril. The broad form perils are easier to remember if using the following formula BIG EFFECT.* *
  *Freezing is not covered unless meeting the definition found under the freezing peril. Once again, gradual, preventable, or foreseeable loss is not covered because preventing such loss was within the control of the insured and their responsibility to prevent.

• Theft includes the attempted theft and loss to property from a known place which is covered when it is likely the property was stolen. The theft perils does not include loss caused by theft under the following circumstances: when committed by an insured, the insured cannot steal their own property and then try to claim the loss; when taken from a dwelling under construction, until furnished and occupied, when taken from any part of the residence that has been rented to another party other than an insured the theft of watercraft and its furnishings while away from the insured premises; the theft of trailers and campers while away from the insured premises and the theft of property away from a residence owned rented to or occupied by an insured unless the insured is only temporarily living there at the time the theft occurs. *
  Like a abrupt collapse and glass breakage, theft is an additional coverage rather than a standard peril, but it makes more sense to add it here.* Remember broad peril's have a big effect on the coverages provided by home owners policy. *

• Special Open Perils:
  Form Coverage is applied to the insured residents and detached structures under the homeowner's policy in both forms HO3 and HO5.* The HO5 form also uses the special form coverages to ensure personal property. The HO3 form still uses the name peril for personal property. *
  From ice and water weight to foundations pavements. Retaining walls bulkheads docks wards to vacant dwellings vacant for more than 60 consecutive days.* Weather conditions that aggravate excluded loss Birds Rodents are insects government association action defective construction design and maintenance. *

Coverage Forms

• Policy form describes the insurance contract's coverage.

• Six standard forms developed by:

  • Insurance Services Office (ISO)

• Ultimately depends on a variety of factors:
  *What policy do you wish to have (named/open perils?)

• Available Homeowner Forms:

  • HO-2 (Broad Form - Name peril coverage for coverages A B and C.)
  • HO-3 (Special Form). Open peril coverage for coverage A and B but named peril for coverage C
  • HO-4 (Contents Broad Form / Renters).
  • HO-5 (Comprehensive Form). Opened Coverage.
  • HO-6 (Unit Owners / Condo Form).
    *HO-8 (Modified Coverage Form).

All HO2, HO3, and HO5 forms should be used to ensure a single family owner occupied building. Most HO2, HO3, and HO5 are used for Single family owner occupied in Homes, homeowners.
All forms are devided into the following Sections Insuring Agreement, Definitions Section one, property coverage section to liability coverage Section 1 and Section 2 conditions and endorsements.
HO2 broad form Named Peril covers coverage A dwelling coverages B other structures and coverage C personal property. *H oh is a less expensive coverage form. Then either HO3 or HO5. The H02 policy is never really used due to not providing enough actual Coverage.
*The HO3 special form is called or considered a standard homeowner policy form. It is also designed to cover owner occupied dwellings their personal property any liability concerns.* The HO3 special form perils coverage a dwelling to coverage be other structures provide open forils coverage C personal property provides name perils coverage the name perils include fire and lightning. Hoh four contents broad form also known as Renters insurance designed to protect the contents and personal liability needs. Since the renter doesn't actually own the dwelling they are the one requiring coverage on the drilling or its other structures. Hoo five form comprehensive coverage is the same as HO3 policy however The HO3 policy offers cov a and b on an open basis. As an example when remembering to differentiate between HO3 and HO5 remember the HO5 policy offers open perils protection for all property coverages and the H oh three offer's name perals coverage to coverage C personal property.
The HO6 unit owner's form is referred to as condominium coverage. Unit covers the unit exclusive of ownership use and disposal according to the association rules.If the master policy only covers the bare walls, the condominium owner will need to purchase a more expansive HO zero six that will include some coverage a and b amounts.* However if the homeowner association homeowners Association home purchases what is referred to as all income coverage, the unit owner usually only needs coverage c and coverage D along with the liability coverage z and f, it is important to verify this information with any HO6 applicant to ensure that you are providing them with the correct coverage H08 the modified coverage form is used when the replacement costs or home is far greater than the market value. the H8 cost-effectively preserves the functionality of a dwelling *
*Ho eight settles claims based on functional replacement costs, ensuring the home has been repaired to restore functionality.

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