Some of you may have heard the old saying, knowledge is power. This phrase is especially relevant when it comes to your homeowners policy, as knowing what is and is not covered by your policy can save a lot of battle in case of loss. To know and understand your policy, you must first read it. As Bill Wilson emphasizes in his book, When Words Collide: Resolving Insurance Coverage and Claims Disputes you need R ead T he F ] ull P olicy!
When reading and reviewing your homeowners insurance policies, you may see your insurance policy described as a type of form such as HO-2 or HO-3. There are eight different types of homeowners insurance forms and each one is designed for different property types and coverage needs. For example, a person who rents an apartment does not need the same coverage as a person who owns a single-family house. Below we will dive into some of the differences between the most common types of homeowners.
HO-2 Broad Form
HO-2 Broad Form is a broadly named risk form for real estate and personal property. Broad named risk only provides coverage for damages mentioned in the policy form. In other words, if it is not written in your policy, it will not be covered. In addition, you can not support your insurance to change it from broadly named risks to cover in addition to what is mentioned in your insurance.
For valuation of your property, the HO-2 form provides the replacement cost value ("RCV") of the property. This is usually defined as the cost of replacing the damaged property with materials of the same type and quality, without depreciation. For valuation of personal property, the HO-2 form provides the actual cash value of the property (“ACV”). This means that you get what it would cost to replace that property today minus the physical depreciation of what was damaged. However, you can approve your policy using the HO-0490 approval form to change your personal property valuation to get the RCV for the property, which is usually the better choice.
HO-3 Special Form
The most common type of homeowners insurance is the HO-3 form. This form causes special damage to property. Particular cause of loss provides the widest coverage. This means that damages and the cause of loss are covered if it is not specifically excluded in the policy. In other words, by default, the loss is covered by your insurance unless otherwise stated. If it is not mentioned in the policy and it is not excluded, you have coverage. For personal property, the HO-3 form is a broadly named form of risk, which only provides coverage for what is stated in the policy, and you can not support it to get coverage beyond what is in your policy.
Like the HO-2 form's valuation of your property and personal property, the HO-3 form provides RCV for the property and ACV for the personal property. Like the HO-2 form, you can approve your insurance using the HO-0490 approval form to change your personal property valuation to obtain RCV for your personal property.
HO-4 Content Broad Form
As Christopher Boggs teaches in one of his lessons at the Academy of Insurance, HO-4 Content Form is a "unique animal". The HO-4 form is used for apartment residents and tenants in all places or properties. You do not expect this form of tenant to have any housing coverage, but the policy provides some property protection. Usually, your property's cause of loss coverage is the same as the cause of loss coverage for your personal property. The HO-4 form is a broad name with a risk form for your personal property. Unlike the HO-2 and HO-3 forms, however, you can approve it using the HO-0524 approval and change the cause of loss of personal property from a broadly named risk form to a specific cause of loss form.
valuation of your property is based on how your personal property is valued. The personal property is valued with ACV. Like HO-2 and HO-3 forms, you can use the HO-0490 form to change your personal property valuation from ACV to RCV. In addition, if you receive the HO-0490 approval form, this will also change your property valuation from ACV to RCV.
HO-5 Comprehensive Form
HO-5 Comprehensive Form is a special cause of loss of property and personal property. It requires no statements. As discussed above, special cause of loss is the broadest form of coverage and means that if it is not mentioned in the policy and it is not specifically excluded, the loss is covered.
Like the HO-2 and HO-3 forms, the valuation of your property is RCV and your personal property is ACV. Like the HO-2 and HO-3 forms, you can approve your insurance using the HO-0490 approval form to change your personal property valuation to get RCV for your personal property. Unlike the HO-4 form, the HO-0490 form does not extend your property valuation from ACV to RCV.
HO-6 Unit owner Broad form
HO-6 Unit owner Broad form policy is purchased by condominiums and unit holders. In its standard form, it is a broadly named form of risk for properties. Unlike the other forms discussed, however, it can be approved with the HO-1
Like the forms HO-2, HO-3 and HO-5, the valuation of your property is RCV and your personal property is ACV. In addition, you can approve your policy using the HO-0490 approval form to change your personal property valuation to only receive RCV for your personal property.
HO-8 Modified Coverage Form
HO-8 Modified Coverage Form is used primarily for nursing homes and is used for very limited purposes. HO-8 modified cover form is a basic named risk form for real estate and for personal property. This is the smallest possible coverage you can get and there are no claims you can use to change it. It contains an incredibly short list of what is covered and that is all that is covered.
The valuation of properties under HO-8 modified coverage forms uses a "functional" RCV. This means that your operator takes what was there and replaces it with something that is functionally equivalent. An example Christopher Boggs uses to explain what this means if wooden shingles on a house was damaged, then the insured can get the functional equivalent of these shingles by getting asphalt shingles. For the valuation of personal property, the HO-8 form provides ACV for the property, which can be approved from ACV to RCV using the HO-0490 approval.
For more information (or knowledge and power if you like), check out the Academy of Insurance, When Words Collide: Resolves Insurance Cover and Claims Disputes by Bill Wilson, and of course, Pay! by our own Chip Merlin.