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Homeowners insurance
Home insurance, also
commonly called
hazard insurance or
homeowners insurance
(often abbreviated
in the real estate
industry as HOI), is
the type of property
insurance that
covers private
homes. It is an
insurance policy
that combines
various personal
insurance
protections, which
can include losses
occurring to one's
home, its contents,
loss of its 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.
The cost of
homeowners insurance
often depends on
what it would cost
to replace the house
and which additional
riders—additional
items to be
insured—are attached
to the policy. The
insurance policy
itself is a lengthy
contract, and names
what will and what
will not be paid in
the case of various
events. Typically,
claims due to
earthquakes, floods,
"Acts of God", or
war (whose
definition typically
includes a nuclear
explosion from any
source) are
excluded. Special
insurance can be
purchased for these
possibilities,
including flood
insurance and
earthquake
insurance. Insurance
must be updated to
the present and
existing value at
whatever inflation
up or down, and an
appraisal paid by
the insurance
company will be
added on to the
policy premium.
The home insurance
policy is usually a
term contract—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 if the
house is equipped
with fire sprinklers
and fire alarms.
Perpetual insurance,
which is a type of
home insurance
without a fixed
term, can also be
obtained in certain
areas.
In the United
States, most home
buyers borrow money
in the form of a
mortgage loan, and
the mortgage lender
always requires that
the buyer purchase
homeowners insurance
as a condition of
the loan, in order
to protect the bank
if the home were to
be destroyed. Anyone
with an insurable
interest in the
property should be
listed on the
policy. In some
cases the mortgagee
will waive the need
for the mortgagor to
carry homeowner's
insurance if the
value of the land
exceeds the amount
of the mortgage
balance. In a case
like this even the
total destruction of
any buildings would
not affect the
ability of the
lender to be able to
foreclose and
recover the full
amount of the loan.
The insurance crisis
in Florida has meant
that some waterfront
property owners in
that state have had
to make that
decision due to the
high cost of
premiums
Types of
Homeowners Insurance
United States
As described in
Wiening et al.,
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
issued a simplified
homeowners policy
for resell to
insurance companies.
These policies have
been amended over
the years until
currently, the ISO
has seven
standardized
homeowners insurance
forms in general and
consistent use . Of
these HO-3 is the
most common policy
followed by HO-4 and
HO-6. Others that
are less used,
though still
significant, are
HO-1, HO-2, HO-5,
and HO-8. Each is
summarized below:
HO-1
A limited policy
that offers varying
degrees of coverage
but only for items
specifically
outlined in the
policy. These might
be used to cover a
valuable object
found in the home,
such as a painting.
HO-2
Similar to HO-1,
HO-2 is a limited
policy in that it
covers specific
portions of a house
against damage. The
coverage is usually
a "named perils"
policy, which lists
the events that
would be covered. As
above, these factors
must be spelled out
in the policy.
HO-3
This policy is the
most commonly
written policy for a
homeowner and is
designed to cover
all aspects of the
home, structure and
its contents as well
as any liability
that may arise from
daily use, as well
as any visitors who
may encounter
accident or injury
on the premises.
Covered aspects as
well as limits of
liability must be
clearly spelled out
in the policy to
insure proper
coverage. The
coverage is usually
called "all risk".
Also called an "open
perils" policy.
HO-4
This is commonly
referred to as
renters insurance or
renter's coverage.
Similar to HO-6,
this policy covers
those aspects of the
apartment and its
contents not
specifically covered
in the blanket
policy written for
the complex. This
policy can also
cover liabilities
arising from
accidents and
intentional injuries
for guests as well
as passers-by up to
150' of the
domicile. Common
coverage areas are
events such as
lightning, riot,
aircraft, explosion,
vandalism, smoke,
theft, windstorm or
hail, falling
objects, volcanic
eruption, snow,
sleet, and weight of
ice.
HO-5
This policy, similar
to HO-3, covers a
home (not a condo or
apartment), the
homeowner and its
possessions as well
as any liability
that might arise
from visitors or
passers-by. This
coverage is
differentiated in
that it covers a
wider breadth and
depth of incidents
and losses than an
HO-3.
HO-6
As a form of
supplemental
homeowner's
insurance, HO-6,
also known as a
Condominium
Coverage, is
designed especially
for the owners of
condos. It includes
coverage for the
part of the building
owned by the insured
and for the property
housed therein of
the insured.
Designed to span the
gap between what the
homeowner's
association might
cover in a blanket
policy written for
an entire
neighborhood and
those items of
importance to the
insured, typically
the HO-6 covers
liability for
residents and guests
of the insured in
addition to personal
property. The
liability coverage,
depending on the
underwriter, premium
paid, and other
factors of the
policy, can cover
incidents up to 150'
from the insured
property, all
valuables within the
home from theft,
fire or water damage
or other forms of
loss. It is
important to read
the Associations
By-laws to determine
the total amount of
insurance needed on
your dwelling.
HO-8
It is usually called
"older home"
insurance. It lets
house owners with
higher replacement
cost than the market
value insure them at
the lower market
value rate.
In addition, a
Dwelling Fire policy
is generally
available for
non-commercial
owners of rented
houses, covering
property damage to
the structure, and
sometimes to the
owner's personal
property (such as
appliances and
furnishings). The
owner's liability is
generally extended
from their own
primary home
insurance, and does
not comprise part of
the Dwelling Fire
policy. It is a
counterpart to the
HO-4 renter's
policy.
- Courtesy Wikipedia
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