Homeowners Insurance: An Overview
The homeowners insurance policy is actually several coverages combined
for home or condominium owners, or renters. There are three different
packages for homeowners, and one each for renters and condominium
The following description of policy coverage and provisions is
based on industry-wide revisions that took place in 1991.
Each policy provides fire, lightning, windstorm, theft and liability
coverages. Various types of optional extra coverages are then added
to tailor the policy to specific needs. Each policy lists the perils
that are covered (a peril is the actual cause of loss). The major
differences among the various homeowners policy forms are the perils
included and the property covered.
Standard contents of a policy
Property Covered: Under most homeowners policies, the major property
to be covered is the house or “dwelling.” In addition
to living quarters, this includes such structures as an attached
garage or other house additions. Detached garages, tool sheds and
other structures on the insured property (referred to in some policies
as “other private structures”) are also covered. Any
detached structure on the premises that is rented or leased to others
(except for garage purposes), or used for business purposes, is
not covered under the homeowners policy—an endorsement or
separate policy is needed for this.
Renters and some condominium owners do not own the building they
live in and do not need to insure it. However, some condo owners
may be responsible for selected building items. It is recommended
to check with the condo association to determine where responsibilities
Like home owners, renters and condo owners need coverage for personal
property. This includes household contents and other personal belongings
owned, worn or carried by you or your family. You are covered whether
the loss occurs while you’re at home or away. You can also
obtain coverage for the personal property of guests on your premises.
Coverage for animals, such as birds and fish, is not included.
Homeowners coverage includes “Loss of Use” coverage
for the increase in living expenses made necessary when your house,
apartment or condominium cannot be occupied due to damage caused
by an insured peril. This covers your expenses over and above your
normal living expenses during the time your residence cannot be
occupied (up to the limits stated in your policy).
Liability Coverage: All homeowners forms include
liability coverage. This coverage protects you in the event you
are sued by persons who claim that your negligence caused injury
to them or damage to their property.
If a suit is filed, your insurance company covers the cost of your
defense whether you are ultimately found liable or not. If you should
be found liable, your insurer will pay damages assessed against
you, up to the liability coverage limits in your policy. Defense
costs will not affect your liability coverage limits. Lawsuits between
people covered by the same policy are excluded. Liability protection
covers you for accidents occurring away from your premises as well
as at home. It provides coverage for accidents caused by you, a
family member or your pets. If you employ one or more persons in
your home or on your premises, special Ohio Workers’ Compensation
laws may apply.
Medical Payments to Others: Included under the
liability section of the homeowners policy is a medical payments
coverage with minimum limits of $1,000 per person. This provides
coverage for accidental bodily injury to others when it occurs on
your premises or elsewhere if caused by you, a family member or
pets. It provides coverage whether or not you are legally liable.
It does not provide coverage for injury to the named insured or
Damage to Property of Others: There is a $500
maximum limit for minor damage accidentally caused by you or someone
in your family to another person’s property. Again, you need
not be legally liable. Damage caused by children under age 13 is
covered, whether accidental or intentional.
Exclusions: Homeowners policies exclude certain
perils, such as earthquake, landslide, flood, surface water, waves,
tidal water or tidal wave, sewer backup, seepage, war and nuclear
radiation. Most of these perils are classified as “acts of
God” or catastrophe exposures and are not considered normal
Flood insurance is available, however, through a program of the
federal government to certain eligible communities (see “Flood
Insurance” for more information). Earthquake
insurance is also offered as an endorsement by most insurance
other motorized bicycles and other recreational vehicles are excluded
from coverage under homeowners policies.
The Ohio homeowners liability section also includes exclusions.
Examples include the transmission of communicable diseases, home
daycare services, and businesses in the home. Coverage may be available
for many excluded exposures so check with an insurance professional
Types of homeowners policies
The five homeowners forms available from most companies are:
Homeowners 2 (the “Broad” form)
covers against loss by fire, lightning, windstorm, hail, explosion,
riot, civil commotion, aircraft or nonowned vehicle damage,
smoke, glass breakage, vandalism, burglary, robbery and theft
and volcanic eruption. It also provides protection for: damage
from falling objects; weight of ice, snow and sleet; sudden
and accidental tearing apart, cracking, burning or bulging of
a steam or hot water heating system (or appliance for heating
water); accidental discharge, leaking or overflow of water or
steam from within a plumbing, heating or air conditioning system
and domestic appliances; freezing of plumbing, heating and air
conditioning systems and domestic appliances; and sudden and
accidental injury from artificially generated currents to electrical
appliances, devices, fixtures and wiring (TV and radio transistors,
tubes and similar components not included).
Homeowners 3 (the “Special” form)
offers the same protection as the Homeowners 2. In addition,
it broadens the coverage to an “open-perils” basis
for building and other structures on the property. Under an “open-perils” policy,
a peril is covered unless the policy specifically excludes
that peril. The personal
property coverage portion is not open-perils, however. It is
the same coverage as provided under Homeowners 2. Open-perils
coverage on personal property can be provided by endorsement.
Homeowners 4 (the “Tenants” form)
is for renters. It covers personal property against the same
perils as Homeowners 2. It also provides coverage for additional
Homeowners 6 (the “Condominium”
form) is a policy created to cover the special needs of condominium
owners. It covers loss of personal property and building additions
and alterations inside the owner’s individual unit. A
variety of endorsements is available to protect the unit owner’s
interest in the common property of the condominium association
and to insure against any liability created by the unit owner’s
share in the common ownership.
- Homeowners 8 (the “Modified Coverage”
form) is a homeowners insurance policy designed to aid the owner-occupied
older home whose replacement cost far exceeds the property’s
market value. This form allows the policyholder to carry lower
limits of insurance rather than try to maintain 80% of replacement
cost. The HO-8 policy provides varying methods of loss payment
depending on whether the damaged or destroyed building is repaired
The policy insures the dwelling, certain other structures on the
premises and personal property against loss by fire or lightning,
windstorm or hail, explosion, riot or civil commotion, vandalism
or malicious mischief, falling aircraft, vehicle damage, smoke,
theft (from within premises only) and glass breakage. There is
also personal liability coverage and medical payments coverage
for accidents occurring on the premises to persons other than
Three supplementary coverages are included in homeowner policies. The Fire Department Service Charge provides up to $500 in coverage for fire department charges when called to protect property from an insured peril such as a fire. This coverage typically does not apply if the property is located within the limits of the city, municipality or protection district that provides the fire department response.
The Debris Removal coverage pays for the cost of removing the debris of covered property that has been damaged by an insured peril, up to a stated amount.
The Credit Card Theft coverage will pay up to $500 for the theft or unauthorized use of credit cards or electronic fund transfer cards issued in the policyholder’s name.
Certain types of personal property covered by the homeowners policy
are limited to specific amounts per loss. The amount designated
generally suits the needs of most average homeowners. Special limits
may vary with individual companies and policies. However, the following
are typical limits:
- Money—limited to a total of $200. This
includes bullion, coin collections, bank notes, gold, silver and
- Securities—limited to $1,000. This includes
accounts, bills, deeds, evidence of debt, letters of credit, notes,
passports, manuscripts, railroad and other tickets, stamps and
- Watercraft—$1,000 total. This includes
boats, trailers, furnishings, equipment and outboard motors.
- Trailers not used with watercraft— $1,000
- Jewelry, watches, furs, precious and semi-precious
to $1,000 total loss when due to theft.
- Silverware, pewterware, goldware, silver-plate—limited
to $2,500 total loss when due to theft.
- Guns—limited to $2,000 total loss when
due to theft.
- Business property—limited to $2,500 while located on
the described premises and to $250 while off premises.
- Dual-powered electronic equipment (e.g., mobile
telephones) in a vehicle—$1,000 total.
- Dual-powered electronic equipment used for business—$1,000
Policy endorsements modify or extend specific coverages provided
by the policy under certain conditions. They are readily available
by insurers for additional charges. Common homeowners endorsements
Special Loss Settlement: An endorsement that modifies
HO-2 and HO-3 policies by allowing the policyholder to carry less
than 80% replacement cost and still retain replacement cost coverage
on partial losses. It is used as an alternative to HO-8.
Replacement Cost—Personal Property: Most
policies can be amended to include the full cost to repair or replace
personal property that has been lost or damaged.
Backup of sewers and drains: Many insurance companies
offer an endorsement that provides coverage for the backup of sewers
and drains. Check coverage limits with your insurance agent or company
representative, as they will vary.
Home Business: With changes in the business climate,
more people are operating businesses in the home. While the standard
homeowners policy excludes or greatly limits coverage for this exposure,
several endorsements are available to modify the policy. Coverage
varies from company to company, so be sure to check with your agent
or company representative.
Earthquake Insurance: Although Ohio is not a prevalent
earthquake region, tremors do occur occasionally like the ones in
Mercer County (Jan. 2004), Lake County (June 2003) and Painesville
(Apr. 2002). Earthquake protection is not provided under most homeowners
policies but may be added by endorsement. Owners of frame structures
pay lower rates than those in masonry buildings, since frame buildings
are better able to withstand earth tremors.
A special deductible—at least $250 or an average of 5–10%
of the total amount of the insurance in any one loss, whichever
is greater—apply separately to the dwelling, other structures
and personal property.
Identity theft: Many insurers have introduced an Identity Theft
endorsement for the homeowners policy (costs about $25 to $50 for
$15,000–$25,000 coverage). Generally, the endorsement provides
reimbursement to ID theft victims for costs associated with restoring
their ID and correcting their credit history. Coverage will vary
||The California Department of Insurance reports
that California homeowners buying earthquake insurance declined
by 52% between 1999–2003, and now fewer than 15% of homes
have the coverage.
Homeowners policy change
An important change to the homeowners policy adds coverage for
increased costs of construction due to the enforcement of building
ordinances or laws. The limit is 10% of the coverage available to
the dwelling. Two optional endorsements could be used to change
the 10% limit. This change was made as a result of the problems
home owners incurred following Hurricane Andrew.
Cost of homeowners insurance
Generally, the more coverage you need, the more expensive the policy
premium. A Homeowners 3 policy provides broader coverage than a
Homeowners 2 policy and requires a higher premium.
Other factors that affect homeowners premiums include the following:
- Loss experience of your insurance company
- Type of fire-fighting equipment used by the local fire department
and the efficiency of its personnel
- Dependability of the fire alarm system
- Proximity of a water supply
- Home construction
- Home location
- Size of the deductible selected (generally, the higher the
deductible selected, the lower the premium charge)
- Previous claims history
- Your credit-based insurance score
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Note: This is a general description of coverages;
coverage varies based on your specific homeowners policy. It is
important to read the policy and discuss any limitations or exclusions
with your insurance agent or company representative.
* For personal property, applies only to property contained
within a building
Note: For dwelling and other structures, the HO-3 policy form
provides coverage for risks of loss that are not otherwise excluded
in the policy.
Major revisions to the homeowners policy
Insurance Services Office, Inc. (ISO) introduced a new homeowners
insurance policy in March 2001—the first major revision since
1991. As a result, a number of Ohio insurers have implemented homeowner
Some of the ISO homeowner policy revisions include the following:
- The term “insured” does not include students living
away from home. The limitation depends on the age of the student
and the student’s enrollment status. An endorsement is available
for impacted students.
- Endorsement options will be available to add unrelated members
of the household as “insureds” and coverage for family
members in assisted living facilities
- The “personal property limitation” for property
usually located at another residence doesn’t apply if the
property is moved from the “residence premises” because
the residence is being repaired, renovated or rebuilt
- The term “business” is redefined to include a full-
or part-time trade, profession or occupation and any other activity
engaged in for money or compensation. Whereas many part-time incidental
businesses may have previously been covered, coverage may now
- The “vacancy” period has been extended from 30
to 60 days before excluding vandalism and malicious mischief claims
These are just some of the revisions in the ISO homeowners policy.
Check with your insurance agent or company representative to determine
if these revisions affect your coverage.
Homeowners vs. renters in US. 72.3% are
owner occupied; 34% are renter occupied.
(Census American Housing Survey 2001 from USA