Chapter 16 Homeowners Insurance Section 1 Homeowners Insurance Homeowners insurance contracts were first introduced in the 1950s o Since that time they have been revised several times We talk about the homeowners forms drafted by the Insurance Services Office ISO in this chapter o ISO forms are widely used throughout the United States Some insurers however use the homeowners forms designed by the American Association of Insurance Services AAIS which is an advisory organization similar to ISO Other insurers use their own forms which differ slightly from the ISO forms Eligible Dwellings o A homeowners policy on a private dwelling is designed for the owner occupants of a one two three or four family dwelling used exclusively for private residential purposes although certain business occupancies are permitted such as a home day care business and offices for business or professional purposes o A one family dwelling may not be occupied by more than one additional family or more than two roomers or boarders Separate homeowners forms are written for renters and condominium owners Overview of Homeowners Policies o The following forms are used in the current ISO homeowners program Homeowners 2 Broad form Homeowners 2 is a named perils policy that insures the dwelling other structures Ex detached garage or toolshed and personal property against loss from certain listed perils o Covered perils include fire lightning windstorm hail explosion and other perils o HO 2 also covers the additional living expenses or fair rental value in the event a covered loss makes the dwelling uninhabitable Homeowners 3 Special Form Homeowners 3 insures the dwelling and other structures against risk of direct physical loss to property o This means that all direct physical losses to the dwelling and other structures are covered except those losses specifically excluded o Losses to the dwelling and other structures are paid on the basis of full replacement cost with no deduction for depreciation if certain conditions are met o Personal property is covered for the same broad form perils listed in HO 2 o Homeowners 3 is a popular and widely used form Homeowners 4 Contents Broad Form Homeowners 4 is designed for tenants who rent apartments houses or rooms o HO 4 covers the tenant s personal property against loss or damage and also provides personal liability insurance o Personal property is covered for the same named perils listed in HO 2 In addition 10 percent of the insurance on personal property can be applied to cover any additions or alterations to the building made by the insured Although most renters need a homeowners policy the majority of tenants are uninsured o A HO 4 policy however is especially valuable if a total loss occurs especially in the case of a fire in which all of your belongings are totally destroyed o The additional costs of moving and renting another apartment are covered as well o HO 4 also provides a minimum of 100 000 of personal liability insurance that covers most personal activities The annual premium generally is less than 150 Homeowners 5 Comprehensive Form The homeowners 5 form insures the dwelling other structures and personal property against the risk of direct physical loss to property o This provision means that all direct physical losses are covered except those losses specifically excluded o Unlike the other homeowners forms that cover personal property only for certain named perils HO 5 insures personal property for all direct physical losses except those losses specifically excluded Homeowners 6 Unit Owners Form Homeowners 6 is designed for the owners of condominium units and cooperative apartments o The condominium association carries insurance on the building and other property owned in common by the owners of the different units HO 6 covers the personal property of the unit owner for the same named perils listed in HO 2 o In addition there is a minimum of 5000 of insurance on the condominium unit that covers certain property such as built in appliances carpets additional kitchen cabinets and wallpaper Homeowners 8 Modified Coverage Form Homeowners 8 is a modified coverage form that covers loss to the dwelling and other structures on the basis of repair cost which is the amount required to repair or replace damaged property using common construction materials and methods o Payment is not based on replacement cost In some states actual cash value is used to determine the amount payable The HO 8 policy is designed for an older home whose replacement cost substantially exceeds its market value o Insurers will not insure a home for replacement cost when its current market value is substantially lower Thus to make homeowners coverage available for older homes and to reduce moral hazard the HO 8 form has been developed The HO 8 policy provides only limited coverage for the theft of personal property o Theft coverage is limited to a maximum of 1000 per occurrence and applies only to losses that occur on the residence premises Analysis of Homeowners 3 Policy Special Form Persons Insured o Certain words and phrases are defined in the policy o One of the most important is the meaning of the term insured The following persons are considered insureds under the policy Named insured and spouse o The named insured is the person or persons named in the declarations page of the policy o The named insured under the policy is also referred to as you o Coverage also applies to the spouse of the named insured if she or he is a resident of the same household Resident Relatives o Resident relatives residing in the named insured s household are insureds under the policy Thus children or other relatives residing in the named insured s household are covered under the named insured s policy Other Persons under Age 21 o Other persons under age 21 who are in the care of the named insured or resident relative are considered insureds under the policy Examples are a foster child a ward of the court or a foreign exchange student Full time Student Away from Home o The definition of insured includes a full time student away from home who was a resident of the named insured s household before moving out to attend school provided the student is under the age 24 and a relative of the named insured or is under age 21 and in the care of the named insured or a resident relative In addition to the above the definition of insured includes the following persons under the Section II coverages Any person legally
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