Homeowners insurance provides both property and liability coverage for a dwelling. The most common types of homeowner policies are: HO3/HO2/HO1/HO8 (single family dwelling), HO6 (condominium unit owner) HO4 (renters for tenant). Dwelling Fire policies are also available for secondary or tenant occupied homes, as well as investment properties. Dwelling policies range from the most inclusive DP3 to a limited DP1 policy. The central variation between the types of policies are the covered perils. As the name suggests, limited policies have more limitations or exclusions that reduce the number of covered perils. A peril is merely the cause of a loss—fire, lightning, water, hurricane, etc.
There are two basic sections of a homeowners policy: property and liability. The fundamental difference between the two is property pays out to the insured, liability pays out to others. The property portion is divided into four different sections: dwelling (additions and alterations for condominium unit owners), other structures, personal property or contents, and additional living expense (fair rental value on dwelling fire policies).
A: Dwelling/Additions and Alterations – coverage is provided for the actual structure itself. This consists of walls, roof, floor, as well as any built-ins. Anything permanently affixed to the home is factored into the dwelling value.
For condo policies, this coverage is called Additions and Alterations. Condo unit owners are responsible for materials essentially, from the studs-in. The master condo policy would pay for the shell of the building but nothing further.
B: Other Structures – coverage for structures NOT attached to the main dwelling. This includes structures such as pools, detached garages, sheds, driveways, mailboxes, etc.
C: Personal Property/Contents – These items are the homeowners’ personal belongings. Anything that can be picked up and moved from the residence: clothing furniture, books, shoes, tools, etc. Any items of a special or collectible nature should be covered under an inland marine policy, sometimes called a collectibles or valuable articles policy.
D: Additional Living Expense/Fair Rental Value – In the event that the dwelling becomes unlivable, this coverage provides for a temporary residence while the home is being repaired or rebuilt. For tenant occupied dwellings, fair rental value provides loss of rents. When a rental dwelling is damaged and a tenant must move, rents are no longer provided; therefore, rents that would have been attained are paid out.
The second section is liability. Liability coverage is split into two sections: liability and medical payments.
E: Liability – Also known as legal liability, this coverage applies to bodily injury or property damage to others. In order to pay out, the insured must be found negligent and enforced by therein a court of law or agreed upon by written contract.
F: Medical Payments – A form of liability that pays out to others regardless of legal obligation (negligence is not necessary nor must it be proven). A form of “good will” liability, payments can be made to compensate for accidental injuries, etc on the property of or due to the actions of the insured.