Home Insurance

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Home insurance, also commonly called hazard insurance or homeowner's 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 or at the hands of the homeowner within the policy territory. It requires that at least one of the named insureds occupies the home. The dwelling policy (DP) is similar, but used for residences which don't qualify for various reasons, such as vacancy/non-occupancy, seasonal/secondary residence, or age.

It is a multiple-line insurance, meaning that it includes both property and liability coverage, with an indivisible premium, meaning that a single premium is paid for all risks. Standard forms divide coverage into several categories, and the coverage provided is typically a percentage of Coverage A, which is coverage for the main dwelling.

The cost of homeowner's 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 floods or war (whose definition typically includes a nuclear explosion from any source), amongst other standard exclusions (like termites), are excluded. Special insurance can be purchased for these possibilities, including flood insurance. Insurance should be adjusted to reflect replacement cost, usually upon application of an inflation factor or a cost index.

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; if the house is equipped with fire sprinklers and fire alarms; or if the house exhibits wind mitigation measures, such as hurricane shutters. Perpetual insurance, which is a type of home insurance without a fixed term, can also be obtained in certain areas.

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In the United States

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 homeowner's 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.

Home insurance in the United States may differ from other countries; for example, in Britain, subsidence and subsequent foundation failure is usually covered under an insurance policy. Reportedly, United States insurance companies used to offer foundation insurance, which was reduced to coverage for damage due to leaks, and finally eliminated altogether.

History

The first homeowners policy per se in the United States was introduced in September 1950, but similar policies had existed in Great Britain and certain areas of the United States. In the late forties US insurance law was reformed and during this process multiple line statutes were written, allowing homeowners policies to become legal.

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.

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Types of policies

Currently, the ISO has seven standardized homeowners insurance forms in general use:
HO1 – Basic Form Homeowner Policy
A basic policy form that provides coverage on a home against 11 listed perils; contents are generally included in this type of coverage, but must be explicitly enumerated. The perils include fire or lightning, windstorm or hail, vandalism or malicious mischief, theft, damage from vehicles and aircraft, explosion riot or civil commotion, glass breakage, smoke, volcanic eruption, and personal liability. Exceptions include floods, earthquakes.
HO2 – Broad Form Homeowner Policy
A more advanced form that provides coverage on a home against 17 listed perils (including all 11 on the HO1). The coverage is usually a "named perils" policy, which lists the events that would be covered.HO3 – Special Form Homeowner Policy
The typical, most comprehensive form used for single-family homes. The policy provides "all risk" coverage on the home with some perils excluded, such as earthquake and flood. Contents are covered on a named peril basis. (Note: "All Risk" is poorly termed as it is essentially named exclusions (ie, if it is not specifically excluded, it is covered))
HO4 – Renter's Insurance
The "Tenants" form is for renters. It covers personal property against the same perils as the contents portion of the HO2 or HO3. An HO4 generally also includes liability cover for personal injury or property damage inflicted on others.
HO5 - Premier Homeowner Policy
Covers the same as HO3 plus more. On this policy the contents are covered on an open peril basis, therefore as long as the cause of loss is not specifically excluded in the policy it will be covered for that cause of loss. (can also be achieved by endorsing an HO15 to the HO3)
HO6 – Condominium Policy
The form for condominium owners.
HO8 – Older Houses
The "Modified Coverage" form is for the owner-occupied older home whose replacement cost far exceeds the property's market value.

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