There are six types of homeowner’s insurance. But the Standard Homeowners insurance policy, known as HO-3, is the most common insurance policy on the market. If you own your place, chances are you’re insured under an HO-3.
The HO-1 and HO-2 are cheaper, more limited policies. The major difference is that an HO-3 covers your home against all conceivable perils unless an event is named explicitly as an exclusion. On the flipside, HO-1 and HO-2 only cover “named perils” and will not pay out claims for anything other than what’s on the list. For example, the HO-1 policy has fire insurance, but not falling object insurance like the HO-2. And comparing an HO-2 versus an HO-3, an HO-2 will only cover you if a peril is explicitly named in the policy. In contrast, an HO-3 will protect you from anything the policy didn’t specifically exclude.
But there will always be some level of exclusion, even on the HO-3 policy. Knowing what those categories are – what is and isn’t covered – can save life-changing amounts of money down the road. So let’s review the typical, named exclusions on the HO-3 policy:
Earthquakes? – NOT Covered
In most states, “earth movements” are not covered by standard policies. That includes earthquakes, sinkholes, landslides, erosion, and the like. But earthquake insurance does cover these types of events. For those living in geologically-unstable regions, it can and should be purchased as an endorsement (or additional policy) alongside the original HO-3 for an additional fee.
This is the case for all states, except California – where earthquakes are virtually a fact of life. Everyone has earthquake insurance, insurers are federally-sponsored, and insurers are legally obligated to sell earthquake policies.
Floods? – NOT Covered
If your pipes burst, if the water heater explodes, if the upstairs unit floods and rips through your ceiling: you’d be covered by most homeowners insurance policies. Water damage resulting from freezing, rupturing, or sudden accidental plumbing overflow is covered under even the most basic HO-1. But other types of water damage are still excluded, namely: flood damage.
The reason is: flood damage is enormously expensive to fix. It impacts all house systems and often affects the most sensitive areas of a dwelling – the foundation and utility rooms. So insurers are loathe to pay out those claims. They’ll look for any possible reason to withhold reimbursement.
But flooding isn’t just an overflowing nearby creek. If you have overflow or backup from a sump pump, damage to the sewer/septic system, or backflow in your drains: a standard HO-3 policy simply will not cover the damage. Like above, you’ll need to purchase a separate endorsement and get flood insurance added to your policy. It is only available through the federally-run National Flood Insurance Program.
Power Failures? – NOT Covered
It feels counterintuitive. If there’s a citywide blackout and you lose power to your fridge, that could be hundreds of dollars down the drain. And it was entirely unavoidable! There’s simply nothing you could’ve done to predict or prevent it.
But unless the source of the power failure was a named peril occurring within the property line, it’s not covered under the HO-3.
So say there’s a bad storm, and you experience a power surge. Several major appliances plugged directly into the socket instead of a surge protector have fried. You cannot submit an insurance claim for this for two reasons: 1.) the source of failure was off-residence, and 2.) the surge damage to your appliances was the result of negligence.
Be aware that this strange, counterintuitive clause appears in many HO-3 policies.
Maintenance Issues? – NOT Covered
This is where things get really tricky.
Taking proper care of your home is an essential part of ownership. Clearly, many catastrophic events aren’t covered under standard policy. And they typically originate from neglect and failure to maintain the property.
Examples are numerous and abundant: termites and other insect damage, bird or rodent damage, septic and sewage, rust, rot, mold, electrical failures, smog, industrial and agricultural damages, general wear and tear – none of it is covered. The rationale is: if it’s the homeowner’s responsibility to detect, repair, and prevent damage to the structure, then any damage resulting from a failure to do so, is also their responsibility.
Personal Property – PARTIALLY Covered
While the home is covered in entirety under an HO-3, personal property is still covered on a named peril basis, which means that your belongings – clothes, furniture, appliances, etc. – are only partially covered. This leads to some perplexing situations. For example, you’d be entirely reimbursed for intact clothing damaged by smoke from a fire, but only partially compensated for destroyed clothing buried in an earthquake.
HO-4 and 6 – respectively, renter’s and condo insurance – are not within the scope of this article. But HO-5 is a modified version of HO-3, in which the open perils coverage on a dwelling itself is extended to personal property within the dwelling, providing the homeowner with extensive, additional protection for both family and belongings.
Other Exclusions
Even the above list doesn’t cover everything. There are a variety of other uncommon perils typically excluded by the HO-3 policy. Including…
- Damage caused by war
- Damage caused by a nuclear hazard
- Expenses incurred as a result of identity theft
- Minimal, sub-limit coverage for high-value items
- Government seizure through eminent domain
- Demolition or rebuilds necessary to match building and zoning ordinances
HO-3 policies are based on policy forms written by the ISO, or Insurance Services Office, which provides data and advisory services to the insurance industry. However, just because a policy was based on the standard version of the ISO HO-3 does not guarantee that it adheres precisely to those standards. No two insurers offer exactly the same coverage in their individual HO-3 policies.
You should always, always, always discuss the full scope of a prospective policy’s coverage with a licensed insurance agent, or personal legal counsel, before purchasing.
