Real Estate Insurance
Homeowners or real estate insurance is a type of insurance that provides homeowners protection against damage to their property and possession. Homeowners insurance can also protect the homeowners from liability from accidents that could occur on their property. Real estate insurance in America comes in seven standardized varieties labeled HO1 through HO8.
HO1- This type of real estate insurance covers both the property and its contents from what are known as the eleven perils. The contents must be specifically enumerated. The 11 perils include lightning and fire, windstorms, hail, vandalism and malicious mischief, theft, vehicular damage, riot, glass breakage, smoke, volcano, and personal liability. It should be noted that earthquake and flood are not one of the 11 perils.
HO2- This is a more comprehensive form of real estate insurance. It provides coverage for the home from 17 perils. This includes the 11 perils included in the HO1 plus an additional named six perils.
HO3- This is what is most commonly referred to as comprehensive insurance. Coverage of contents is provided on a named peril basis. The coverage of all 11 perils is not required.
HO4- This is commonly known as renter's insurance. It covers only the contents of the unit from the perils listed in HO1 and HO2 policies. It can also provide liability protection for the tenant.
HO5- This type of policy covers all perils in the HO3 plus more. This policy is known as an open peril policy. Any cause of loss that is not specifically excluded is covered under this type of policy.
HO6- Similar to renter's insurance. This type of real estate insurance is specifically designed for condominium owners.
HO7- Very similar to HO3, this insurance covers both the home and the contents from the risk of direct physical loss rather than named perils.
HO8- This type of real estate insurance policy is designed for older homes whose replacement cost exceeds their fair market value.
Each type of policy also comes with five classifications of coverage. This specifies how much the insurance company is willing to pay for a type of damage or loss.
Class A Coverage- This class of coverage covers the cost of replacing the dwelling. Insurance companies will typically cover 80 percent of the dwellings replacement cost up to the stated limit. For obvious reasons, this type class of coverage is excluded from HO4 policies.
Class B Coverage- This covers other structures around the property such as sheds, garages, and pool houses.
Class C Coverage- This covers personal property or the contents of the home. There are normally specific limits for certain classes of personal property such as cash or bullion.
Class D Coverage- This covers loss of use and living expenses such as the cost of renting a home while the homeowner is rebuilding his home.
Additional Coverage- This type of coverage applies to the various and sundry expenses that are part of the rebuilding process.
Real estate insurance is required if a home loan is used to purchase a property. It is important to secure insurance as soon as possible after an offer to purchase a home is accepted. It is not uncommon for a property to fail to close because of the lack of an insurance binder.