Congratulations! You signed the paperwork and got the house key. Now you’re officially one of more than 79 million Americans who own and occupy a home. You’re probably super excited but also a little confused by the different home insurance policies.
Talking with an independent insurance agent within your community can help answer your questions and get your home sweet home protected too. In the meantime, we’re giving you the 4-1-1 on an HO1 home insurance policy.
Insurance Definition: HO1 Policy
An HO1 insurance policy is a basic homeowners insurance policy. The most basic policy you can buy.
HO1 home insurance covers your owner-occupied, stand-alone home against ten dangers (aka perils) that can harm your property.
You can’t buy an HO1 policy for a property you rent. An HO1 is also not meant for places like condos or townhomes which have different rules and coverage needs.
Your local independent insurance agent can let you know if an HO1 will work for your needs.
HO1 Coverage Kicks in When Ten Hazards Kick off
As we told you above, HO1 insurance has named perils. That’s just a complicated way of saying HO1 coverage kicks in only when these ten particular threats harm your home.
That means if your home is damaged or destroyed by a risk that’s not listed below, then you can’t file a claim. Simply put, you’ll be out of luck.
The ten perils (aka dangers) the HO1 home insurance policy will safeguard your property from are:
- Fire and lightning
- Windstorm and hail
- Vandalism and malicious mischief
- Theft (usually up to $1,000)
- Volcanic eruption
- Vehicles (unless caused by the homeowner)
- Riot and civil commotion
Are you wondering what vehicles and aircraft have to do with anything?
Think about some of the news reports you’ve watched. People do occasionally lose control of their car or plane and crash into someone’s home. If that happens to you, HO1 has you covered.
HO1 Can Be Actual Cash Value or Replacement Cost
A big part of any homeowners policy is whether your claims will be covered as “Actual Cash Value" (ACV) or “Replacement Cost.”
If you're trying to figure out what those terms mean, take a peek below for more details.
Actual cash value: ACV home policies pay to replace the home or contents minus the amount of wear and tear on the home or contents.
This is how ACV goes down: Your backyard deck was put in ten years ago and now has to be replaced because of a fire. Your insurer will figure out what the actual value is of a ten-year-old deck and give you that amount to put towards repairs/replacement.
Replacement cost: This home policy will pay you what it will cost to fix or rebuild your home and contents right now. Period.
Look at it this way, a replacement cost policy will give you the full check to build a new backyard deck right now. The insurer won’t factor in how long ago the damaged deck was built or the extent of its previous use.
An HO1 plan is usually a replacement cost policy. However, most independent insurance agents will tell you to double-check if your HO1 is a replacement cost or actual cash value.
HO1 Home Insurance Usually Doesn’t Cover These Things
Be aware there are a few common perils (or dangers) that an HO1 policy will not cover like:
- Water damage: No water damage of any kind is usually part of a basic HO1 home policy. Ask your independent insurance agent about buying additional water coverage and adding it to your HO1 plan.
- Falling objects: This is always zero coverage on an HO1 policy unless you prove the object fell because of a covered risk.
- Earthquake: Any damage due to an earthquake will not be covered.
- Flood: Flood or water damage is not covered but you can talk with an independent insurance agent about buying add-on protections for this risk.
- Personal liability: If someone gets injured on your property and sues you, your HO1 insurance will not cover that situation.
In general, the basic HO1 home insurance will not safeguard your personal possessions like furniture, clothing, electronics, and jewelry. You’ll probably need to get a separate insurance plan for your belongings.
This list of things that a basic HO1 won’t cover caused many US states to discontinue selling this type of plan. Also, many mortgage companies and lenders will expect you to get comprehensive homeowners insurance because HO1 just won’t cut it.
The 4-1-1 on an HO1
Now that you’re a new home owner, it’s important to totally understand the home insurance you’re paying for right now. Double-check the first page of your policy documents to see if it uses the term “HO1” or “Basic Form”. Remember, you can always talk with an independent insurance agent about buying add-on coverage of your choosing or even upgrading to a more comprehensive home insurance policy. Either way, it’s important to be sure your homeowners insurance protects your castle.