HO-1 Homeowners Insurance: The Ultimate Guide To HO-1 Perils & Coverage

Last Updated on October 6, 2020 by Andrew Lee

The HO-1 homeowner policy is the most basic home insurance policy currently available to homeowners. Many insurance companies are replacing this policy and defaulting to more advanced policies such as HO-3 and HO-5. However, a small percentage of homeowners are still insured under the HO-1 basic policy.

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This guide will cover the basics of HO-1 policies: benefits, perils, and comparisons with other popular homeowner’s insurance types. If you’re considering taking out an HO-1 insurance policy, you can learn more about the perils covered below. As a basic policy, HO-1 covers you for the 10 most common perils.

HO-1 Policy: What Is ‘Named Peril’?

HO-1 insurance policies belong under the “named policy” category – meaning they cover you only for up to 10 common perils. In essence, the policy covers your personal property and belongings for damage caused exclusively by those specific perils.

If the home is damaged by smoke and smoke is named under the policy terms, you will be covered for the smoke damage. If the home is struck by lightning and lightning is not covered under the policy, the property won’t be insured. This means that the dwelling/property is only insured for the “named perils”, that is perils covered by that specific policy.

Pro Tip: HO-1 policies are only useful in states that experience less natural disasters. Homeowners require additional coverage in states such as Florida prone to natural disasters.

HO1 Insurance: 10 Named Perils Covered

HO-1 insurance policies cover the most common perils that threaten a home. Most insurance companies offering HO-1 policies will cover you for 10 basic perils. The following are the “named perils” covered by an HO-1 policy:

  • Fire damage
  • Smoke damage
  • Storm damage (wind or hail)
  • Volcanic eruption damage
  • Aircraft damage
  • Theft damage
  • Vandalism damage
  • Explosion damage
  • Vehicle accident damage
  • Riot/civil-unrest caused damage

Note: There are certain restrictions that apply when filing claims for named perils under an HO-1 policy. Example: Vehicular damage is covered if it’s not done by the homeowner but a third party. Theft damage is usually capped at around $1000 for a basic HO-1 plan. Besides those, any serious damage caused to the house should be covered under your policy.

HO-1 Homeowners Insurance: What It Does NOT Cover

There are common perils that an HO-1 homeowner’s policy will not cover. Those perils can also pose a serious threat to your home, which is why you may want to opt for an HO-3 policy to protect your home. Check whether the insurance company will allow you to supplement your HO-1 policy with the following policies as endorsements:

  • Flood Damage. HO-1 policies do not cover damage caused by floods. If you live in a state prone to flooding or anywhere near water such as rivers or artificial lakes, you should consider adding a flood policy. Alternative: Get flood insurance from the National Flood Insurance Program (FEMA).
  • Earthquake Damage. While earthquake damage is not a major threat for most homes, this is an option that most insurance companies will let you add to your existing HO-1 policy at a small cost.
  • Personal Property. Most open-perils homeowner policies include personal property inside the home whereas an HO-1 policy does not. Personal property insurance can be of essential importance if you need to replace the contents of your home such as your furniture, clothes, appliances, and other valuables. This is paramount if you hold valuable property in your home which can be insured separately.
  • Medical Payments. HO-1 insurance policies do not cover medical payments for the family or others injured at the property. If someone is injured on the property, the insurance company won’t cover their hospitalization and other medical bills such as X-rays, surgical costs, etc. Basic medical coverage is included under most open-perils policies such as HO-3.

HO-1 Policy: How Claims Are Filed

Prior to signing a contract for an HO-1 policy, you should check whether you can file claims under a ‘Replacement Cost’ policy or a ‘Cash Value’ policy. In most cases, the insurance company will offer you the ability to choose between both. This determines how the insurance company has to compensate you when you file a claim.

If you opt for a “Replacement Cost” policy, the home will be insured for the full replacement cost of the materials that need to be replaced at current market prices. This is the best policy available. Example: If you bought a home in 2005 and the insulation cost less to replace in the year 2005, the insurance company is obliged to pay for new materials at 2020 market prices.

Replacement cost policy covers you for the replacement costs of all materials required to rebuild your house despite depreciation. The ‘Cash Value’ policy is different because it uses the current value of the materials after they depreciated as a baseline for how much they owe you. Example: If you bought a pair of jeans 5 years ago for $100, they are probably worth $20 now. Under a cash value policy, the value of the material that was damaged is depreciated and this means that you get paid $20 instead of $100.

Pro Tip: Purchase an HO-1 plan that covers you for the full “Replacement Cost” of the materials. Double-check with the insurance company to make sure you’re written under a “Replacement Cost” policy in order to get the full replacement cost for your home. Most HO-1 plans today are replacement value and only have to consult your agent to ensure this is the case for your home.

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