An HO5 policy is quite a remarkable form of home insurance written on an open dangers basis. That means that your insurer will cover damage to your house and property not only if it is caused by an act, or peril, but also if it is not listed as such an exclusion in your policy. In other words, you are not covered for any harm to your house or property in an “act” or “peril” except those events which are specifically excluded in your policy coverage. The exclusions are naturally listed in the small print of your policy and should be understood before you sign on the dotted line. Here we shall look at how these exclusions are applied in a typical HO5 home insurance policy.
A typical HO5 home insurance policy will exclude coverage for damage or loss to your house, which is the direct result of a disaster, earthquake, explosion or war. If an act of God causes a roof-fall causing damage to your house, for example, then your home insurance won’t cover the cost of repair. But if your roof is damaged by the actions of a person, group or organisation who has been insured, your policy can still cover the cost of repairing your roof. So long as that organisation is classed as being a closed peril, i.e. one where the damage was caused by an act of God, than your roof can usually be covered.
If you live in an area which suffers from flooding, then your home insurance policies will usually provide coverage for damage to your house caused by water, either by falling rain, rising tides or even melting ice. Again the exclusion is normally found in the small print of your policy and is referred to as an “open perils exclusion”. As long as the flood is caused by water moving through a pipeline, then your home insurance will cover it. However, this isn’t the case for a number of reasons. If your house has one of the open perils exceptions, such as the fact that it’s situated in a floodway, then your homeowner’s policy will exclude coverage for flood damage. Only certain types of flood damage are covered, such as those caused by standing water, rivers or springs.
The other type of natural disaster that is frequently addressed in homeowner insurance policies is “fire”. Homeowners will often find that their HO5 policies will include protection against fires. Fire coverage does not provide coverage for burning homes, burning vegetation, burning livestock, etc. (these are all referred to as the “proximity” perils exception). This means that your policy will offer you protection for the property itself, but not for the items inside.
Another popular home protection issue is vandalism or malicious mischief. If you own your home, you most likely will have some form of liability coverage on your property. (HO5 polices will require you to purchase a separate rider to include the cost of liability coverage if you own a condo, townhouse, house, or other similar property that has a significant value.) The majority of HO5 policies will also include coverage for malicious mischief and damage to a home or its contents. However, the amount of coverage provided may be somewhat limited.
One type of policy that a few homeowners take advantage of is the named peril policy, also known as the HO-3 policy. The named peril policy provides coverage for both actual cash value and replacement cost in the event of a loss from a named peril. An example of a named peril is an accident on your property resulting in bodily injury to you or a third party. While this insurance policy doesn’t cover the actual cash value for personal or property damages, it does provide coverage for replacement cost.
Many homeowners also elect to purchase insurance policies that will provide coverage for certain events, such as natural disasters, explosions, lightning, windstorm, vandalism, and theft. These replacement cost policies will pay the full face value of your policy in the event that it is destroyed, stolen, or rendered worthless due to a covered occurrence. Some HO5 replacement cost policies will also offer the option of providing coverage for inflation.
As mentioned above, the open-perils policy provides the most extensive coverage. This insurance policy covers many events that would not be covered under either a named peril or replacement cost policy. For instance, acts like vandalism, windstorm damage, and theft can all be covered under the open perils policy.