What does an HO-1 Policy Cover?

what does an HO1 policy cover

If you are planning on buying a house, then you will most likely need to buy homeowners insurance. Given that your home is probably one of if not the single largest financial investment you will make, you want to make sure you are protected from risks like storms, injuries, theft, damage, and more.

 

Homeowners insurance is not a state requirement like auto insurance, but most of the time, it is required by your mortgage lender. Given that your mortgage holder holds your property as collateral, they have a vested interest in keeping the property secure.

 

There are four major kinds of homeowner’s insurance policy. In this article, we will cover an HO-1 policy and talk about what benefits and protections it entitles you to.

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What Is an HO-1 Policy?

 

An HO-1 policy is the simplest homeowner’s policy you can buy. Essentially, an HO-1 policy covers the basic physical structure of your home. HO-1 policies are the most basic kind of homeowners’ insurance and cover relatively little things. There are generally no provisions for personal belongings, liability, or extra living expenses. HO-1 policies cover the physical structure of your house and nothing more.

 

What is Covered with an HO-1 Policy?

 

Coverage with an HO-1 policy is limited to 11 specific dangers, including:

 

  • Fires and lightning
  • Windstorms and hail
  • Smoke damage
  • Theft
  • Explosions
  • Riots or civil commotion,
  • Aircraft and other vehicles
  • Vandalism
  • Volcanic eruptions

 

Some HO1 policies will also allow you to purchase additional coverage that will cover things like:

 

  • Flood damage
  • Earthquakes
  • Falling objects

 

You read that correctly, HO-1 policies have a special clause for volcanic eruptions. With an HO-1 policy, you are only covered for the specific dangers listed on the policy. You will not be covered for any lost personal belongings, and no damage that is not explicitly listed in the policy will be covered by insurance.

As such, HO-1 policies are probably the most limited homeowner’s insurance policy. Other policies like HO-3 and HO-4 policies offer substantially more coverage and often include things like liability insurance and personal property insurance.

 

Replacement Cost or Actual Cost?

 

HO-1 policies are normally set as replacement value plans and not actual cash value policies. This means that HO-1 insurance plans will cover anything that needs to be replaced with materials at their current value.

So say you bought a water heater five years ago for $5,000. If your house explodes and destroys your water heater, then your HO-1 policy will purchase an exact replacement at its current market value, which is probably around $5,000 still.

In contrast, an actual cash value plan will reimburse you for the exact current value of the lost thing. So if your water heater has depreciated to $2,500 and is lost in a house explosion, then your insurance would cover the value of the lost water heater, which in this case is $2,500. Actual cash value policies depreciate as the value of the lost material depreciates.

In general, replacement cost coverage is ideal. Replacement cost coverage will buy a similar thing at its current market price. Given inflation, this means that you could potentially get something more expensive than what you originally paid for.

Most HO-1 policies are written as replacement policies, but make sure to double-check with your insurance agent for the specifics on your plan.

 

What Is Not Covered by an HO-1 Policy?

 

HO-1 policies are normally geared towards big threats that cause the most damages to property. As such, there are plenty of cases where an HO-1 policy will not cover you. Some issues that are usually not covered by HO-1 policies include:

 

  • Electrical damage
  • Damage from snow, ice, or sleet
  • Plumbing damage
  • Damage from pests like termites
  • Water discharge or steam discharge

 

Most of the time, you can buy supplemental insurance packages to cover more specific kinds of damage like mold, vandalism of a vacant house, or intentional malicious acts.

 

Liability

 

Additionally, HO-1 policies usually don’t have any provisions for liability coverage. That means that if you are involved in a lawsuit that involves your home, insurance will not pay for any damage or fees to be awarded to other parties. So, for instance, if a person is hurt in your home, an HO-1 policy would not cover their medical expenses if you are taken to court.

 

Personal possessions

 

HO-1 policies also usually do not have protections for any personal possessions lost due to home damage. So if your TV or other electronics get damaged by a flood, your house would be covered, but none of your ruined items would be. Some HO-1 plans let you purchase supplemental insurance that covers some types of personal possessions. In general, supplemental insurance plans that cover personal property range from about $1,000-$2,000. There may also be a special valuable items supplement that will reimburse you for the full cost of the lost item.

 

Additional living expenses

 

HO-1 policies also usually don’t cover extra incurred living expenses in the case of catastrophic house damage. So, for example, if your house is damaged and is rendered uninhabitable, an HO-1 policy will not reimburse you for any living expenses such as hotel rooms, new apartment leases, etc. Without this kind of coverage, you will be stuck footing the bills out of pocket.

 

Should I Get an HO-1 Policy?

 

The limitations of HO-1 homeowner’s insurance policies are one reason why they are relatively unpopular. HO-1 policies only cover catastrophic physical damage to your home. Given that mortgage companies have a vested interest in keeping the property in good working conditions, many mortgage lenders will not allow HO-1 policy plans.

In some cases, your homeowner’s insurance provider may require you to purchase an HO-1 policy to get coverage. This may be the case if the insurance company deems your living space too risky for other kinds of policies. Most of the time, this happens for older homes that might have structural problems.

 

What Should I Do If I Have an HO-1 Policy?

 

If you already have an HO-1 policy or are required to have one because your insurance company mandates it, we would recommend purchasing additional supplemental insurance coverage. Additional coverage comes in the form of endorsements. Endorsements can be a part of your plan or be a standalone policy and can cover other risks not covered by the HO-1 policy, such as theft, loss of personal property, or flood insurance.

Otherwise, we would recommend upgrading your homeowner’s insurance to a higher HO-2 or HO-3 plan. Higher-level homeowner’s insurance plans cover more kinds of damages and usually come with some form of liability insurance.

 

In Conclusion

 

A lot of people might be surprised that their homeowner’s insurance does not cover everything they thought it does. It is imperative to have a full understanding of your homeowner’s insurance policy and its coverage before buying. The last thing you want is to be in a situation where you thought something was covered, but then you get stuck paying for the costs out of pocket.

If you are a landlord looking for coverage on your rental property, a dwelling policy is better suited for your needs.

If you are shopping around for home insurance, consider using our insurance quote comparison tool. Out tool can compare the kind of coverage your want and give your the best quotes from several insurance providers

 

HO-1 insurance quote

 

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For more information about how homeowners’ insurance works and to see which type is right for you, please contact us through our website or call 800-712-8519 during normal business hours.

Frequently Asked Questions

What is an HO-1 policy?

An HO-1 policy is the simplest homeowner’s policy you can buy. Essentially, an HO-1 policy covers the basic physical structure of your home. HO-1 policies are the most basic kind of homeowners’ insurance and cover relatively little things. There are generally no provisions for personal belongings, liability, or extra living expenses. HO-1 policies cover the physical structure of your house and nothing more.

Should I get an HO-1 policy?

The limitations of HO-1 homeowner’s insurance policies are one reason why they are relatively unpopular. HO-1 policies only cover catastrophic physical damage to your home. Given that mortgage companies have a vested interest in keeping the property in good working conditions, many mortgage lenders will not allow HO-1 policy plans.

What does an HO-1 policy cover?

HO-1 policies are normally geared towards big threats that cause the most damages to property. As such, there are plenty of cases where an HO-1 policy will not cover you. Some issues that are usually not covered by HO-1 policies include: electrical and plumbing damage, pests like termite infestation, and damage from snow, ice, or sleet.