What Is a Peril in Insurance?

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  • What Is a Peril in Insurance?

Whether you just bought the house or condo of your dreams, you’ve rented a new spot or you’ve bought a home that you’re going to use as a rental, your home and belongings need to be covered by some form of home insurance.

Home insurance protects you from a number of things, but we’re going to be diving into how this coverage can protect you from perils, which is simply insurance lingo for destructive events, and what type of coverage you’ll need.

What Is a Peril in Insurance?

A peril, by insurance definition, is any event, circumstance or hazard that causes damage or destruction to your property or personal belongings. Some people often confuse the terms perils and covered perils. Just because something qualifies as a peril in home insurance, that doesn’t mean it’s covered by your policy.

What Is a Covered Peril?

Covered perils are events or hazards that cause damage or destruction to your property or belongings and that are also covered by your home insurance company. If a covered peril occurs, damaging things like your roof and furniture, you’ll file a claim with your home insurer. If that peril is covered, that means they’ll cover the damages by reimbursing you or cutting you a cut to repair the damage and replace your belongings.

Perils are covered by all types of home insurance, such as homeowners, condo, landlord, renters and flood insurance. Some of the most commonly covered perils in home insurance are wind damage like hurricanes and tornadoes, hail damage, home fires, theft and vandalism. But, if you have home insurance, you’re covered for more than just these aforementioned perils. Let’s take a look at all the forms in home insurance and what kinds of perils are covered under each.

HO-1 Basic Form (Homeowners)

The most basic form of homeowners insurance policy is the HO-1 form. It’s peace of mind in a value package. But be careful if you’re considering purchasing it for the reduced premiums because HO-1 typically doesn’t cover liability in case someone gets hurt on your property.

You may have to list all of your personal belongings you want to be covered — which you can do easier by creating a home contents list — before you purchase the policy, too. Since you must list the items you want to be covered, any items not listed on the policy will not be covered by it.

Since HO-1 can be seriously lacking in many areas, we don’t recommend purchasing this policy at all. In fact, many insurance companies have stopped selling HO-1 policies because they aren’t really too beneficial for the person who’s insured.

10 Named Perils Under HO-1:

  1. Vandalism
  2. Theft
  3. Damage caused by vehicles
  4. Damage caused by aircraft
  5. Rioting or civil disturbances
  6. Fire or smoke
  7. Lightning
  8. Windstorm or hail, such as a hurricane or tornado
  9. Explosions
  10. Volcanic eruptions

HO-2 Broad Form (Homeowners)

Considered a broad form of homeowners insurance, it’s more commonly purchased than HO-1 because it offers a wider variety of protection. However, just because it offers a broader range of coverage than its HO-1 predecessor, that still doesn’t mean HO-2 forms will provide you with the comprehensive coverage that you need.

The HO-2 policy typically covers your personal belongings without having to specifically name them on your policy, though. It also covered the same 10 named perils and typically also covers damage from falling objects and water damage from plumbing.

HO-3 Special Form (Homeowners)

The most commonly purchased homeowners insurance policy, the HO-3 special form combines a broad range of coverage with a hint of affordability. It’s called named perils coverage and typically covers damage or loss to your home, other structures like a shed or fence, your personal belongings, and liability in case someone is injured on your property. It can also cover additional living expenses if a covered peril forces you to temporarily vacate your home while it’s being repaired or rebuilt.

HO-3 covers all 10 perils listed under the HO-1 and HO-2 policies, and adds six more to the mix. It does have exclusions, It can sometimes protect you against all other perils that aren’t specifically mentioned in the policy. Those most common perils that aren’t covered are things like earthquakes, floods, wars, military activity, nuclear hazards, negligence or general wear and tear, among other things.

In a “named” peril policy like the HO-3, it’s important to note that damage or loss may not be covered if it’s caused by anything other than the following 16 perils. Here are the 16 named perils within an Ho-3 policy.

16 Named Perils Under HO-3:

  1. Vandalism
  2. Theft
  3. Frozen pipes
  4. Damage caused by vehicles
  5. Damage caused by aircraft
  6. Rioting or civil disturbances
  7. Fire or lightning
  8. Windstorm or hail, such as a hurricane or tornado
  9. Damage from smoke
  10. Damage caused by heating, air conditioning or plumbing
  11. Damage due to snow, ice or sleet
  12. Damage from water heater, including cracks, burns or tears
  13. Damage from electrical current, such as downed powerlines
  14. Explosions
  15. Falling objects
  16. Volcanic eruptions

HO-5 Comprehensive Form (Homeowners)

The HO-5 form is considered the be the gold standard of homeowners insurance and is often referred to as comprehensive perils coverage or an open peril policy. It covers all the 16 named perils in the HO-3 policy and it typically covers even more perils covered in your policy, as long as they’re not exclusively named for exclusion.

It tends to come equipped with extensive liability coverage that creates further financial safety against events that aren’t specifically named in your coverage. If you’re a homeowner, we recommend investing in an HO-3 or HO-5 policy because they will protect your home, belongings and financial future better. However, always consult your insurance agent to figure out what your unique policy covers and which one you may need.

HO-7 Mobile Home Insurance Form (Homeowners)

However, some homeowners may simply not qualify for the aforementioned policies. Those who own mobile homes will only be eligible for an HO-7 policy, which still helps protect the structure of your home and your personal belongings.

But this coverage may differ slightly, providing less protection for the home and offering a slightly different set of covered perils than the 10 covered by the standard HO-2 policy. It’s best to consult with an insurance agent before purchasing a mobile home policy.

HO-8 Older Home Insurance Form (Homeowners)

Coverage for older homes is a bit different as well. Coverage for older homes, typically houses that are more than 40 to 50 years old, may not be up to the same building codes and standards as newer homes. This makes them more susceptible to house fires due to outdated electrical systems, cracks in the foundation and older plumbing that could cause a whole lot of structural water damage.

It also only pays out on a market value approach instead of offering extended coverage for the replacement cost of your home. That’s because the older fixtures may have increased in value over time, or may just be way too expensive to replicate if your home is damaged or destroyed by a covered peril.

An HO-8 typically only covers the same 10 perils included in an HO-1 policy, but it should provide adequate coverage for your personal belongings.

HO-4 Renters Insurance Form

If you’re renting a place, you don’t have all the same somewhat confusing choices as homeowners do. You simply have the HO-4 renters insurance policy. And since you don’t own the property you live in, it protects only your belongings, liability concerns and additional living expenses from the same 16 perils listed in the HO-3 form.

The HO-4 renters insurance form is also the cheapest form of home insurance, tipping the scale at just over $14 per month in the United States, with some states coming in much lower.

HO-6 Condo Insurance Form

Condo owners are in the same ballpark as renters, as they only have one policy to choose from: the HO-6 condo insurance policy. This is also referred to as walls-in coverage, so it protects the interior structure of your unit, like the walls and floors, as well as the personal belongings you keep inside the unit, from the same 16 perils listed in the HO-3 policy.

DP-1, DP-2 & DP-3 Landlord Insurance Forms

Landlords can choose amongst three different policies, each of which covers the structure of the unit from the 16 named perils in the HO-3 policy. But depending on which landlord insurance policy you choose, you can either have belongings you keep on the property covered for their actual cash value or replacement cost. You can also include or exclude coverage for loss of rental income if a covered peril damages the unit and forces the tenants to temporarily move out while it’s being repaired or rebuilt.

Flood Insurance

Flood insurance is a bit trickier when it comes to coverage because the same 10 to 16 covered perils in other home insurance policies can’t necessarily create flood damage to your home. For instance, a car that crashes into your home won’t create flood damage.

What’s Protected When Affected by Covered Perils?

If your home or belongings are affected by a covered peril, you must file a home insurance claim, pay your deductible and your insurer will cover the remaining damages up to your policy’s maximum. But coverage for covered perils doesn’t just stop at your property and belongings, it extends to other facets that you may have had no clue about. Let’s break down what’s covered.

Coverage A: Dwelling

Dwelling coverage is included in homeowners, condo and landlord insurance policies. It protects the structure of the home — including things like the roof, windows, flooring and other built-in structures — from the perils that are covered by your specific policy.

So homeowners or landlords who experience roof damage due to a covered electrical wiring issue will be reimbursed to repair or replace their roof. However, since condo owners have a walls-in policy, the roof is considered to be a part of the common area. If extensive damage to the roof occurs, the policyholder may want to invest in loss assessment coverage to help pay for any damages the HOA doesn’t cover.

For homeowners and landlords who own houses, your dwelling coverage needs to at least match your house’s value. So you’ll need $250,000 worth of dwelling coverage for houses worth $250,0000. Condo owners and landlords who own condos will need far less coverage. They’ll likely need about 20% of their condo’s value in dwelling coverage — since they don’t own the structure and only need to cover everything from the walls in. So a $250,000 condo may only need $50,000 in dwelling coverage.

You must choose between two types of dwelling coverage: replacement cost coverage or market value coverage. As we discussed earlier, certain homeowners and landlord policies may not allow you to choose between the two. But let’s look at what you can expect with each.

Replacement Cost Coverage vs. Market Value Coverage

Replacement cost coverage pays to rebuild your home to its exact value before the damage occurred. This coverage is more straightforward because it doesn’t account for the neighborhood you live in or other external factors. It simply accounts for the size, material quality and structure of your home to rebuild it to its exact proportions before the damage.

If you insure your home to 100% of its value, meaning your $250,000 house has at least $250,000 worth of dwelling coverage, you should be fully covered to rebuild it if it sustains complete destruction from a covered peril. However, since home prices increase regularly, we always recommend insuring your home for at least 103% of its value and reevaluating your home insurance once a year.

Market value coverage is the amount of money it would cost someone to purchase your home at the value before the damages occurred. So while your home may be worth $250,000 on the open market, it may cost more to rebuild if it’s destroyed by a covered peril, such as a tornado or hurricane.

With market value coverage, building materials and the land your house sits on aren’t accounted for in your home insurance’s dwelling coverage. Since the market is ever-changing, there’s a chance you’ll have enough coverage to rebuild your home, but there’s also a chance that your coverage will leave you paying the difference out of your own pocket.

Coverage B: Other Structures

Other structures coverage only applies to homeowners and landlord insurance because it provides coverage for structures located on your property that aren’t connected to your home. This could account for things like sheds, fences and detached garages.

Other structures coverage is typically 10% of your policy’s dwelling coverage. So homeowners or landlords with $200,000 in dwelling coverage will also have $20,000 in coverage to repair or replace things like the driveway, pool and fences if they’re damaged or destroyed by a covered peril.

Coverage C: Personal Property

Personal property coverage can be found in every type of home insurance policy, including flood insurance. It’s the portion of your policy that pays to replace your belongings — like furniture, jewelry, electronics and clothes — if they’re damaged or destroyed by a covered peril.

This coverage, however, has a few more stipulations than its predecessors. You can choose to have your belongings covered to their replacement cost or actual cash value. And certain high-value items, such as jewelry and collectibles, will see lower coverage amounts with an option to increase by adding an endorsement, rider or floater. Let’s dive deeper.

Replacement Cost Coverage vs. Actual Cash Value Coverage

Replacement cost coverage takes the more straightforward approach, reimbursing you the exact dollar amount you paid for an item — no matter how long ago you purchased it. Market value coverage takes depreciation into account, so it will reimburse you for the value of the item instead of its purchase cost.

So if an electrical fire ripped through your living room, destroying a couch and TV, each coverage would reimburse you different amounts. If you paid $4,000 for the couch and $1,000 for the TV about five years ago, replacement cost coverage would simply reimburse you $5,000 for the items. Actual cash value may see the couch’s lifespan at 10 years and the TV’s lifespan at eight years and only reimburse you $2,400 for both the items combined.

There’s no universal mathematical equation used by insurers to determine the value of your belongings, but replacement cost coverage almost always pays more. Because it does, it also costs more in premiums.

Coverage D: Loss of Use

Loss of use coverage can also be found in every type of home insurance policy, except for a flood policy from the government’s National Flood Insurance Program and landlord insurance policies. It’s designed to cover many additional living expenses you face if your home is damaged or destroyed by covered peril and you’re forced to temporarily move out while it’s being repaired or rebuilt.

These additional living expenses can be things like a hotel stay or a rental property of equivalent value, storage fees for the belongings you can’t bring with you, pet boarding if your pets can’t come along and even extra gas money if you now face a longer commute.

Since landlords don’t live in the property, additional living expenses wouldn’t qualify. However, if their tenants are forced to move out, the landlord’s equivalent coverage is called loss of rental income. It reimburses the landlord for lost rent instead of additional living expenses.

For homeowners and condo owners, your policy’s loss of use maximum is typically up to 20% of your policy’s dwelling coverage. So if your home has $250,000 worth of coverage, you’d have $50,000 worth of loss of use coverage per claim. Renters and landlords are allowed to select how much they need. However, each likely won’t need as much coverage as home and condo owners.

Coverage E: Liability

Liability coverage is also found in every single home insurance policy, except for flood insurance. It’s designed to help pay medical bills for injuries that occur on your property and you’re found liable for, dog bites that happen on or off the property, accidental damage you do to someone else’s property and any lawsuits that arise from any of those incidents.

Each home insurance policy comes standard with $100,000 in liability coverage, and insurers typically offer up to $500,000 per policy. There are certain instances when you may want to increase your coverage, though.

Whether you own or rent, having an attractive nuisance on property calls for additional coverage, especially if you have a pool on the property. Liability claims involving pools and dog bites can get costly very quickly. You can even get $1 million or more in liability coverage by enrolling in umbrella insurance.

Coverage F: Medical Payments to Others

Medical payments to others coverage can be found in homeowners, condo and renters insurance. It’s similar to liability coverage, in that it pays for medical bills if someone is injured on your property. However, the fault of an injury is irrelevant and this coverage typically maxes out at $5,000 per claim.

How to Get a Home Insurance Policy That Covers Common Perils

When you go with Clovered, getting any type of home insurance policy that covers common perils is simple. All you need to do is fill out a few questions in our online quoting tool, we’ll run some risk data in the background and then pair you with a policy that fits your coverage needs and meets your budget.

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The editorial content on Clovered’s website is meant to be informational material and should not be considered legal advice.

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