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Home insurance, also commonly called homeowner's insurance (often abbreviated in the US real estate industry as HOI), is a type of
property insurance Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, re ...
that covers a
private residence A home, or domicile, is a space used as a permanent or semi-permanent residence for one or many Human, humans. It is a fully or semi sheltered space and can have both interior and exterior aspects to it. Homes provide sheltered spaces for i ...
. It is an
insurance Insurance is a means of protection from financial loss. It is a form of risk management Risk management is the identification, evaluation, and prioritization of risk In simple terms, risk is the possibility of something bad happening. ...

insurance
policy that combines various personal insurance protections, which can include losses occurring to one's home, its
contents Content or contents may refer to: Media * Content (media) Content is the information Information is processed, organised and structured data Data (; ) are individual facts, statistics, or items of information, often numeric. In a ...
, loss of use (additional living expenses), or loss of other personal possessions of the homeowner, as well as
liability Liability may refer to: Law * Legal liability, in both civil and criminal law ** Public liability, part of the law of tort which focuses on civil wrongs ** Product liability, the area of law in which manufacturers, distributors, suppliers, retai ...
insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory. Additionally, homeowner's insurance provides financial protection against disasters. A standard home insurance policy insures the home itself along with the things kept inside.


Overview

Homeowner's policy is a multiple-line insurance policy, meaning that it includes both
property insurance Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, re ...
and
liability Liability may refer to: Law * Legal liability, in both civil and criminal law ** Public liability, part of the law of tort which focuses on civil wrongs ** Product liability, the area of law in which manufacturers, distributors, suppliers, retai ...
coverage, with an indivisible premium, meaning that a single premium is paid for all risks. This means that it covers both damage to one's property and liability for any injuries and property damage caused by the owner or members of his/her family to other people. It may also include damage caused by household pets. The U.S. uses standardized policy forms that divide coverage into several categories. Coverage limits are typically provided as a percentage of the primary Coverage A, which is coverage for the main dwelling. The cost of homeowner's insurance often depends on what it would cost to replace the house and which additional endorsements or riders are attached to the policy. The insurance policy is a legal contract between the insurance carrier (
insurance company Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to Hedge (finance), hedge against the risk of a contingent or uncertain loss. An entity which provides insurance is known as an insurer, ...
) and the named insured(s). It is a contract of indemnity and will put the insured back to the state he/she was in prior to the loss. Typically, claims due to
floods A flood is an overflow of water that submerges land that is usually dry. In the sense of "flowing water", the word may also be applied to the inflow of the tide Tides are the rise and fall of sea level Mean sea level (MSL) (often ...

floods
or war (whose definition typically includes a
nuclear explosion Nuclear may refer to: Physics *Nuclear engineering Nuclear engineering is the branch of engineering Engineering is the use of scientific method, scientific principles to design and build machines, structures, and other items, including ...
from any source) are excluded from coverage, amongst other standard exclusions (like termites). Special insurance can be purchased for these possibilities, including
flood insurance Flood insurance denotes the specific insurance Insurance is a means of protection from financial loss. It is a form of risk management Risk management is the identification, evaluation, and prioritization of risk In simple terms, ri ...
. Insurance is adjusted to reflect the cost of replacement, usually upon application of an inflation factor or a cost index.


Pricing

Major factors in price estimation include location, coverage, and the amount of insurance, which is based on the estimated cost to rebuild the home ("replacement cost"). If insufficient coverage is purchased to rebuild the home, the claim's payout may be subject to a
co-insuranceIn insurance, co-insurance or coinsurance is the splitting or spreading of risk among multiple parties. In the United States In the U.S. insurance market, co-insurance is the joint assumption of risk between the insurer and the insured. In title ins ...
penalty. In this scenario, the insured will be subject to an out of pocket fee as a penalty. Insurers use vendors to estimate the costs, including
CoreLogic CoreLogic, Inc. is an Irvine, CA–based corporation providing financial, property, and Customer data, consumer information, analytics, and business intelligence. The company analyzes information assets and data to provide clients with analytics a ...
subsidiary Marshall Swift-Boeckh, Verisk PropertyProfile, and E2Value, but leave the responsibility ultimately up to the consumer. In 2013, a survey found that about 60% of homes are undervalued by an estimated 17 percent. In some cases, estimates can be too low because of "demand surge" after a catastrophe. As a safeguard against a wrong estimate, some insurers offer "extended replacement cost" add-ons ("endorsements") which provide extra coverage if the limit is reached. Prices may be lower if the house is situated next to a
fire station __NOTOC__ A fire station (also called a fire house, fire hall, firemen's hall, or engine house) is a structure or other area for storing firefighting apparatus such as fire engines and related vehicles, personal protective equipment, fire hoses ...
or is equipped with fire sprinklers and fire alarms; if the house exhibits wind mitigation measures, such as
hurricane shutters . Hurricane coverings, commonly known as shutters, are used in hurricane mitigation to protect houses and other structures from damage caused by storms. Hurricane shutters are used to prevent windows from being broken by flying objects during a stor ...
; or if the house has a
security system A security alarm is a system designed to detect intrusion, such as unauthorized entry, into a building or other areas such as a home or school. Security alarms used in residential, commercial, industrial, and military properties protect against ...
and has insurer-approved
lock Lock(s) may refer to: Common meanings *, a mechanical device used to secure items of importance *, a device for boats to transit between different levels of water, as in a canal Arts and entertainment *, a 2016 Punjabi film *, a sentient machin ...
s installed. Typically payment is made annually.
Perpetual insurance Perpetual insurance is a type of homeowners insurance Home insurance, also commonly called homeowner's insurance (often abbreviated in the US real estate industry as HOI), is a type of property insurance Property insurance provides protection ag ...
which continues indefinitely can also be obtained in certain areas.


Covered perils

Home insurance offers coverage on a "named perils" and "open perils" basis. A "named perils" policy is one that provides coverage for a loss specifically listed on the policy; if it's not listed, then it's not covered. An "open perils" policy is broader in the sense that it will provide coverage for all losses except those specifically excluded on your policy. Basic "named perils" – this is the least comprehensive of the three coverage options. It provides protection against perils most likely to result in a
total loss Image:Collision of Costa Concordia 5 crop.jpg, Even though only partially sunk in shallow water, in 2012 the relatively new cruise liner ''Costa Concordia'' was Costa Concordia disaster#Ship, declared a "constructive total loss" due to escalating ...
. If something happens to your home that's not on the list below, you are not covered. This type of policy is most common in countries with developing insurance markets and as protection for
vacant Within the context of building A building, or edifice, is a structure with a roof and walls standing more or less permanently in one place, such as a house or factory. Buildings come in a variety of sizes, shapes, and functions, and have been ...
or unoccupied buildings. Basic-form covered perils: *
Fire BBQ. Fire is the rapid oxidation of a material in the exothermic chemical process of combustion, releasing heat, light, and various reaction Product (chemistry), products. Fire is hot because the conversion of the weak double bond in molecula ...

Fire
*
Lightning Lightning is a naturally occurring electrostatic discharge Electrostatic discharge (ESD) is the sudden flow of electricity Electricity is the set of physical phenomena associated with the presence and motion Image:Leaving Yongsan ...

Lightning
*
Windstorm A storm is any disturbed state of an Natural environment, environment or in an astronomical body's Celestial body atmosphere, atmosphere especially affecting its surface, and strongly implying severe weather. It may be marked by significant disr ...

Windstorm
or
hail Hail is a form of solid precipitation In meteorology Meteorology is a branch of the (which include and ), with a major focus on . The study of meteorology dates back , though significant progress in meteorology did not begin until ...

hail
*
Explosion An explosion is a rapid expansion in volume Volume is a expressing the of enclosed by a . For example, the space that a substance (, , , or ) or occupies or contains. Volume is often quantified numerically using the , the . The volum ...

Explosion
*
Smoke Smoke is a collection of airborne and es emitted when a material undergoes or , together with the quantity of air that is or otherwise mixed into the mass. It is commonly an unwanted of fires (including s, s, s, s, and s), but may als ...

Smoke
*
Vandalism Vandalism is the action involving deliberate destruction of or damage to public or private property. The term includes property damage Property damage ( cf. criminal damage in England and Wales) is damage or destruction of real Real may r ...

Vandalism
* Aircraft or *
Riot A riot () is a form of civil disorder Civil disorder, also known as civil disturbance, civil unrest, or social unrest is an activity arising from a mass act of civil disobedience (such as a demonstration, riot, strike, or ignoring laws) in wh ...
or civil commotion Broad "named perils" – this form expands on the "basic form" by adding 6 more covered perils. Again, this is a "named perils" policy. The loss must specifically be listed to receive coverage. Fortunately, the "broad form" is designed to cover the most common forms of property damage. Broad-form covered perils: * All basic-form perils * Burglary, break-in damage * Falling objects (e.g. tree limbs) * Weight of ice and snow * Freezing of plumbing * Accidental water damage * Artificially generated electricity Special "all risk" – special-form coverage is the most inclusive of the three options. The difference with "special form" policies is that they provide coverage to all losses unless specifically excluded. Unlike the prior forms, all unlisted perils are covered perils. However, if something happens to your home, and the event is on the exclusions list, the policy will not provide coverage. Special-form excluded perils: * Ordinance of law *
Earthquake An earthquake (also known as a quake, tremor or temblor) is the shaking of the surface of the Earth resulting from a sudden release of energy in the Earth Earth is the third planet from the Sun and the only astronomical object known ...

Earthquake
*
Flood A flood is an overflow of water that submerges land that is usually dry. In the sense of "flowing water", the word may also be applied to the inflow of the tide Tides are the rise and fall of sea level Mean sea level (MSL) (often ...

Flood
*
Power failure A power outage (also called a power cut, a power out, a power blackout, a power failure, a power loss, or a blackout) is the loss of the electrical power network supply to an end user. There are many causes of power failures in an electricity ...
*
Neglect In the context of caregiving A caregiver is a paid or unpaid member of a person's social network A social network is a social structure made up of a set of social actors (such as individuals or organizations), sets of dyadic ties, and oth ...
*
War War is an intense armed conflict between states State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * The State (newspaper), ''The State'' (new ...

War
* Nuclear hazard * Intentional acts


In the United States

In the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

United States
, most home buyers borrow money in the form of a
mortgage loan A mortgage loan or simply mortgage () is a loan In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money ...
, and the mortgage lender often requires that the buyer purchase homeowner's insurance as a condition of the loan, in order to protect the bank if the home is destroyed. Anyone with an insurable interest in the property should be listed on the policy. In some cases the mortgagee will waive the need for the mortgagor to carry homeowner's insurance if the value of the land exceeds the amount of the mortgage balance. In such a case even the total destruction of any buildings would not affect the ability of the lender to be able to foreclose and recover the full amount of the loan. Home insurance in the United States may differ from other countries; for example, in Britain,
subsidence Subsidence is a general term for downward vertical movement of the Earth's surface, which can be caused by both natural processes and human activities. Subsidence involves little or no horizontal movement, which distinguishes it from slope move ...
and subsequent foundation failure is usually covered under an insurance policy. United States insurance companies used to offer foundation insurance, which was reduced to coverage for damage due to leaks, and finally eliminated altogether. The insurance is often misunderstood by its purchasers; for example, many believe that mold is covered when it is not a standard coverage.


History

The first homeowner's policy ''per se'' in the United States was introduced in September 1950, but similar policies had already existed in Great Britain and certain areas of the United States. In the late 1940s, US
insurance lawInsurance law is the practice of law surrounding insurance Insurance is a means of protection from financial loss. It is a form of risk management Risk management is the identification, evaluation, and prioritization of risk In simple te ...
was reformed and during this process multiple line statutes were written, allowing homeowner's policies to become legal. Prior to the 1950s there were separate policies for the various perils that could affect a home. A homeowner would have had to purchase separate policies covering fire losses, theft, personal property, and the like. During the 1950s policy forms were developed allowing the homeowner to purchase all the insurance they needed on one complete policy. However, these policies varied by insurance company, and were difficult to comprehend. The need for standardization grew so great that a private company based in
Jersey City Jersey City is the second-most populous city in the U.S. state of New Jersey, after Newark, New Jersey, Newark.
Jersey City
,
New Jersey New Jersey is a U.S. state, state in the Mid-Atlantic States, Mid-Atlantic and Northeastern United States, Northeastern regions of the United States. It is bordered on the north and east by the state of New York (state), New York; on the ea ...
, Insurance Services Office, also known as the ISO, was formed in 1971 to provide risk information and it issued simplified homeowner's policy forms for reselling to insurance companies. These policies have been amended over the years. Modern developments have changed the insurance coverage terms, availability, and pricing.Covered by homeowners insurance? Don't be so sure
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Homeowner's insurance has been relatively unprofitable, due in part to catastrophes such as hurricanes as well as regulators' reluctance to authorize price increases. Coverages have been reduced instead and companies have diverged from the former standardized model ISO forms. Water damage due to burst pipes in particular has been restricted or in some cases entirely eliminated. Other restrictions included time limits, complex replacement cost calculations (which may not reflect the true cost to replace), and reductions in wind damage coverage.


Types of homeowners insurance policies

According to a 2018
National Association of Insurance Commissioners The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states The United States, United States of Americ ...

National Association of Insurance Commissioners
(NAIC) report on data from 2016, 73.8% of homes were covered by owner-occupied homeowners' policies. Of these, 79.52% had an HO-3 Special policy, and 13.35% had the more expensive HO-5 Comprehensive. Both of these policies are "all risks" or "open perils", meaning that they cover all perils except those specifically excluded. Homes covered by an HO-2 Broad policy accounted for 5.15%, which covers only specific named perils. The remaining 2% includes the HO-1 Basic and the HO-8 Modified policies, which are the most limited in the coverage offered. HO-8, also known as older home insurance, is likely to pay only actual cash value for damages rather than replacement. The remaining 21.3% of home insurance policies were covered by renter's or condominium insurance. 14.8% of these had the HO-4 Contents Broad form, also known as renters' insurance, which covers the contents of an apartment not specifically covered in the blanket policy written for the complex. This policy can also cover liability arising from injury to guests as well as negligence of the renter within the coverage territory. Common coverage areas are events such as lightning, riot, aircraft, explosion, vandalism, smoke, theft, windstorm or hail, falling objects, volcanic eruption, snow, sleet, and weight of ice. The remainder had the HO-6 Unit-Owners policy, also known as a condominium insurance, which is designed for the owners of condos and includes coverage for the part of the building owned by the insured and for the property housed therein. Designed to span the gap between the coverage provided by the blanket policy written for the entire neighborhood or building and the personal property inside the home. The condominium association's by-laws may determine the total amount of insurance necessary. E.g., in
Florida Florida is a U.S. state, state located in the Southeastern United States, Southeastern region of the United States. Florida is bordered to the west by the Gulf of Mexico, to the northwest by Alabama, to the north by Georgia (U.S. state), Geor ...

Florida
, the scope of coverage is prescribed by statute – 718.111(11)(f).


Causes of loss

According to the 2008
Insurance Information Institute The Insurance Information Institute (I.I.I.) is a U.S. The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country primarily located in North America North America is a continen ...
factbook, for every $100 of premium, in 2005 on average $16 went to fire and lightning, $30 to wind and hail, $11 to water damage and freezing, $4 for other causes, and $2 for theft. An additional $3 went to liability and medical payments and $9 for claims settlement expenses, and the remaining $25 was allocated to insurer expenses. One study of fires found that most were caused by heating incidents, although smoking was a risk factor for fatal fires.


Claims process

After a loss, the insured is expected to take steps to mitigate the loss. Insurance policies typically require that the insurer be notified within a reasonable time period. After that, a
claims adjuster A claims adjuster, desk adjuster, field adjuster, or general adjuster (claim adjuster, claims handler, claim handler or loss adjuster in the United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United ...
will investigate the claim and the insured may be required to provide various information. Filing a claim may result in an increase in rates, or in nonrenewal or cancellation. In addition, insurers may share the claim data in an industry database (the two major ones are CLUE and A-PLUS), with Claim Loss Underwriting Exchange (CLUE) by
Choicepoint LexisNexis Risk Solutions is a global data and analytics company that provides data and technology services, analytics, predictive insights and fraud prevention for a wide range of industries. It is headquartered in Alpharetta, Georgia (part of the ...
receiving data from 98% of U.S. insurers.


In the United Kingdom

As in the US, mortgage lenders within the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Telegraph' use Britain as a synonym for the United Kingdom. Some prefer to use Britain as shorth ...

United Kingdom
(UK) require the rebuild value (the actual cost of rebuilding a property to its current state should it be damaged or destroyed) of a property to be covered as a condition of the loan. However, the rebuild cost is often lower than the market value of the property, as the market value often reflects the property as a going concern, as opposed to just the value of the bricks and mortar. A number of factors, such as an increase in fraud and increasingly unpredictable weather, have seen home insurance premiums continue to rise in the UK. For this reason, there has been a shift in how home insurance is bought in the UK—as customers become a lot more price-sensitive, there has been a large increase in the amount of policies sold through price comparison sites. In addition to standard home insurance, some 8 million households in the UK are categorized as being a "non-standard" risk. These households require a specialist or non-standard insurer that would cover home insurance needs for people that have criminal convictions and/or where the property suffers subsidence or has previously been underpinned.


Around the world

Premium volume by country (2013) Building and contents coverage Countries such as
China China (), officially the People's Republic of China (PRC; ), is a country in East Asia East Asia is the eastern region of Asia Asia () is Earth's largest and most populous continent, located primarily in the Eastern Hemisphere ...

China
,
Australia Australia, officially the Commonwealth of Australia, is a Sovereign state, sovereign country comprising the mainland of the Australia (continent), Australian continent, the island of Tasmania, and numerous List of islands of Australia, sma ...

Australia
, and the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Telegraph' use Britain as a synonym for the United Kingdom. Some prefer to use Britain as shorth ...

United Kingdom
use a more straightforward approach to home insurance, called "building and contents coverage" commonly referred to as "home and contents insurance". Relative to the insurance policies of the United States, building and contents coverage offers a very basic level of coverage. Most standard policies only cover the most basic perils listed below: * Storm or flood * Fire * Lightning or explosion * Falling trees or branches * Subsidence, drag or landslip * Breakage of glass or sanitary fittings * Damage from escaped water or oil * Shock caused to the house by animals, vehicles or aircraft Building coverage Building covers both the primary structure as well as detached structures such as garages, sheds, and back houses that are on property. However, different insurers may not cover things like boundary walls, fences, gates, paths, drives or swimming pools, so it is important to check the specific policy language. This is an equivalent of both Coverage A and B in homeowners insurance policies in the United States. Contents coverage Contents insurance covers personal effects such as furniture, clothes, electronics, jewelry, etc. Most policies limit the individual amount of money paid out for each category of items. Individual policies can vary in the amount of coverage they provide. The option to schedule your personal property is readily available. Liability coverage Liability is typically bundled together with building and contents coverage. Injuries and damage on premises would be covered by building coverage liability while any offsite occurrences would be covered under contents coverage. Common exclusions As with most insurance policies, there are always exclusions. The most common are: * General wear-and-tear maintenance * Faulty workmanship * Mechanical or electrical breakdown * Any amount over the limits shown on the policy schedule or in the policy * Restricted cover when the home is empty or is let to tenants


See also

*
Mortgage insurance Mortgage insurance (also known as mortgage guarantee and home-loan insurance) is an insurance policy which compensates lenders or investors in Mortgage-backed security, mortgage-backed securities for losses due to the Default (finance), default of ...
*
Home equity protectionHome price protection is an agreement that pays the homeowner if a particular home price index declines in value over a period of time after the protection is purchased. The protection is for a new or existing homeowner that wishes to protect the val ...
* Owner-controlled insurance program *
Property insurance Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, re ...
*
Renters insuranceRenters' insurance, often called tenants' insurance, is an insurance policy In insurance, the insurance policy is a contract A contract is a legally binding document between at least two parties that defines and governs the rights and duties of t ...


References


External links

{{Authority control Types of insurance