Comparison of Insurance: Special Vs. Basic

Different types of homeowners insurance policies offer different levels of protection.

Your homeowners' insurance is likely to be an HO-1, HO-2 or HO-3 form policy, otherwise known as basic form, broad form or special form, regardless of the state in which you live. Each policy form is packaged with both property and liability protection but the extent of the protection varies widely between forms. Knowing the differences between these policies can help you make good insurance decisions.

Basic Form

HO-1, or basic form, policies are by definition the most basic type of homeowners' insurance available. Basic form policies protect against specific perils only such as fire or lightning, wind or hail, smoke, explosion, riot and civil unrest, vandalism or malicious mischief, and theft and damage from vehicles. Protection is only for the things specifically listed in the policy, so your personal belongings may not be covered as well as you would like. This product is no longer sold in many states due to its limitations.

Broad Form

HO-2, or broad form, policies offer the same protections as basic form with additional coverage included. Common additional causes of loss covered in broad form are building collapse and damage brought to heating, air-conditioning, plumbing and sprinkler systems. For additional premiums, broad form policies can be customized through endorsements to include a wide range of additional coverage to meet your needs and therefore are a popular product.

Special Form

HO-3, or special form, policies are the most common type of homeowners' insurance available. Unlike basic and broad form, special form covers all causes of loss except those which specifically are excluded by the policy. Special form also includes loss of use coverage, which pays for the living expenses you incur if your home is unlivable during repairs after a covered loss. There is also typically a no-fault medical coverage for minor injuries to guests at your home.

Replacement Cost

Homeowners' insurance property claims are settled in two ways: replacement cost (RC) and actual cash value (ACV). An RC settlement will buy new items to replace the damaged ones regardless of current market value, but an ACV settlement will depreciate the value of the damaged items based on age and condition at the time of loss. Special form policies are written as RC but basic and broad form policies are both ACV unless you purchase an RC endorsement.

Cost Comparison

As with all insurance, the price of the homeowners insurance policy you buy is related to the amount of coverage you receive. Special form policies are typically more expensive than basic and broad form policies because of the additional protection offered. You may find that the cost of a thoroughly endorsed broad form policy is similar to that of a normal special form policy.