If you are shopping for insurance or comparing different options, it could be helpful to know the difference between different level of coverage you might see on policies or quotes. While most preferred Homeowners policies are quoted and written on a more standardized basis, there can be big differences of coverage especially on rental homes, vacant homes, mobile homes, secondary and seasonal residences.
The insurance industry uses the terms “Basic, Broad and Special Peril” to refer to what property is insured against, sometimes adding a fourth option “Limited Perils”. These options define what “perils”, or causes of loss, are covered under the policy. In other words, what could happen to your property that the policy would cover.
A “Limited Peril” coverage form is usually the most restrictive coverage package option you will see. It is offered by a few insurance carriers, often to apply to specific buildings or property. It typically covers the following causes of loss:
A “Basic Peril Policy” is also often known as a HO-1 or a DP-1. It typically covers Perils 1-7 listed above, plus the following causes of loss:
8. Volcanic eruption
9. Vandalism or malicious mischief
Sometimes peril 9 is not included, or it may be an optional coverage that must be purchased for additional premium, depending on the policy. Some Basic Peril policies might also cover peril 10 below, along with glass breakage and sinkhole collapse.
A “Broad Peril Policy” (aka HO-2 or DP-2) covers Perils 1-9 shown above, plus the following additional perils:
10. Burglary and/or theft (see below)
11. Falling objects
12. Weight of ice, snow or sleet (for example, too much snow builds up on your roof and it caves in)
13. Accidental discharge or overflow of water or steam (think a water line springs a leak and causes water damage)
14. Sudden and accidental tearing apart, cracking, burning or bulging (think your water heater explodes and causes water damage)
15. Freezing (for example, your furnace suddenly stops running while you are on vacation and your pipes freeze, causing water to run free and damage your home)
16. Sudden and accidental damage from artificially generated electrical currentPeril 10 (burglary and/or theft) varies depending on the policy; it might cover just the damage to the home caused by burglars or it might just cover stolen property. It might be optional or not included. It might require an additional premium charge.
Some policies might include restricted collapse coverage under Broad Perils.
“Special Peril” coverage provides coverage in a different way. Instead of naming a list of perils that are covered, it covers all risks of direct physical loss unless such loss is specifically excluded. So while Special Peril coverage generally covers all 16 of the perils listed above, it can go far beyond that. It shifts the burden of proof from you (to show that your loss was caused by one of the perils listed above) to the insurance company (to point out where in the insurance policy the loss is specifically excluded).
If you buy Limited, Basic or Broad peril coverage, your coverage will be known as “Named Peril”, because your policy is only covering perils actually specifically named in the policy. However, if you buy Special Peril coverage, this is often called “Open Peril”, because the policy is open to cover any peril unless specifically excluded.
Coverage most frequently sold
Most preferred Homeowners policies provide Special Peril coverage for the dwelling and other structures and feature Broad Peril coverage for personal property. This kind of policy is often referred to as an “HO-3 policy”. If you are shopping for coverage for your primary residence and it is considered a preferred risk, most of the quotes you receive will probably be for this type of coverage.
Some Homeowners policies go beyond the standard “HO3” level to also provide Special Peril coverage for your personal property, as well as your dwelling and other structures. This type of policy is usually referred to as a “HO-5 policy” and is the best coverage you can purchase, as it relates to protection against causes of loss.
As mentioned above, some types of policies are more likely to provide only Limited, Basic or Broad coverage. We’ll often see these levels of coverage on older mobile homes, homes in poor condition, vacant homes, seasonal homes, some rental homes, as well as homes which for some reason don’t qualify for more preferred coverage.
While there is a certain amount of standardization in covered perils between policies, there can also be some differences. This means that your policy might vary from what I've detailed here. Most insurance policies number covered perils as I have done in this post. However, numbering can vary between policies and levels of coverage, so the numbering might not match up to your policy.
Ken Cobb is owner of Pine Country Insurance and has been active in the insurance industry for over 15 years. Meet Ken.
Coverage descriptions found in this blog are summaries provided for general educational purposes and cannot fully detail the terms, conditions, limitations or exclusions of a specific insurance policy. Please read your policy carefully.