A column on personal finance prepared by the Virginia Society of Certified Public Accountants


(September 23, 2003) – If an animal damages your home while you are away on vacation, will your homeowners insurance cover it? If you have an HO-3 homeowners policy, the answer is yes – unless the animal is a rodent or a pet that you own. This example highlights some of the complexity of homeowners insurance. According to the Virginia Society of CPAs, policies vary widely in the perils covered and premium rates. Read on to learn more about the types of insurance available to you and what specific policies do and don’t cover.

Types of Homeowners Policies

HO-1 (Homeowners One) policies are the most basic. They cover your home and personal possessions against specific types of damage, including fire and lightning, windstorms and hail, explosions, riots and civil commotion, damage from vehicles, and theft. If a “peril” is not listed, you are not covered. Some states are phasing out this type of policy.

HO-2 (Homeowners Two) policies are similar in that they specify the perils covered. With an HO-2 policy, in addition to insuring your home against the same perils in HO-1 policies, you’re also covered for damage from falling objects, the weight of ice, snow, or sleet, building collapse, accidental discharge or overflow of water or steam, the explosion of steam or hot water systems, frozen plumbing, and artificially generated electricity.

HO-3 (Homeowners Three) is the most comprehensive and popular plan because it covers all the risks associated with owning a home except those specifically excluded by the policy.

What’s Not Covered

Be aware that even broad coverage HO-3 policies have a number of important exclusions. Understanding these exclusions can help you to determine what supplemental coverage or endorsements may be needed. For example, coverage against floods or earthquakes has to be purchased under a separate insurance program.

The following perils are examples of those not covered by any of the three standard homeowners policies:

A hurricane floods your home – A standard policy does not cover damage that results from floods, waves, sewer overflows, or water seeping into your basement. Flood insurance is offered by the federal government under a program called the National Flood Insurance Program. Your lender or your insurer can determine if your home needs flood insurance coverage.

An earthquake damages your prized collection of Italian pottery – Earthquake coverage is sold as additional coverage to the policy. The California Earthquake Authority (CEA) issues policies for California residents, who buy most of the earthquake insurance in the U.S. The CEA uses a tiered system, charging higher rates for homes located close to a fault line.

Termites destroy your home’s foundation – Homeowners insurance policies do not cover damage caused by termites, mice, rats, or other rodents because the damage occurs over time and isn't the result of a “sudden and accidental” event. Other “wear-and-tear” type damage that occurs over time and is not covered includes settling, cracking, or expansion of pavement, walls, or foundation.

Your business computer is destroyed by a fire – If you’re involved in a home-based business, your policy does not cover damage to your business equipment. It also does not provide liability coverage in the event a client or customer is injured on your property. However, special coverage for your business may be available as an endorsement to your policy.

Your tenant’s TV and stereo equipment is stolen – Your policy does not cover you for damages or injuries suffered by tenants who rent any part of your home. Your tenant must have renter’s insurance for such coverage.

A nuclear power plant explodes and irradiates your home – Nuclear accidents are a standard exclusion on all homeowners’ policies. The same is true of acts of war. If a foreign army invades your home, the damage is not covered.

The high humidity in your basement has caused mold growth on your carpeting – Damage from mold caused by excessive humidity, leaks, condensation, or flooding is a maintenance issue that is specifically excluded in the standard homeowners’ policy. Mold is covered only if it is the result of a covered peril. For example, the cost of cleaning up mold caused by water from a burst pipe may be covered.

Protecting Your Home

CPAs emphasize that the best way to educate yourself about your homeowners insurance is to read your policy carefully. Determine whether your level of coverage is for the actual cash value, replacement cost or guaranteed or extended replacement cost. The latter provides the most protection. Ask your agent or CPA for further information.

The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at

Lifetime Financial Planning, LLC

Dean Knepper, CPA, CERTIFIED FINANCIAL PLANNER™ professional

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