Common Misconceptions of What is Covered under Your HO3 Homeowners Policy
Posted in: Personal Insurance
Have you ever been a victim of theft, or perhaps one of your favorite possessions mysteriously disappeared? Both can be financially and emotionally devastating experiences, especially theft, which can leave you with a feeling of having your privacy completely invaded.
I found during my many years in the insurance industry that most people are not adequately familiar with the coverage and limitations of their homeowner’s insurance until something happens and they need to file a claim. I feel it is important to understand the terms and conditions when purchasing a new policy or changing an existing policy to ensure protection for various types of losses of your personal property.
In this blog, I will explain what you should know about your homeowner’s policy, as well as share a key takeaway to protect yourself from the most common types of loss including theft, mysterious disappearance and accidental breakage/damage of your valuable possessions.
To start, let’s review the basics of homeowner’s insurance:
Depending on your specific need, there are different levels of protection you can purchase, ranging from basic (HO3 insurance) to “all-risk” coverage (HO5 insurance) of your possessions.
Internal Limit Coverage
Most homeowners purchase an HO3 policy, which covers your personal property for physical loss or damage caused by 16 perils, such as fire, vandalism, and theft to name a few, with certain conditions and exclusions. Under this policy, there is also an internal limit of coverage on some valuables and collectibles, such as sterling silver, jewelry, fur, money, coins, firearms, and stamps, which means that if you lose or damage any of these types of possessions you would only be covered up to a predetermined limit.
Accidental breakage/damage and mysterious disappearance (lost, misplaced) of your valuables including fine art and antiques are not typically covered by an HO3 policy. To help demonstrate how these terms apply in real life, I’ve selected three scenarios** – theft of an item with internal limit coverage, accidental breakage/damage, and mysterious disappearance – depicting common situations I’ve seen during my career.
Theft – Martha inherited a nice set of sterling silverware from her grandmother, which was worth over $10,000. Shortly after receiving the silver, her house was burglarized and all of the silver was stolen. She assumed her HO3 policy would cover the loss fully; however, she was only reimbursed for $5,000, which was the policy’s internal maximum limit for sterling silver.
Mysterious Disappearance – Peter proposed to his fiancé Caroline with a $25,000 engagement ring during a romantic weekend at the beach. After they got home Caroline noticed that her ring was missing. Peter was not fully aware of the terms of his standard HO3 insurance coverage, so he did not schedule additional protection at the time of purchasing the ring. Although his internal limit of homeowner’s policy would have protected jewelry up to $1,500 for theft, since this was a mysterious disappearance case, he was not covered at all.
Accidental Breakage of Fine Art & Antiques – Keith and Mary purchased an expensive oil painting at an auction, which they hung over the fireplace mantel. One day while in the kitchen, Mary heard a loud noise and rushed into the living room to find the painting on the floor with broken glass everywhere and a tear in the canvas. Unfortunately, they did not realize that accidental breakage of contents was not covered by their standard (HO3 policy) homeowner’s policy.