What Is An HO-4 Insurance Policy?

According to the Rental Housing Journal, only 41% of all renters have insurance for their belongings and personal liability. Considering the average annual premium of an HO-4 policy was $173 in 2020, it is a policy that I always recommend purchasing. For less than $15 a month, customers can protect their personal property from events such as fire, theft, and windstorms, as well as mitigate financially devastating lawsuits.

As an industry veteran, I have observed that most renters don’t understand the benefits of an HO-4 policy or how inexpensive it is compared to the coverage provided. It is purchased most often because a landlord is requiring it as a condition of their lease. Hopefully, by the end of this reading, you will be thoroughly convinced to purchase this often-overlooked, but worthwhile policy.

What is HO-4?

An HO-4 policy is the name of the insurance form that offers protection for renters. You may hear it referred to more commonly as a renters policy. It primarily provides coverage for a renter’s personal property and liability.

This type of policy can be purchased directly through a company or through an insurance agent. You simply specify the amount of coverage you need for your belongings, usually rounded to the nearest thousand, and the amount of liability you would like to purchase. If you suffer a covered loss, you can file a claim up to the amount of coverage purchased.

What Does HO-4 Cover?

A renter’s policy has four primary coverages; personal property, loss of use, liability, and medical expenses. Each of these coverages is described below.

• Personal Property – Anything a customer can pick up and take with them is generally considered their personal property. This coverage is usually specified as Coverage C on a renter’s policy and is the main driver of the premium. A customer chooses the limit they would like to carry and coverage is provided worldwide!
• Loss of Use – This coverage, seen as Coverage D, pays for any additional living expenses a customer may incur after suffering a loss where the home is uninhabitable. For example, if there is a fire and your home is being repaired, this coverage will pay for you to stay in a hotel and for additional expenses related to eating outside of the home. Loss of use coverage is often a percentage of the personal property limit.
• Liability – Liability is listed as Coverage E and pays for any bodily injury or property damage for which you are legally responsible. Limits usually start at $100,000 and can be increased up to $750,000 or higher. An example of this coverage in action would be if your dog bit a neighbor and caused injury. Your liability coverage pays for your neighbor’s medical bills in addition to any legal fees if you were sued as a result.
• Medical Expenses – While liability pays for the damage for which you are legally responsible, medical expenses (Coverage F) cover situations for which you may feel morally obligated. For example, if a friend trips and falls at your home and is injured, you could use this coverage to pay for their medical bills. The limits for medical are much lower than liability, starting at $1,000 and going only as high as $10,000.

The above coverages are what an insurance company would pay for in a loss. However, the events that would trigger a payout under these limits are called “perils.” An HO-4 policy has 16 specific named perils for which coverage would be provided:

• Fire or Lightning
• Riot or Civil Commotion
• Smoke
• Volcanic Eruption
• Sudden and Accidental Damage Due to Short-Circuiting
• Sudden and Accidental Discharge/Overflow of Water or Steam
• Windstorm or Hail
• Aircraft
• Falling Objects
• Cracking, Bulging
• Vandalism
• Explosion
• Vehicles
• Theft
• Freezing
• Weight of Ice, Snow

Any losses to your personal property caused by something other than these 16 named perils are not covered by your renters’ policy.

What Does HO-4 Not Cover?

In addition to the events not specifically named as covered perils, there are also some exclusions on an HO-4. Exclusions are events that insurers will not cover typically because another policy can be purchased for this type of loss, or the loss would be too catastrophic for any insurance company to cover. Here are some common examples:

• Flood
• Earthquake
• War
• Nuclear Accident
• Mudslide
• Sinkhole
• Intentional Damage to Your Property

Renters policies will also not cover structural damage to the building or anything attached to it, as this is the responsibility of the landlord.

Where Can You Find HO-4 Insurance?

HO-4 policies can be found mostly anywhere personal lines insurance policies are sold. They can be purchased through an insurance agent or through an insurer directly. Many times, they can even be purchased online with a few clicks!

Who Needs It?

Unlike auto insurance which is mandatory to purchase if you own a car, renters insurance is not required if you’re renting a home. Occasionally, landlords may ask for a renters policy as a contingency of your lease, but it is not mandated by the state. Despite not being required, I recommend every renter purchase an HO-4 policy.

Consider the following facts:

• There are 2.5 million burglaries in the U.S. each year
• House fires caused $6.9 billion in property damage over a five-year period
• Damages from weather-related events in 2022 totaled $165.1 billion.

For less than $200 annually, renters can protect their property from the very real risks the above events pose. This is in addition to the protection they also get from potential lawsuits via the liability coverage on an HO-4. For the peace of mind these policies afford, it is worth every penny.

HO-4 Policies: Actual Cash Value vs. Replacement Cost

Another consideration one must make when purchasing an HO-4 policy is the loss valuation. When a covered loss occurs, the insurance company must determine the value of the property damaged and how much to pay. Insurers generally offer two different ways to value the property; actual cash value and replacement cost.

Actual cash value means the property will be valued at what it costs to replace minus depreciation. For example, if you have a 10-year-old television that is damaged, your insurance company will pay you the amount that a 10-year-old television is worth today.

You may have paid $500 for it ten years ago, but if it’s only worth $150 today, that is the amount the insurer will pay to replace that television.

Replacement cost, however, means there is no deduction for depreciation. Using the same scenario above, if a similar make and model television can be purchased today for $1,000, that is the amount the insurance company will pay to replace it. Insurers will typically give you the option of adding replacement cost for your property onto your policy for an additional fee.

How Much Does it Cost?

Like homeowners insurance, the cost of a renters policy will depend on many factors. Some of these factors are the location of your residence, your prior claims history, discounts, and the coverages you choose.

The deductible amount will also affect your price. Similar to any other policy, the higher the deductible, the lower the price of your policy.

Your personal property limit will be one of the main drivers of the price. The more coverage you carry, the more expensive the policy will be. Here are some examples of common coverage limits and the corresponding average annual premium of an HO-4.