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The Limits of the HO3 Insurance Policy: When Should You Consider Personal Articles Floater?

The insureds do not always have a full understanding of the HO3 insurance policy they buy. A survey by showed 400 out of 1000 respondents admitted to not knowing how the property insurance works.  

How many insureds have you encountered who expect the HO3 to cover their stolen valuables, only to get a rude awakening when the coverage falls woefully short?    

It falls on you as an agent to help them understand the coverage, prices, and advantages of the plans.      

The topic we will cover today will affect most of your clients: The Special Limits of Liability of an HO3 insurance policy and, why you should consider adding a Personal Articles Floater to their insurance plan.      

HO3 Insurance Policy Concerns  

The opportunities for unendorsed HO3 insurance policy are vast and can confuse young insurance agents. If you want to give the best to your clients, you should be careful. After all, if the homeowners don’t get the best solutions, coverages in the event of a loss might fall short.  

You might even lose your client.   

More importantly, you could find yourself with an errors and omissions claim.

According to the IIABA, homeowners’ insurance alone drives 12% out of 29% of personal lines E&O claims against independent agents. This indicates that providing better protection for your client’s valuables will avoid accusations of advice omission.  

misconception most clients have is that their HO3 insurance policy adequately covers their personal property.  

HO3 insurance does provide content coverage under coverage C. But if you investigate the HO3 insurance policy, there are always certain sub-limitations detailed in the plan (in fine print).       

The HO3 insurance policy explicitly limits theft coverage for personal belongings like jewelry, computers, and money.  

Typically, the HO3 policy restricts the loss of jewelry, watches, and furs for theft anywhere from $1000 to $2500 depending on the carrier or state. Additionally, there will be no coverage for jewelry if it gets lost on vacation.     

If you do not help them understand this sub-limit, their personal belongings might practically be uninsured when compared to its value. 

Similarly, the standard HO3 insurance policy provides a broad form of coverage for personal property, i.e., the provision for coverage is on named perils. It shows that the HO3 does not cover all risks.

Quick fixes      

You can quickly fix these problems by adding endorsements. In the first case, you could add a scheduled personal property endorsement to the HO3 insurance policy. However, it always costs extra premium for add-ons.    

On the other hand, when your clients want full protection for their contents, you could opt for adding an endorsement.  Specifically, the one that provides coverage on an “all-risk basis” instead of named perils.

These fixes sound smooth and substantial, and most of the time, they are. But when it comes to the contents that are in the HO3 insurance policy’s special limits of liability, you must be careful. 

Otherwise, the coverages will fall short in case of theft, and your client will suffer. 

Pro Tip

A named-perils policy only covers the risks explicitly noted in the policy. If vandalism is not in the plan and your insured’s place gets vandalized. The carrier will not be liable for any coverages.

It’s the opposite in an all-risk or open peril policy. Only the exclusions mentioned in the plan are not covered; otherwise, all risks have coverage.

HO3 Policy Solutions

Have you been tackling your client’s concerns properly?

Adding an endorsement to increase the HO3 insurance policy limits might seem like a job well done since the coverage for jewelry, watches, watercraft, banknotes, increase slightly. But this does not mean that the plan is entirely foolproof

You need to help your client understand the limits on the HO3 insurance policy you are proposing and address these carefully.       

You can see that the limits will vary when you sort through each item.  

For example, the coverage limit provided by carriers for money, banknotes are $200 to $2500. Subsequently, the ceiling for theft of watches, furs, and jewelry is from $1500 to $10000.       

You can see that these ranges are too wide not to take note. It will result in unfavorable outcomes in case of an event of loss or theft.    

Remember, it’s not just about the money! Personal articles have sentiments attached as well. 

Besides, some carriers do not have provisions for increasing the limit. You will need to consider these options when you discuss them with clients.     

True, it might be dull work to review all the possible limitations of the HO3 insurance policy with your clients.  

detailed sales presentation, including special limits, will make it easier for both prospects and the agent.  

A sales presentation reminds the agent to mention inside limits of theft and additional restrictions of other items for every cause of loss. It makes it easier to ask questions to engage the prospects as well. 

If you were to have a total loss, could you replace all the computers and their peripheral equipment for $3,000?

Would $5,000 be enough? Ok, let’s increase this to $10,000.   

No, your daughter’s laptop at school should be covered on its own policy/endorsement, so it has coverage away from your home for more causes of loss.  

Ask them if they feel like any of the limits are inadequate, and address the issues accordingly.

Personal Articles Floater

Is it worth buying a seperate policy?

Let’s assume that you have a new prospect for the HO3 insurance policy you have proposed. Still, there are some concerns with a few personal belongings, especially the jewelry limitation.       

How do you address this concern?     

First, offer to schedule an endorsement. Most insurance carriers allow you to increase the limits for these items, but with additional premium.       

Cross-check with your insurance carriers to be familiar with the solutions they might be able to offer. It is an advantage for independent agents since they have many carriers in their book to review.     

Don’t rely entirely on the HO3 insurance policy because they might not always be adequate.  

When in doubt, schedule the jewelry items on a Personal Articles Floater. 

What is Personal Articles Floater?

The Personal Articles Floater is an all-risk insurance policy. It takes its name from the fact that the policy “floats” with the property owned wherever they go.  

It doesn’t matter if your insured’s ring gets lost in their bedroom or a hotel room in Alaska, it will still be covered.     

Suppose your client’s ring falls down the drain while washing dishes. If they only had an HO3 insurance policy, they won’t be eligible for any claim.  

However, if they have separate personal articles floater policy for the ring, the ring is fully covered. Then, the client can contact you for a claim settlement.  

Also called an Inland Marine policy, the personal articles floater provides more coverage for belongings than a standard HO3.       

Among all perils, the personal articles floater covers fire, cyclone, explosion, vandalism, theft, mysterious disappearance, and breakage 

However, the personal articles floater won’t provide for losses that occur from normal wear and tear and mechanical breakdown.   

Pro Tip

Read up about the division of property in a Personal Articles Floater.  

A standard procedure in the personal articles floater is to divide the property into scheduled and unscheduled features.     

Unscheduled items are the general things that don’t need to have a set value attached to them. For instance, you can group silverware, pots, clothing, and other materials together.    

For specific and valuable objects like a painting or family heirloom, scheduling is the best option. Instead of being clustered into one category, they will specifically be covered in the personal article.

So next time you have a client looking for an HO3 policy, suggest a Personal Articles Floater for their valuables, if necessary, instead of relying on luck.     

Do you agree with our suggestions? Did we miss something out? Comment below and let us know!