What's the Difference Between Basic, Broad, and Special Form Insurance Coverages?
Insurance can be confusing. We are here to make it simple. When you're shopping for the best value for your personal or commercial insurance requirements, you may notice that some insurance coverages specify “basic” coverage, while others may offer “special” or “broad” coverage. The differences are significant and when trying to make an apples-to-apples comparison, you want to carefully consider your risks and the price.
Starting with the Basic Form of insurance coverage, a policy that offers basic peril coverage is ONLY going to cover the insured for named perils. That means, if an event that isn't actually named in policy happens, there's no coverage. You're on your own for any losses that aren't specifically named. The named perils covered in the Basic Form include the following:
Windstorm or Hail
Aircraft or Vehicle Collision
Riot or Civil Commotion
At first glance, it may appear that the list of basic form coverage will take care of just about anything that can happen. It isn't until you look at what a broad form offers that one begins to realize what's missing and why it's important to know what you're buying.
As probably anticipated, the Broad Form is more encompassing than the Basic Form coverage. The Broad Form is built to cover everything the Basic Form, and the most common perils expected. In the Broad Form insurance policy, you will also see the following coverages:
Falling Objects (like tree limbs)
Weight of Ice and Snow
Freezing of Plumbing
Accidental Water Damage
Artificially Generated Electricity
It's important to note that both Basic and Broad Form coverage policies only cover a specific set of named perils. In other words, if it's not named as a cause of loss, it's not covered.
The most expansive form of insurance coverage is Special Form. In policies that use the special form type of coverage, instead of the perils covered being listed, the EXCLUSIONS are listed. In other words, unless the policy states a peril isn't included, it's included and your potential loss is covered. Usually, but not always, the special form is the one you want to buy. This is especially so if you're not prepared to examine all the possible perils that may happen to your assets and evaluate the potential that they may happen in relation to the cost of coverage and your budget. Because it is more comprehensive coverage, many companies will require that your property has certain updates. Companies look for things like when the roof was replaced and when the plumbing, electric and HVAC systems were last updated.
Not everything is included in the Special form though. Depending on your location and type of risk, the exclusions may be highly material to you. For example, flooding is a common exclusion. That may not matter if you don't face a flood risk, but for many, it's the most important coverage you want. Common exclusions may include:
Ordinance of Law
One "sleeper" risk is earthquakes. Many people don't realize that they're close to a fault line because they haven't experienced an earthquake that they could feel. Chicago and New York residents may believe earthquakes only happen in the sunshine state of California, but they would be wrong. the New Madrid fault zone in the heart of America extends from Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri, and Tennessee. Chicago is included and just because it's sleeping, doesn't mean it's not going to wake up at any moment.
In 1968, an earthquake that was felt in 23 states and damaged property in Chicago and it's estimated that a chance of a magnitude of 6 or higher has a 90% likelihood of happening before 2055. The point being, that just because you think a risk is unlikely, doesn't make it so. It's very dangerous to simply assume based on personal experience that a risk isn't possible.
Flood insurance is another type of coverage that many dismiss without careful consideration. Most people wrongly believe they don't live or work within a flood zone. Because of updates in our ability to understand flood risk, locations are no longer considered within or outside of a flood zone. Any given location is rated based on its risk of flooding. That's a good thing because over 20% of property that becomes flooded wasn't considered within a flood zone previously.
If you have further questions about Basic, Broad, and Special forms of insurance, call our office and get the answers you deserve today.