1. Forms
2. HO
3. HO-04-20

What the form is

The HO 04 20, titled "Specified Additional Amount Of Insurance For Coverage A – Dwelling," is an endorsement to a homeowners insurance policy. Its primary purpose is to provide an extra layer of protection for the dwelling (Coverage A) by increasing the coverage limit by a specified percentage, such as 25% or 50%, over the amount listed in the policy declarations. This additional amount becomes available if a covered loss to the dwelling exceeds the primary Coverage A limit. It is designed to give homeowners a buffer against underinsurance due to unforeseen circumstances.

Classes of business it applies to

This endorsement is used with personal lines homeowners insurance policies, specifically forms like HO 00 02 (Broad Form), HO 00 03 (Special Form), and HO 00 05 (Comprehensive Form). It is intended for owner-occupied dwellings.

Real-world examples where this form would be beneficial include:

• A homeowner is in the middle of a significant renovation or addition to their home. If a major loss occurs before they have officially increased their Coverage A limit to reflect the new value, this endorsement could provide the necessary extra funds.
• In an area experiencing a sudden surge in construction costs due to high demand (e.g., after a natural disaster affecting a nearby region) or material shortages, the cost to rebuild could unexpectedly exceed the existing Coverage A limit.
• If a home is destroyed and the debris removal costs are higher than anticipated, or if new building codes require more expensive construction methods, this additional amount can help cover those extra expenses related to the dwelling.

Special considerations

Important points to note about the HO 04 20 include:

• Not Automatic: Unlike an inflation guard endorsement which automatically adjusts coverage limits annually based on an inflation index, the HO 04 20 provides a fixed additional percentage that is chosen by the insured at the time the endorsement is added.
• Insuring to Value: Typically, the insured agrees to maintain their primary Coverage A limit at 100% of the dwelling's replacement cost. They may also be required to notify the insurer of any alterations or additions that increase the dwelling's replacement cost by a certain threshold (e.g., 5%).
• Rebuilding at a New Location: If the insured decides to rebuild their home at a new location after a total loss, the replacement cost coverage provided by this endorsement (and the base policy) might be limited to what it would have cost to rebuild on the original premises.
• Coverage A Specific: This endorsement specifically increases the limit for Coverage A – Dwelling. It does not automatically increase the limits for Other Structures (Coverage B), Personal Property (Coverage C), or Loss of Use (Coverage D) in the same way that an endorsement like HO 04 11 (Additional Limits of Liability for Coverages A, B, C, and D) might.

Key information for agents and underwriters

For insurance agents and underwriters, the HO 04 20 presents several practical insights:

• Risk Assessment: Agents should recommend this endorsement to clients who are undertaking renovations, live in areas prone to construction cost volatility, or simply want an extra cushion of protection for their dwelling. It's a proactive measure against potential underinsurance.
• Pricing: The premium for this endorsement is typically calculated by applying a factor to the base policy premium. The factor varies depending on the additional percentage of coverage selected (e.g., the factor for a 50% additional amount will be higher than for 25%).
• Underwriting Guidelines: Underwriters should verify that the base Coverage A limit adequately reflects the dwelling's current replacement cost before adding this endorsement. The endorsement is meant to provide an *additional* amount, not to make up for a significantly deficient base coverage.
• Coverage Gaps: It's crucial for agents to explain that this endorsement is not a substitute for regularly reviewing and updating the primary Coverage A limit to keep pace with inflation and improvements. It is a supplemental coverage for unexpected shortfalls.
• Documentation: The percentage of additional insurance selected should be clearly indicated on the endorsement schedule or the policy declarations page.