Basic vs Special Form Insurance Coverage: How to Choose the Right Property Policy

If you’ve shopped for property insurance before, you may have noticed that some policies list Covered Losses as Basic, while others specify Broad or Special. The differences between these three property insurance coverages are significant. It is important that you consider more than just the cost of the policy option before you choose which coverage form is best for you.  

NREIG offers either a Basic or Special coverage form option. The broad form is not offered nearly as often, but we will discuss it as well.  

Summary

• Basic Form coverage protects only against specifically named perils and is generally the least expensive option, but it excludes several common and potentially costly risks such as theft and water damage.
• Broad Form coverage offers limited additional protection beyond Basic Form by including a small number of extra named perils; however, it is less commonly used because the cost savings compared to Special Form coverage are often minimal.
• Special Form coverage provides broader protection by covering all risks unless they are specifically excluded, resulting in more comprehensive coverage at a higher premium.

Basic Form Coverage

Basic coverage is a “Named Peril” policy, which means that for a loss to be covered, the peril must be listed by name on the declarations page. In addition, you carry the burden of proving that a loss was caused by an included peril. 

Basic Form is typically the cheapest of the three coverage options. Depending on the carrier, this coverage form can save you approximately 25-30 percent per year. However, a Basic Form policy does not include the following perils: 

• Collapse  
• Falling Objects 
• Theft (This includes things you own, such as air conditioning units or copper pipes, not your tenants’ belongings.) 
• Weight of Ice, Sleet, or Snow 
• Water Damage (Most known as coverage for frozen and burst pipes)  

Broad Form Coverage

Broad Form is similar to Basic in that it is also a “Named Peril” policy. The coverage provided by Broad Form includes the same perils as Basic, plus all of the bullets above except Theft. We do not typically offer this type of coverage because the cost savings it provides are usually not enough to make sense to purchase. You would save around 10% compared to Special Form. In most cases, for the additional 10%, it is a better option to go ahead and purchase Special Form.  

Special Form Coverage

Special Form coverage is the most comprehensive and in turn, the most expensive insurance coverage form you can purchase. It is considered “All-Risk” coverage, meaning that unless there are specific exclusions listed within the policy, then coverage is afforded to you in the event of a loss. The burden of proof falls on the insurance company to prove that the policy specifically excludes the peril that caused the loss. There are standard exclusions that come on every Special form policy (some of which can be purchased as an endorsement or stand-alone policy and others cannot), these are: 

• Mold & Fungus 
• Wear & Tear 
• Sewer & Drain Backup 
• Earth Movement (including earthquakes and sinkholes) 
• Flood 
• Intentional Tenant Damage 

Be sure to review your exclusions and endorsements pages to make sure no other exclusions have been slipped into your policy. Many insurers often exclude Theft.  

See the table below for a comparison of NREIG’s Basic and Special Form coverage options.

Consider the following when choosing your insurance coverage form:

• Is the property in an area where the weight of ice, sleet, or snow and water damage is high risk? If not, Basic Form might be a better option. 
• For a flip, will the property still be in my possession when the temperatures get cold? If not, Basic form might be a better option. 
• Is Theft coverage a concern? If the location is occupied, then that threat should be diminished. As you can imagine, theft most often occurs at vacant locations.  
  • If the location is a flip or undergoing renovation, will there be enough owned materials and appliances at the location for carrying Theft coverage to make sense? Keep in mind that your policy does not cover your general contractor’s tools and materials. 

There can be up to a 30% price difference between Basic, Broad, and Special policy forms. It is up to you to determine if the additional exclusions associated with the cheaper coverage forms are worth the risk.