Understanding the HO 04 56 Special Loss Settlement Endorsement

If you own an older home in Massachusetts—especially in coastal or high‑risk areas—you’ve likely run into the challenge of high rebuild costs that far exceed your home’s market value. Insuring the home at full replacement cost can feel unrealistic, yet you still want solid protection for the types of losses you’re most likely to experience.

This is where the HO 04 56 Special Loss Settlement Endorsement comes in. It’s a powerful but often misunderstood tool that can make homeowners insurance more affordable while still providing meaningful protection.

What the HO 04 56 Endorsement Does

The HO 04 56 endorsement allows you to insure your home for a reduced percentage of its replacement cost—often 50%, 60%, or 70% instead of 80–100%—while still receiving replacement cost payouts for partial losses. This is especially helpful when a home’s market value is significantly lower than its rebuild cost, or when full replacement cost premiums are out of reach.

In short, this endorsement gives homeowners flexibility while maintaining strong day‑to‑day protection.

How It Differs from Standard Replacement Cost Coverage

With a traditional policy, you must insure your home near its full replacement value to qualify for replacement cost payments. HO 04 56 changes that:

• You may insure your dwelling for less than its full rebuild value.
• Partial losses are still paid at replacement cost.
• Total losses are settled on a percentage basis tied to your Coverage A limit.

This makes HO 04 56 especially useful for older homes and properties in areas with high construction costs.

Why Homeowners Use HO 04 56

This endorsement is commonly used when:

• Your home’s replacement cost far exceeds its market value.
• You want to reduce premiums without switching to an actual cash value settlement.
• Local requirements—such as those in the Massachusetts Property Insurance Underwriting Association (MPIUA)—might otherwise force your policy into a less favorable settlement method.

What the HO 04 56 Costs

One of the biggest questions homeowners ask is, “How much does this endorsement add to my premium?” The answer depends on your insurer, home, and chosen coverage level.

Unlike flat‑fee endorsements, HO 04 56 affects how your entire dwelling is rated. Because it modifies your loss settlement terms, insurers typically adjust your premium accordingly. The cost depends on factors like:

• Your insurance company’s underwriting rules — Each carrier treats the endorsement differently, which affects how much is added to your premium.
• The percentage of replacement cost you choose — Insuring at 50% vs. 70% can change the pricing impact.
• Your home’s replacement cost — Higher rebuild values may lead to a larger premium adjustment.
• Type of premium change — Some insurers apply an endorsement charge, while others adjust the base premium.

There’s no standard nationwide cost for HO 04 56. In practice, the only way to know the exact price for your home is to request a quote or comparison from your agent.

Is HO 04 56 Worth It?

This endorsement often makes sense if your home:

• Has a replacement cost much higher than its market value
• Is located in a high‑risk or high‑cost construction area
• Would be underinsured under standard requirements
• Would otherwise default to actual cash value settlement

If full replacement cost coverage is financially out of reach, HO 04 56 can offer a practical middle ground—providing strong protection for partial losses while keeping premiums manageable.

Want to Know Your Personalized Cost?

Understanding HO 04 56 is a great start. But knowing what it costs for your specific home—given your rebuild cost, carrier, and location—is what really matters.

That’s why it’s important to request:

• A side‑by‑side premium comparison (with vs. without HO 04 56)
• Clarity on how the endorsement affects your Coverage A limits
• A breakdown of your partial and total loss risk under each option

Our team at Vargas & Vargas Insurance is here to walk you through it. Visit www.vargasinsurance.com or reach out to review your current policy and see whether HO 04 56 is the right fit for your home and your budget.