8 Types of Homeowners Insurance Policies to Know

Homeowners Insurance Policies

For every homeowner, acquiring homeowners insurance is a crucial step towards safeguarding their property and incurring unforeseen expenses. If you’re exploring the market for homeowners insurance, you may be inundated with numerous questions. What is the coverage you need? What influences the cost of coverage? What impact would home renovations have on your premium?

One important question to consider is, what type of homeowners insurance policy do you require? In this article, we’ll guide you through the main categories of homeowners insurance policies and elucidate their key differences. We’ll also offer tips to help you identify the policy you need.

Various Forms of Homeowners Insurance

As you browse for insurance, you may come across eight “standard” homeowners insurance policies. These policies are numbered 1-8, each offering diverse types and levels of protection. The most common among homeowners are likely to be HO-3 or HO-5.

Key Homeowners Insurance Terms:

  • Named peril: This term indicates damage or loss caused by an event explicitly mentioned in the policy.
  • Replacement cost: This is the estimated cost it would take to replace a certain item, like your home or personal belongings.
  • Actual cash value: This is the value of an item after accounting for factors like depreciation. It is typically lower than the replacement cost.

1. HO-1: Basic Form

Characteristics: HO-1 insurance, also referred to as basic form homeowners insurance, is the most fundamental form of homeowners insurance out there. With an HO-1 policy, your home will typically be covered at its actual cash value. Personal belongings can be covered by HO-1 policies, but this is not always the case.

Coverage: HO-1 policies generally provide coverage only for damage or loss caused by 10 specifically named perils:

  • Fire or lightning
  • Windstorm or hail
  • Explosion
  • Riot or civil commotion
  • Aircraft
  • Vehicles
  • Smoke
  • Vandalism and mischief
  • Theft
  • Volcanic eruptions

Suitability: Given the minimal coverage these policies provide and their exclusion of some rather common events, many insurance carriers no longer offer these policies. HO-1 insurance isn’t recommended for most people.

2. HO-2: Broad Form

Characteristics: HO-2 insurance, also known as broad form homeowners insurance, provides coverage for a broader variety of perils compared to an HO-1 policy. HO-2 policies will typically cover your home at its replacement cost. Personal property will be covered at its actual cash value.

Coverage: An HO-2 policy will usually cover everything that is covered by an HO-1 policy, plus additional coverage for perils such as damage caused by:

  • The weight of ice or snow on a structure
  • The accidental overflow or discharge of water or steam
  • Freezing
  • Cracking or bulging caused by a sudden and accidental event
  • Accidental discharge from an artificially generated electrical current (i.e., a power surge)
  • Falling objects

Suitability: While HO-2 policies are more common than HO-1 policies, they are still less common than HO-3 and HO-5 due to the limited coverage they offer.

3. HO-3: Special Form

Characteristics: HO-3 coverage is the most common type of homeowners insurance. It is also known as special form coverage. Under HO-3 insurance, your home will typically be covered at its replacement cost, while your personal property will be covered up to its actual cash value.

Coverage: Compared to HO-1 and HO-2 policies, HO-3 provides coverage against a much broader number of perils. This is because while HO-1 and HO-2 policies only provide coverage against certain named perils, an HO-3 policy will provide coverage for your home against damages caused by any peril except for those specifically excluded in the policy.

Suitability: This type of policy will be a good option for most homeowners. No wonder it is the most commonly held homeowners insurance policy!

4. HO-4: Contents Broad Form

Characteristics: HO-4 is more commonly known as renter’s insurance. As such, HO-4 policies are specifically designed for those who are renting or leasing an apartment, home, or condo.

Coverage: Renter’s insurance essentially covers a renter’s personal property (at its replacement cost) against the same named perils found in an HO-3 policy. Renter’s insurance will also typically cover your living expenses if your rented home becomes unlivable due to damage caused by a named peril.

Suitability: If you’re renting an apartment, condo, or house, then this is the policy for you!

5. HO-5: Comprehensive Form

Characteristics: HO-5 insurance, or a comprehensive policy, is often considered to offer the highest level of coverage for single-family homes. It is in many ways similar to an HO-3 policy, but with added protection and a few key differences.

Coverage: Under an HO-3, only your home is insured at its replacement cost, while your personal belongings will be covered at their actual cash value. An HO-5 covers both your home and personal belongings at their replacement cost.

Suitability: Because of the higher coverage limits offered by an HO-5 policy, this is a good choice if you have a lot of high-value personal property in your home, or if you simply want as much coverage as possible.

6. HO-6: Unit-owners Form

Characteristics: An HO-6, also known as condo insurance or unit-owners insurance, is a special type of policy designed for those who live in either a co-op or condominium.

Coverage: In most cases, the condo association will hold HOA insurance, which will typically cover the condo building itself and certain shared areas. While each HOA policy will vary in exactly how much (and what) it covers, you as the unit owner will need to purchase coverage for anything that the HOA does not insure.

Suitability: If you own a condo or co-op unit, then you’ll most likely need HO-6 coverage. If you rent one of these units, then you will need renters insurance (HO-4).

7. HO-7: Mobile Home Form

Characteristics: An HO-7 is essentially designed to provide the same coverage offered by an HO-3 policy, but for a mobile home. This is because mobile homes aren’t covered under an HO-3 policy, which is designed for a single-family home. These policies are also known as mobile home policies (MHP).

Coverage: HO-7 policies can provide coverage for a variety of structures, including:

  • Single- and double-wide manufactured homes
  • Single- and double- wide mobile homes
  • Trailers (including travel trailers and fifth-wheel trailers)
  • Sectional homes
  • Modular homes
  • Park model homes

Suitability: If your home could be classified as any of the structures listed above, then this type of policy may be the right one for you.

8. HO-8: Modified Coverage Form

Characteristics: HO-8 policies are specifically meant to provide coverage for homes that otherwise don’t meet the insurer’s standards for other types of coverage. In most cases, this means that the home is at high risk of loss or damage, or has a replacement cost that is higher than the actual cash value of the home.

Coverage: HO-8 policies typically provide coverage against the same named perils as an HO-1. The amount of coverage offered by the policy will be based on the home’s actual cash value and not its replacement cost.

Suitability: Very often, this type of policy is held by older homes such as those constructed with aluminum wiring (which is prone to fire), a damaged roof, significantly outdated plumbing, or other factors that would need to be corrected or replaced to qualify for other forms of coverage.

Choosing the Right Type of Policy

The type of homeowners insurance policy that will be right for you will depend on a number of factors, including the type of structure you’re covering, the age and condition of the structure, the types of coverage you want or need, and the requirements of your mortgage lender.

That being said, for most homeowners, an HO-3 or HO-5 should provide adequate coverage. Most renters, meanwhile, should be well-covered by an HO-4. If you own a condo or co-op then an HO-6 will likely make the most sense for you, while an HO-7 provides coverage for mobile homes. Older homes that do not qualify for coverage under an HO-3 or HO-5, such as historical landmarks, may need to purchase coverage under an HO-8 policy.

Leave a Reply

Your email address will not be published. Required fields are marked *