There are various types of homeowners insurance policies, from HO-1 through HO-8, each tailored to meet specific coverage needs. These insurance types differ in their approaches to covered perils and reimbursement values, along with the availability of personal property, liability and loss-of-use coverage. The right fit also depends on your dwelling type — home, condo or mobile home.
Selecting the right policy involves an in-depth understanding of the different types of homeowners insurance and your specific needs. This way, you can ensure your coverage seamlessly fits your living situation and priorities.
Eight Types of Homeowners Insurance
When it comes to protecting your home, there are eight types of homeowners insurance, each designed to suit various needs and circumstances. By understanding the different types of home insurance available, you can make a well-informed decision that provides you with the necessary coverage and peace of mind.
Additional Living Expenses
HO-1 provides basic coverage for your dwelling but lacks coverage for personal property, other structures and liability.
HO-2 offers broad coverage, including dwelling, other structures, personal property, liability, medical payments and additional living expenses, but only for 16 named perils.
HO-3 is special coverage and an open-peril policy, encompassing dwelling, other structures, personal property, liability, medical payments and additional living expenses.
HO-4 is an open-peril policy for renters, covering personal property, liability, medical payments and additional living expenses.
HO-5 is an open-peril policy with comprehensive coverage for all aspects, making it suitable for homeowners who want extensive protection.
HO-6 caters to condo owners, ensuring coverage for dwelling, personal property, liability, medical payments and additional living expenses.
HO-7 focuses on mobile homes, including dwelling, other structures, personal property, liability, medical payments and additional living expenses.
HO-8 is a named-peril policy tailored for older homes, offering coverage for dwelling, liability, medical payments and additional living expenses.
Named Peril vs. Open Peril Policies
In the realm of home insurance, there are two key terms you'll often see: named perils and open perils. Perils are specific risks or events that could cause damage or loss to your property. They range from natural disasters like fires and earthquakes to man-made incidents like theft or vandalism. Home insurance policies outline which perils your policy covers.
A named peril policy explicitly lists the perils that are covered. If a peril isn't listed, it's not covered.
An open peril policy covers all perils except those explicitly excluded in the policy.
Homeowners who are looking for more budget-friendly coverage.
Homeowners who want more comprehensive coverage for their homes and belongings.
Where You Find It
HO-1, HO-2, HO-8
HO-3, HO-4, HO-5, HO-6, HO-7
Ultimately, your choice between named peril and open peril policies depends on your risk tolerance, budget and the level of coverage you're seeking. Understanding the nuances of these terms will help you make an informed decision that aligns with your needs and financial goals.
Actual Cash Value (ACV) vs. Replacement Cost Value (RCV)
In home insurance, you may encounter two types of coverage: Actual Cash Value (ACV) and Replacement Cost Value (RCV), which determine how your insurance provider will calculate the value of your possessions and the level of coverage you receive.
Actual Cash Value (ACV)
Replacement Cost Value (RCV)
Actual Cash Value (ACV) refers to the current value of your property or belongings, considering depreciation over time. If you experience a covered loss, your insurance payout will factor in the value your items have lost since their purchase.
Replacement Cost Value (RCV) takes into account the cost of replacing your property or belongings with items of similar quality and functionality. RCV coverage reimburses you for what it would cost to buy new items without the impact of depreciation.
The insurance payout is typically lower since it takes into account the decreased value of your belongings.
The insurance payout is higher, as it covers the full cost of replacing your items with new ones.
Suitability for Policies
ACV is often found in basic policies, like HO-1.
RCV is more common in comprehensive policies, such as HO-3 and HO-5.
Choosing between ACV and RCV depends on your priorities. If you're looking for more budget-friendly coverage, ACV might be suitable. However, if you want to ensure that you can replace your belongings without bearing the brunt of depreciation, RCV offers more comprehensive protection. By grasping the nuances of ACV and RCV, you can tailor your insurance coverage to align with your preferences and financial goals.
What Is HO-1 Insurance?
An HO-1 policy, also known as a Basic Form policy, is the most basic form of homeowners insurance, covering 10 named perils. Perils are potential causes of loss or damage to your property. They encompass a wide range of events, from natural disasters to human-made incidents, that could lead to financial loss or destruction.
HO-1 insurance covers a limited set of perils, offering protection against the following events:
- Fire or lightning
- Windstorm or hail
- Riot or civil commotion
- Falling objects
Basic policy forms like HO-1 are no longer commonly offered by insurance companies. As of 2020, only a mere 1.72% of homeowners held an HO-1 policy, according to data from the National Association of Insurance Commissioners. Homeowners often seek more comprehensive coverage options that provide protection against a broader range of risks.
What Is HO-2 Insurance?
HO-2 insurance, often referred to as a Broad Form policy, is an extended version of HO-1 insurance. This type of insurance protects against all the perils covered under HO-1 insurance, plus an additional six named perils. This includes damages due to:
- Weight of ice, snow or sleet
- Accidental discharge or overflow of water or steam
- Sudden and accidental tearing apart, cracking, burning or bulging of built-in appliances like water heaters or central air conditioning/heating systems
- Sudden and accidental damage from artificially generated electrical currents, such as power surges
- Volcanic eruption
Similar to HO-1 insurance, HO-2 insurance is not a popular option — according to data from the National Association of Insurance Commissioners, approximately 6.41% of homeowners hold an HO-2 policy.
What Is HO-3 Insurance?
HO-3 insurance is the most common type of home insurance policy, purchased by approximately 78.3% of homeowners. It's an open-peril policy that offers comprehensive coverage, which means with HO-3, you're covered against a wide range of risks, except those specifically excluded in the policy. HO-3 also offers protection for the perils listed under both HO-2 and HO-1 insurance.
HO-3 insurance typically includes:
- Dwelling coverage: For HO-3 insurance, your dwelling is covered at its replacement cost, ensuring you can rebuild your home from the ground up in case of a covered loss.
- Personal property coverage: HO-3 typically covers personal property at its actual cash value by default, but replacement cost endorsements are available for an additional cost.
- Liability coverage: This coverage safeguards you if someone gets injured on your property and sues you.
- Loss-of-use coverage: This helps cover your living expenses if your home becomes uninhabitable due to a covered event.
If you're a homeowner seeking a comprehensive insurance policy that offers protection against a wide range of risks, HO-3 insurance might be the ideal fit for your needs. By providing robust coverage for your home, belongings, liability and more, HO-3 ensures you're well-prepared for the unexpected.
A List Of Common HO-3 Exclusions
While an HO-3 insurance policy offers comprehensive coverage, certain events and situations fall outside its scope. These exclusions are standard and reflect the limits of the policy. Here's a list of common exclusions you might encounter with an HO-3 policy:
Common HO-3 Exclusions
- Damage caused by ordinance and law regulations
- Losses resulting from earth movement, such as earthquakes
- Water damage from flooding, sewer backups or water seepage
- Vandalism or malicious mischief, particularly if the home was vacant for more than 60 days
- Damage from mold, fungus or wet rot, unless linked to accidental water discharge or overflow
- Losses incurred during times of war or military conflict
- Losses resulting from intentional actions or losses
- Losses due to government actions or regulations
- Theft of a dwelling under construction
- Losses caused by power failures
- Damage due to neglect or lack of proper upkeep
- Wear and tear, depreciation over time
- Mechanical breakdown of appliances or systems
- Damage from smog, rust or corrosion
- Smoke damage from agricultural or industrial operations
- Damage from the discharge, dispersal or seepage of pollutants
- Damage due to settling, shrinking, bulging or expansion of structural components
- Damage caused by nuclear hazards
- Losses caused by birds, vermin, rodents or insects
- Damage caused by animals owned by the insured
What Is HO-4 Insurance?
HO-4 insurance, or renters insurance, is an open-peril policy specifically designed to cater to renters. Since renters do not own the property they inhabit, HO-4 insurance does not include dwelling coverage. Instead, it focuses on personal property coverage, protecting your possessions against a wide array of unexpected events.
HO-4 insurance also includes liability coverage, which becomes vital if a guest sustains an injury while visiting your rented space and decides to take legal action. Additionally, it includes loss of use coverage, which eases the financial burden if your rental unit becomes uninhabitable due to a covered event and you need to seek temporary shelter.
What Is HO-5 Insurance?
HO-5 insurance is the most comprehensive and robust form of home insurance available. Under an HO-5 insurance policy, both dwelling coverage and personal property are insured at replacement cost, allowing you to rebuild and replace without the constraints of depreciation. This distinction sets HO-5 apart from other policies where replacement cost coverage might be an optional add-on.
Homeowners often buy an HO-5 policy for high-net-worth properties located in high-risk areas. These policies address the unique needs of properties that require extra protection due to their value and exposure to potential hazards. Whether it's your cherished heirlooms, state-of-the-art appliances or luxurious finishes, HO-5 insurance ensures coverage against a multitude of perils that could threaten your home and belongings.
While HO-5 insurance might come with a premium price, the peace of mind it offers is unparalleled. If you value the security of comprehensive coverage and want to protect your investment to the fullest extent, HO-5 insurance is a wise choice.
Key Differences Between HO-3 and HO-5 Insurance
While both HO-5 and HO-3 insurance protect your home, there are key distinctions between HO-5 and HO-3 policies that play a pivotal role in which policy you might choose.
Offers replacement cost for both dwelling and personal property coverage.
Offers replacement cost for dwelling coverage and actual cash value for personal property. Homeowners can get replacement cost for personal property for a higher premium.
Covers open perils for both home and personal property.
Covers open perils for your home and named perils for personal property.
High coverage limits for valuable items, such as jewelry and electronics, with typically strict limits.
Limited coverage on expensive items such as jewelry, furs and electronics.
Homeowners with high-value properties and those requiring comprehensive protection.
Homeowners who need varying degrees of personal property coverage.
What Is HO-6 Insurance?
HO-6 insurance, commonly referred to as condo insurance, is tailored for condo owners, covering not only your personal belongings but also unique upgrades you've made within your unit, such as custom fixtures. Overall, HO-6 insurance includes dwelling, personal property, liability and loss of use coverage, catering to the diverse needs of condo living.
What Is HO-7 Insurance?
Otherwise known as mobile home insurance, HO-7 insurance protects your mobile home or trailer. It’s an open-peril policy specifically designed to safeguard the structure of your mobile home or trailer, offering comprehensive protection similar to HO-3 insurance.
This insurance type covers various kinds of mobile homes, including:
- Travel trailers
- Fifth-wheel trailers
- Modular homes
- Park model homes
- Single-wide manufactured and single-wide mobile homes
- Double-wide manufactured and double-wide mobile homes
- Sectional homes
An HO-7 policy typically covers your mobile home when it is stationary and does not extend coverage while it is in transit.
What Is HO-8 Insurance?
HO-8 insurance is designed specifically for older homes and offers customized protection to homes with special characteristics, such as historic properties and landmarks. It’s best for properties where the cost to rebuild is more than the market value.
HO-8 insurance provides coverage for named perils, similar to HO-1 insurance. It also includes liability coverage, medical payments to others and additional living expenses.
Coverages Included in Home Insurance
Whether you're a homeowner, condo dweller or mobile home enthusiast, understanding the range of protections available is crucial. From safeguarding your dwelling to protecting your personal belongings and liability concerns, understanding these core coverages empowers you to select the type of home insurance that aligns with your needs.
Dwelling coverage safeguards your home's structure itself against covered perils. This coverage includes the main building and integral components such as walls, floors and roofing. For instance, if a fire damages your home, dwelling coverage will help cover the costs of repairs to the structure.
This coverage extends beyond your main dwelling to include other structures on your property, such as detached garages, sheds or fences. If a storm damages your detached garage, this coverage can assist in repairs or rebuilding.
Personal property coverage protects your belongings, including furniture, electronics, clothing and more. In the event of covered perils like theft or vandalism, this coverage helps replace or repair your possessions.
Liability coverage can help if you're legally responsible for injury to others or damage to their property. For instance, liability coverage can cover medical expenses and legal fees if a guest slips and gets injured on your property.
Medical Payments to Others
This coverage assists in paying medical expenses for guests injured on your property, regardless of fault. For instance, if someone falls on your driveway and requires medical attention, this coverage can help with their medical bills.
Additional Living Expenses
In cases where your home becomes uninhabitable due to covered events, this coverage helps with the costs of temporary living arrangements, such as hotel stays and meals. For example, if a fire damages your home, this coverage can cover your accommodation costs while repairs are made.
Which Insurance Type Should You Get?
Your insurance choice should be a reflection of your lifestyle and living situation. For homeowners, you can get comprehensive protection in HO-3 insurance, while for renters and condo dwellers, HO-4 and HO-6 insurance can cater to your unique personal property and liability coverage needs.
Customizing your selection means aligning the coverage with your priorities. Homeowners focus on protecting their investments, while renters and condo residents concentrate on safeguarding personal property. By choosing the insurance type that suits you, you're tailoring your coverage to ensure peace of mind and security.
About Mark Fitzpatrick
- National Association of Insurance Companies. "Dwelling Fire, Homeowners Owner-Occupied, and Homeowners Tenant and Condominium/Cooperative Unite Owner’s Insurance Report: Data For 2020." Accessed August 15, 2023.