Types of Homeowners Insurance

There are many types of homeowner’s insurance policies available to fit our unique lifestyles and needs, including plans for those who choose to rent apartments or single-family homes.

Homeowner’s policies can be thought of as your personal liability insurance and the insurance for your personal and real property.  They cover your home, its contents, and the occupants’ liability.

A homeowners insurance policy protects the dwelling, your personal items, and provides liability coverage for any injuries that occur on your property. All mortgage companies require lenders to have insurance coverage for the full or fair value of the property (the purchase price). They won’t allow a loan or finance a property without proof of insurance.

However, regardless of whether it’s required or not, it’s always a good idea to have some kind of protection.

The differences between the policies lie with what is actually covered in a property and liability sense, and what perils (or causes of loss) the policy will cover against.

Ultimately, you can choose from the HO-1, HO-2, HO-3, HO-4, HO-6, and HO-8.  I know, it sounds like Christmas.

To make sense of it all, let’s review the basics of these policies.  Remember to speak to your insurer or an independent agent for advice on which policy best suits your individual needs.

Similar to any other type of homeowners insurance, these plans can be confusing and it’s important to read the fine print.

Read More: Fair Rental Value Insurance

HO-1

This is the most basic of homeowners’ policies.  Those of us with home mortgages would not get by with this policy. An HO-1 policy protects the physical structure of a home from certain circumstances listed on the policy.

This type of home insurance policy does not offer coverage for liability, personal property, medical expenses for other parties, or an additional living expense if the home becomes uninhabitable, but only the dwelling itself. (For more information, read our “Personal Articles Insurance“).

There are few places in the U.S. where this limited coverage would be satisfactory. The HO-1 policy offers only dwelling coverage (read our full “What is a dwelling fire policy?” for more information) on a named peril basis and the damage must be caused by one of the following perils: fire or smoke, lightning, hail and windstorms, theft/malicious mischief, vandalism, damages from vehicles or damage from aircraft, riots and civil commotion, and volcanic eruption.

Also note that there is not personal liability included in this policy format.

So if you’re sued by someone who slips on your property, your insurance company won’t defend you in court or pay the plaintiff if you are found to be at fault.

HO-2, HO-3, and HO-5 policy are more comprehensive coverage options because they cover additional perils such as falling objects; weight of ice, snow, or sleet; freezing of household systems (air conditioning or heating); accidental discharge or overflow of water/steam; sudden and accidental damage from artificially generated electrical current.

HO-2

This is known as the Broad Form policy.  The HO-2 is similar to the HO-3 insurance policy described next because it covers the dwelling (house) and other structures (detached garage, fence), but it insures against only named perils (causes of loss). HO-2 policies are slightly more common than HO-1.

For example, you will only be reimbursed for property damage that occurs if they are caused by one of the acceptable perils listed explicitly on the policy. Most homeowners insurance companies will protect your personal property and belongings no matter where they are at home, in your car or somewhere else.

If something damages your home and is not listed as an acceptable cause of loss, you will not receive any money. This policy type provides the same coverage as an HO-1 policy, but with few additional perils.

However, this policy does include personal liability coverage, though it might include liability in certain circumstances. Contact your insurance company to find out.

HO-3

This is known as the “Special Form Homeowner’s policy.”  This is the most common type of homeowners policy sold today.

It’s designed for 1-to-4-unit, owner occupied homes.  It covers your home, personal property, liability, additional living expenses and medical bills against a wide variety of perils, even if not listed specifically in the policy.

Of course, it’s more expensive than the HO-2, but probably substantiated because your home may be the largest debt you have.

Also included in this policy is personal liability coverage.

Read More: Homeowners Insurance Liability Coverage

HO-4

This is the only insurance policy designed for renters.  It is however, part of the homeowner’s policy group; know as the tenant homeowner’s policy.

Known as the “Contents Broad Form policy,” it covers only the contents of the home, which makes sense, because the person who owns the home should have their own insurance policy on the actual dwelling.

Personal liability is included in HO-4 policies in addition to the coverage for the property insured.

This is necessary because your lease probably states the landlord is not responsible for bodily injury that may occur in your apartment or rented home.

The policy limits on the remaining homeowners insurance coverage are reduced in some cases versus what they would be in the HO-3 policy.

Unfortunately, very few renters have this very inexpensive insurance, which means everything they own may be destroyed in a fire and they will receive no compensation whatsoever.

HO-6

This is known as the condominium owners’ policy. The HO-6 policy is similar to the HO-4 because the policy holder does not own the actual dwelling.

Condo owners typically own the building jointly with the other condo owners in the co-op.

Basically, the HO-6 covers just the specific unit and contents within.

This policy includes liability insurance as well, which means you’ll be covered if someone is injured in your unit.

Read more: Condominium Unit Owners Insurance

HO-8

Finally, the “Modified Coverage Form Homeowners policy.”  Simply put, you need this type of coverage if the cost to rebuild your home far exceeds its current market value.

Your home may currently be valued at $250,000, but costs $350,000 to rebuild if completely destroyed by fire.

For example, if you live in a very old home built using methods unique to the period it was built, an HO-8 policy would be your best option.

Some of these lesser-used methods include hand carved wood throughout the home.  Victorian homes are a good example of this type of construction.

Note that some states have modified versions of these policies.

In Texas for example, instead of the basic HO-3, you can purchase the HO-A or the HO-B.

The difference between the two lies in the perils, or causes of loss your home is insured against, namely back-up water damage and wind-driven rain.

The best tip I can give is similar to automobile insurance: have the highest policy limit and broadest coverage you can possibly afford.

Your home and all of your worldly possessions are not something to be skimped on.