8 Types of Home Insurance Policies

8 Types of Home Insurance Policies

8 Types of Home Insurance Policies

Although homes come in a wide range of sizes and designs, they all need to be secured. There are various sorts of home insurance coverage as a result. No matter if you rent or own your house, reside in a mobile home, split-level ranch, or live in a condo, the finest homeowners insurance offers a financial safety net in the event that unforeseeable catastrophes, like a fire, cause damage.

People who want to safeguard their homes and personal goods must have home insurance. It can be difficult to determine the sort of coverage required, though, because there are so many different types of homeowner’s insurance policies available. In order to assist you determine what you need, we’ll examine the most popular homeowners insurance coverage categories below.

Homeowners Insurance Terms to Know

  • Named peril: This refers to damage or loss caused by an event that is specifically named in the policy.
  • Replacement cost: This is the amount of money that it would take to replace something, such as your home or personal belongings.
  • Actual cash value: This is the value of something when factors such as depreciation have been accounted for. It is typically lower than replacement cost.

What are the different homeowners insurance coverage types?

In addition to the types of property insurance listed above, home insurance can also be broken down this way:

Actual cash value

Actual cash value coverage means that in the event of a covered loss, the insurance company will pay the policyholder what the home or personal property is actually worth right now. This may not be enough to replace these items with new ones. Personal property is almost always covered at actual cash value, though some insurers enable policyholders to purchase riders that add replacement cost coverage for personal property.

This type of coverage usually has more affordable premiums than replacement cost coverage. But it could lead to huge out-of-pocket costs, above and beyond homeowners insurance deductibles, for policyholders who need to file a claim.

Read also: 10 Top Best Tips For Home Insurance Buyers

Replacement cost

Replacement cost coverage pays the policyholder what it would cost to rebuild their home or replace their personal property at today’s prices, up to the limit on the policy. This limit usually increases gradually every year to keep up with inflation.

It’s more expensive than actual cash value coverage, but it provides homeowners a greater sense of security because they won’t have to worry about footing much of the rebuilding costs themselves.

Guaranteed or extended replacement cost

Extended replacement cost gives policyholders an extra cushion if rebuilding your home costs more than the limit on the policy. With this coverage, the insurer will usually pay 25% to 50% more than the policy limit to rebuild the home, if necessary.

Guaranteed replacement cost is the highest level of protection. With this coverage, insurers will pay whatever it takes to rebuild the home, regardless of cost.

What’s not covered by standard types of home insurance?

Some things that all types of homeowners insurance typically don’t cover include:

  • Earthquakes
  • Floods
  • Maintenance issues
  • Sewer backups

For a full list of what isn’t covered, check the homeowners insurance policy.

What are the different types of homeowners insurance policy forms?

There are eight different types of homeowners insurance policies for various home types and coverage needs: the HO-1, HO-2, HO-3, HO-4, HO-5, HO-6, HO-7, and HO-8.

HO-1: Basic Form

Also known as basic form homeowners insurance, the HO-1 provides bare-bones coverage. An HO-1 policy will pay out only if one (or more) of 10 specific perils damages your home:

  • Fire or lightning
  • Windstorm or hail
  • Explosion
  • Riot or civil commotion
  • Damage caused by aircraft
  • Damage caused by vehicles (such as a car that crashes into your house)
  • Smoke
  • Vandalism or malicious mischief
  • Theft
  • Volcanic eruptions

An HO-1 policy is limited because it typically covers only these 10 perils instead of the 16 or more that other policies do. It generally provides coverage only for the house structure, at actual cash value. That means you won’t get the amount you’d need to fully rebuild, but rather the value of the house minus deprecation for its age. And it generally doesn’t cover personal property, liability or additional living expenses.

The HO-1 costs less than other types of coverage because it provides the least coverage. It is not available in most states and, if you have a mortgage, you usually are required by a lender to have higher levels of protection.

HO-2: Broad Form

Also called the broad form, the HO-2 policy provides coverage for more perils than the HO-1 policy. The HO-2 policy covers all the perils in an HO-1 policy plus:

  • Weight of snow and ice
  • Accidental overflow or discharge of water or steam
  • Freezing of plumbing, air conditioning
  • Bulging or cracking caused by a sudden and accidental event
  • Falling objects
  • Sudden, accidental damage caused by artificially generated electrical current

An HO-2 policy includes:

  • Dwelling coverage for your house and other structures on your property
  • Coverage for your personal belongings
  • Personal liability
  • Loss of use or additional living expenses coverage
  • Medical payments to others

Also, under an HO-2 your belongings are covered for actual cash value only, which is how much the items are worth after depreciation.

HO-3: Special Form

The HO-3 policy provides suitable coverage for most homeowners and is the most common home insurance policy type. It covers your house and belongings and includes coverage for liability, medical payments to others and additional living expenses.

An HO-3 policy, unlike the HO-1 and HO-2, protects your house from all perils unless they are specifically listed as exclusions. This is called an “open peril” policy.

Known as a special form, an HO-3 policy will pay to repair or replace your house, up to your policy limits, as long as the damage was not due to these typical exclusions:

  • Power failure
  • Industrial pollution or smoke
  • Earthquake
  • Flooding
  • Intentional damage
  • War/nuclear accidents
  • Pets and insects
  • Settling, wear and tear
  • Negligence
  • Government actions and legal action due to lack of permits, faulty construction, design or maintenance actions taken by government and other associations
  • Damage or theft in unoccupied homes or those under construction
  • Deterioration due to weather conditions, that aggravates other excluded causes

For your belongings such as electronics, furniture and clothing, an HO-3 policy provides coverage for 16 perils:

  1. Fire or lightning
  2. Windstorm or hail
  3. Explosion
  4. Riot or civil commotion
  5. Damage caused by aircraft
  6. Damage caused by vehicles
  7. Smoke
  8. Vandalism or malicious mischief
  9. Theft
  10. Volcanic eruption
  11. Falling object
  12. Weight of snow, ice and sleet
  13. Accidental overflow of water from household appliances or heating, plumbing, air conditioning systems or sprinkler systems that put out fires
  14. Freezing of household appliances or heating, plumbing, air conditioning systems or sprinkler systems that put out fires
  15. Accidental cracking, burning, tearing of heating, plumbing, air conditioning systems or sprinkler systems that put out fires
  16. Accidental damage due to short-circuiting of an electrical current

HO-4: Contents Broad Form

Known as renters insurance, the HO-4 policy is for people renting houses and apartments. Belongings are covered for the same 16 perils listed in the HO-3 policy. Additional living expenses and liability coverage are also included.

A HO-4 policy will not cover damage to the rental unit itself. A landlord would need their own landlord insurance policy to cover the structure.

Read also: How Many Claims are Allowed in Home Insurance

HO-5: Comprehensive Form

Called a comprehensive policy, an HO-5 policy offers the highest level of insurance coverage for houses and belongings. It covers your house and belongings under all circumstances except those listed as exclusions in the policy. The exclusions for HO-5 policies are the same as those under an HO-3.

An HO-5 policy will pay out for replacement cost rather than actual cash value. An HO-5 also includes coverage for liability, medical payments to others and additional living expenses.

These comprehensive policies are often good for insuring new construction. Not all home insurance companies offer HO-5 policies.

HO-6: Unit-owners Form

The HO-6 policy is for people who live in a condo or a co-op. Known as “walls-in coverage,” a condo insurance policy covers:

  • Any renovations you made to the condo after you bought it
  • Walls, floors and ceilings
  • Personal belongings
  • Additional living expenses
  • Liability
  • Medical payments to others

Before buying an HO-6 policy, it’s a good idea to review your condo association’s insurance policy. You want to avoid gaps in coverage and also sidestep any duplicate offerings with the association’s insurance.

HO-7: Mobile Home Form

The HO-7 policy has similar coverage to an HO-3 policy but it applies to mobile homes. Mobile home insurance is an open peril policy for the structure of the mobile home or trailer. Like the HO-3, that means it covers any damage as long as it’s listed as an exclusion. Coverage for belongings is only for specific perils listed in the insurance policy, like to HO-3.

HO-7 policies insure these types of structures:

  • Single and double-wide manufactured homes
  • Single and double-wide mobile homes
  • Trailers
  • Sectional homes
  • Modular homes

A HO-7 policy typically only covers a mobile home when it is stationary. It does not provide coverage when the home is in transit.

HO-8: Modified Coverage Form

HO-8 home insurance policies are generally for older homes usually built more than 40 years ago. For these houses, the cost of rebuilding is usually greater than the home’s market value. Historic homes and registered landmarks usually have HO-8 policies. With an HO-8 policy, your house and belongings are covered only for 10 specific perils listed in the policy:

  1. Fire or lightning
  2. Windstorm or hail
  3. Explosion
  4. Riot or civil commotion
  5. Aircraft
  6. Vehicles
  7. Smoke
  8. Vandalism or malicious mischief
  9. Theft
  10. Volcanic eruption

Coverage for liability, medical payments to others and additional living expenses is also included under an HO-8.

What’s the Difference Between an HO-3 and HO-5 Policy?

An HO-5 policy provides a wider scope of coverage for your belongings than an HO-3 policy.
It covers your possessions under any event not excluded in the policy.

In an HO-5 policy, coverage for jewelry, furs, watches, goldware, silverware and firearms are covered if damaged, stolen, lost or misplaced. In an HO-3 policy these items are covered if damaged or stolen.

Read also: How Much Homeowners Insurance Do I Need?

How much should I pay for homeowners insurance?

The average cost of homeowners insurance in the U.S. for an HO-3 policy is $1,899 per year or $158 a month, according to our analysis of 2022 home insurance rate data across the country. That said, homeowners insurance costs vary depending on location, the age of your home, its roof, and more.

 

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