Types of Homeowners Insurance Policies

Homes come in all different shapes and sizes, but they all deserve to be protected. That’s why there are different types of home insurance policies.

Regardless of whether you rent or own, or live in a mobile home, split-level ranch, or condo, the best homeowners insurance provides a financial safety net when unforeseen events cause damage, such as a fire. You want coverage that best suits your living situation, and there are policies designed to insure different types of homes.

Types of Home Insurance Policies

Here’s a look at the types of home insurance policies available.

HO-1 policy

HO-2 policy

HO-3 policy

HO-4 policy

HO-5 policy

HO-6 policy

HO-7 policy

HO-8 policy

Named Peril vs. Open Peril Policies

To better understand how the different types of home insurance work, it’s important to know how they’re set up. A “peril” is an incident or problem that causes damage to your home, yourself, or your belongings. Generally, there are two ways coverage is explained in a policy—open peril and named peril:

Named peril. All hazards that are covered by the policy are specifically listed or named. Anything not listed is not covered.

Open peril. Hazards that are not covered are listed in your policy as exclusions. Anything that’s not listed as an exclusion is covered.

Here’s a roundup of the eight different types of policies for homeowners.

What Is an HO-1 Home Insurance Policy?

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 damage

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 depreciation 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.

What Is an HO-2 Home Insurance Policy?

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.

What Is an HO-3 Home Insurance Policy?

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 the government and other associations

Damage or theft in unoccupied homes or those under construction

Deterioration due to weather conditions, that aggravate other excluded causes

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

Fire or lightning

Windstorm or hail

Explosion

Riot or civil commotion

Damage caused by aircraft

Damage caused by vehicles

Smoke

Vandalism or malicious mischief

Theft

Volcanic eruption

Falling object

Weight of snow, ice, and sleet

Accidental overflow of water from household appliances or heating, plumbing, air conditioning systems or sprinkler systems that put out fires

Freezing of household appliances or heating, plumbing, air conditioning systems or sprinkler systems that put out fires

Accidental cracking, burning, or tearing of heating, plumbing, air conditioning systems or sprinkler systems that put out fires

Accidental damage due to short-circuiting of an electrical current

What Is an HO-4 Renters Insurance Policy?

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.

An 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.

What Is an HO-5 Home Insurance Policy?

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 costs 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.

What Is an HO-6 Home Insurance Policy?

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.

What Is an HO-7 Home Insurance Policy?

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

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

What Is an HO-8 Home Insurance Policy?

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:

Fire or lightning

Windstorm or hail

Explosion

Riot or civil commotion

Aircraft

Vehicles

Smoke

Vandalism or malicious mischief

Theft

Volcanic eruption

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

Helping You Make Smart Insurance Decisions

Get Forbes Advisor’s ratings of the best insurance companies and helpful information on how to find the best travel, auto, home, health, life, pet, and small business coverage for your needs.

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.

Here’s how dwelling and personal belongings coverage compare in an HO-3 and HO-5:

HO-3: Standard Coverage

HO-5: Better Coverage

Dwelling

Covers damage to your house from all problems except ones that are specifically listed as exclusions.

Typically pays out only actual cash value.

Covers damage to your house from all problems except ones that are specifically listed as exclusions.

Pays out replacement cost value.

Personal property

Covers damage to your belongings only for problems listed in your policy.

Covers jewelry, goldware, silverware, watches, and firearms if stolen or damaged.

Typically pays out only actual cash value.

Covers damage to your belongings from all problems except ones that are specifically listed as exclusions.

Covers jewelry, goldware, silverware, watches, and firearms if stolen, damaged, lost, or misplaced.

Pays out replacement cost value.

Explanation of Home Insurance Coverage Types

Here’s a look at what each coverage type within standard home insurance policies will include.

Dwelling coverage. Dwelling coverage pays to repair or replace your house if it’s damaged by a problem covered by the policy. You should buy a dwelling coverage amount equal to what it would cost to rebuild your home based on local labor and material costs. Your home insurance company or agent can help you with this estimate.

Other structures. This coverage is for additional structures on your property such as a fence, shed, barn, or gazebo. Coverage for other structures is typically set at 10% of the home’s dwelling coverage, but the amount varies by insurer. If 10% isn’t sufficient, you may be able to increase the amount by getting an endorsement or buying more dwelling coverage.

Personal property. Personal property coverage pays to replace damaged or stolen belongings. The coverage limit is usually set at a percentage of your dwelling coverage, typically between 50% and 70% of your dwelling coverage. You can buy a higher limit if needed.

Liability coverage. Liability insurance pays for injuries and damage you accidentally cause to others. It pays for judgments against you or settlements, plus your legal defense costs, if you’re legally liable for others’ injuries or property damage. Liability limits typically start at $100,000, but that might not be enough. It’s wise to have enough liability coverage to protect your savings and assets if you’re sued.

Medical payments to others. This coverage pays for minor injuries of non-household members who are injured on your property, and pays out regardless of fault. It is sold in small amounts, typically between $1,000 to $5,000.

Additional living expenses. Additional living expenses coverage pays for extra costs such as hotel bills and meals when you are temporarily unable to live at home due to damage from a covered event—for example, a fire. It is usually set at 20% to 30% of your dwelling coverage. This coverage is also called loss of use.

Replacement Cost vs. Actual Cash Value

With a homeowners policy, you’ll generally get to choose between replacement cost coverage and actual cash value coverage.

With replacement cost coverage, your damaged items and home are replaced with new and similar versions.

With actual cash value, you’ll receive the depreciated value. For example, if you have an eight-year-old couch, your insurance company would reimburse you for the cost of an eight-year-old couch, not a new one.

Replacement cost coverage costs more but you’ll receive more when you file a claim.

Tips for Buying Homeowners Insurance

Get an accurate rebuilding cost estimate. A key mistake is not buying enough coverage. Insuring for less than the cost of rebuilding your home means you’ll be short of the money you need to replace it if a fire or other major disaster strikes, says Janet Ruiz, spokesperson for the Insurance Information Institute. To avoid this, get an accurate estimate for rebuilding your home from your insurance company. Choose dwelling coverage that matches the amount for rebuilding your home.

Account for improvements. Another mistake people make when buying or renewing home insurance is not giving enough information about the house to the insurance company. If your insurance company doesn’t know the full value of your home, you risk being underinsured.

“If you do remodeling, let your insurer know. Giving more information doesn’t mean it’s going to cost you more,” Ruiz says.

Consider add-on coverage. Many homeowners overlook add-on coverage that can boost the basic coverage in their home insurance policies.

“Consumers may not pay attention to add-ons that may be needed,” says Trevor Chapman, a spokesperson for Farmers Insurance. “For example, is your home an older home that has not been renovated? In a case like this, it’s advised to not skip the code upgrade coverage. This can provide additional money to bring your home up to the current building code” if you have an insurance claim.

Consider the value of your possessions. Add-ons are available for valuable items as well.

“Do you own special or valuable items such as jewelry or collectibles?” Chapman asks. “It may make sense to schedule those items with your [insurance] company as many policies will have a special sub-limit on certain types of personal belongings. By scheduling them, you can insure your special or valuable items to their full value.”

Ask about home insurance discounts. Don’t forget to ask about home insurance discounts. For instance, if you upgraded your roof or electrical system or installed safety or security features, you may qualify for a discount. And if you have an auto insurance policy with the same company as a potential home insurance company, ask about bundling the insurance products together for additional savings.

Research customer service

. Don’t base your choice on price alone—you want a responsive company if you ever have to file a claim. Research reviews of insurance companies to see which ones have outstanding customer service.

To help you identify the best homeowners insurance companies, Forbes Advisor evaluated home insurance companies on a variety of metrics that reflect their level of protection, customer care, and pricing.

Compare multiple quotes. Once you know the type of homeowners insurance you want to buy and how much, you are ready to compare shops. Rates vary among companies for the same coverage so it’s important to check out homeowners insurance quotes from several home insurers.

Keywords for the provided topic on homeowners insurance policies:

1. Homeowners insurance

2. Types of home insurance policies

3. HO-1 policy

4. HO-2 policy

5. HO-3 policy

6. HO-4 policy

7. HO-5 policy

8. HO-6 policy

9. HO-7 policy

10. HO-8 policy

11. Named peril

12. Open peril

13. Coverage types

14. Dwelling coverage

15. Other structures coverage

16. Personal property coverage

17. Liability coverage

18. Medical payments to others

19. Additional living expenses

20. Replacement cost vs. Actual cash value

21. HO-3 vs. HO-5 policy

22. Add-on coverage

23. Home insurance discounts

24. Customer service

25. Rebuilding cost estimate

26. Reinsurance

27. Policy exclusions

28. Perils covered

29. Perils excluded

30. HO-7 vs. HO-8 policy