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Home Insurance

Types of Homeowners Insurance

Discovering the differences between various insurance types and policies can help you determine the right insurance for your condo, co-op, apartment, or home.

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Home insurance helps pay for repairs to your home and its contents after being damaged by a covered event. The type of homeowner’s insurance you need depends on what kind of home you live in and how comprehensive you need your coverage to be. For example, there are many different kinds of homeowner’s insurance policies that cover single-family houses, condos, and mobile homes. In addition, some provide minimal coverage that only includes worst-case scenarios, while others cover many more perils or potential damages.

It’s a smart idea to carry insurance. Around 6% of people with home insurance filed a claim in 2020, and from 2016 to 2020, claims averaged $13,962 for property damage and liability. Unexpected costs can be financially devastating, but there are 8 basic policy types that can provide coverage for different dwellings, your belongings, and even visitors to your home.

The Basic Types of Homeowners Insurance

Home insurance can be categorized in two different ways: the type of structure it insures and the coverage provided. It is often shown in an “insurance form” format, which is an insurance term for the type of insurance policy it represents.

All insurance forms start with a letter-number combination, but your insurance company will likely call the coverage something more descriptive, like “renter’s insurance” or “homeowner’s insurance.” All home insurance policies can be grouped into these insurance form categories:

  • HO-1, or 10 Named Perils Insurance
  • HO-2, or 16 Named Perils Insurance
  • HO-3, or Standard Home Insurance
  • HO-4, or Renter’s Insurance
  • HO-5, or Open Perils Insurance
  • HO-6, or Condo Insurance
  • HO-7, or Mobile Home Insurance
  • HO-8, or Modified Coverage Home Insurance

Type of Structure

Homeowners living a single-family home that serves as their primary residence have the most insurance options. If you do not live in a house, your insurance options are more limited by type of structure:

  • Renter’s insurance for an apartment or rental home 
  • Condo insurance for a condominium
  • Mobile home insurance for a manufactured or trailer home

In addition to structure, intended use can be important too. Those looking to purchase insurance for a secondary home — such as a vacation home — may need secondary home insurance. In addition, those looking to insure property that they intend to lease will need landlord insurance instead of standard home insurance.

Coverage Provided

Within each home insurance policy are details about what it covers, including:

  • The specific causes that damage your home, also called perils
  • How it determines the value of the item or structure being repaired or replaced
  • The specific parts of the home that are insured

Named vs. Open Perils 

The term “perils” refers to the specific coverages provided by the policy. These are events, risks, reasons, or dangers to your home and/or your belongings that could cause an expense or loss. For example, fire is a peril that could lead to a kitchen’s repair or replacement. 

When a home insurance policy is designated as “named peril,” your insurance only covers the specific dangers it lists within the policy. For example, if a policy lists hail as a named peril, it covers damage to your house caused by hail. But if the policy does not list vandalism as a named peril, it will not cover cleaning up graffiti damage to your home.

In contrast, a policy with an “open peril” approach covers all dangers or perils unless any are listed as an exclusion. Because of this, open peril policies are also often called all-risk policies. For example, if an open peril policy does not specify that snow damage is excluded from coverage, your insurance will cover damage caused by snow, such as roof damage if the snow becomes too heavy.

However, it is important to note that some risks are often excluded from coverage no matter which policy type you buy. For example, flooding, hurricanes, and earthquakes are all excluded in some states from standard home insurance policies. Instead, you’ll need to buy a separate policy just for that peril if you want this coverage. Some home insurance companies may offer this additional coverage as an endorsement to your standard home policy. 

Replacement Cost vs. Actual Cash Value 

Replacement cost and actual cash value refer to how your home insurance company will determine the dollar amount value of the item being repaired or replaced.

Replacement value is the amount necessary to replace, rebuild, or repair your personal property or home without deducting any decreased value due to age or wear and tear. Most homeowners’ insurance policies cover your home’s structure at replacement value. For example, if your roof needs to be repaired, replacement cost would cover the necessary repairs based on today’s market prices without factoring in the age of the roof.

However, the property inside may not be covered at replacement value. Instead, it may be covered at actual cash value, which deducts lost value over time. For example, imagine someone stole your 5-year-old TV. With actual cash value, the insurer estimates how much the stolen TV is worth now instead of how much it was worth when you first bought it. Because the TV is 5 years old, your reimbursement may be only a portion of what you originally paid. However, it would accurately reflect the current value of that exact same TV.

Coverage Types 

Home insurance policies provide various coverages for different parts of the home:

  • Dwelling coverage: This is your home’s shell or structure and attached structures, such as a garage or porch, wiring, plumbing, and other systems. 
  • Other structures coverage: These are the non-home buildings on your property, such as a shed, detached garage, or detached accessory dwelling unit (DADU). 
  • Personal property coverage: This refers to the contents of your home, such as furniture, laptops, appliances, and clothing.
  • Liability coverage: This refers to coverage for injury or damage to other parties on or due to your property. 
  • Medical payments coverage: This covers the medical costs to others for bodily injuries occurring on your property or caused by your pets.
  • Loss of use coverage: This is also called “additional living expenses” and pays for hotels, meals, and other expenses while your uninhabitable home is repaired. 

HO-1, or 10 Named Perils Insurance 

This is a basic type of home insurance coverage that protects your home and personal property and is also called “Basic Form.” This policy type is usually one of the most affordable options, but it is less common now.

This type of named perils insurance covers only specific dangers laid out in the policy, which can vary based on state or policy. Perils typically include: 

  1. Fire and lightning
  2. Windstorms and hail
  3. Explosions
  4. Riots and civil commotions
  5. Damage from an aircraft
  6. Damage from a vehicle
  7. Smoke
  8. Vandalism and malicious mischief
  9. Theft
  10. Volcanoes

Exclusions 

This type of policy excludes everything that isn’t named. For example, you would not be covered if your roof collapsed after a heavy snowstorm because snow damage is not explicitly named. You also wouldn’t be covered for falling objects, such as a tree falling onto your home and crushing the structure. 

Coverages 

Generally, this basic policy type should cover your dwelling and personal belongings, but only for the named perils. It does not always provide liability, other structures, medical payments, or loss of use coverage.

Who Should Consider This Home Insurance Type? 

This insurance type may be best for those on a very tight budget, or conversely, for those with plenty of extra cash to help pay for uninsured damage. However, few insurers offer HO-1 policies anymore.

HO-2, or 16 Named Perils Coverage

This coverage is known as Broad Form and is slightly more extensive than the Basic Form. This insurance provides coverage for all the perils named in the Basic Form (HO-1) plus these common perils or dangers that cause home damage, although wording and specifics may vary: 

  1. Freezing
  2. Falling objects
  3. Weight of ice, snow, or sleet
  4. Cracking, bulging
  5. Artificially generated electric current
  6. Water or stream

Exclusions 

An HO-2 policy won’t cover damage caused by any peril that isn’t among the 16 named perils. For example, it will not pay to repair damage to your roof from a tornado since tornadoes are not explicitly named. Note that a windstorm differs from a tornado.

Coverages 

This policy type with its extra perils coverage will help pay for damage to your dwelling and contents. It does not always provide liability, other structures, medical payments, or loss of use coverage. If you would like these coverages and your policy does not include them, you may be able to add a rider or endorsement for it.

Who Should Consider This Home Insurance Type? 

This insurance type may be available in your state if HO-1 isn’t available. For the most part, this policy may be a better fit for those who can afford to cover any surprise repairs that aren’t covered and don’t have a home with a mortgage. This is because lenders often require homeowners with a mortgage to carry more protection than the HO-2.  

HO-3, or Standard Home Insurance 

The HO-3 policy is also called Special Form and is one of the most common and popular types of coverage. This policy covers most risks for the home’s structure, except for specific exclusions. Lenders may require you to get this type of coverage if you’re taking out a mortgage to buy a home, as it more broadly protects their investment. Instead of a named peril policy, it is an open peril policy meaning it specifies exclusions instead of inclusions.

Exclusions 

An HO-3 policy covers all risks except for those it names. This is not standardized, though most policies exclude coverage for perils such as nuclear hazards, earthquakes, war, and flooding. To protect your home from those events, such as if you live in an area that floods regularly, you must buy a separate policy for those perils, if available. However, some insurers can attach an endorsement or rider to your existing policy for coverage. 

Coverages

This policy provides far more coverage for the home’s structure and your belongings than an HO-1 or HO-2 policy. HO-3 policies may also include coverage for other structures, liability, and loss of use.

Who Should Consider This Home Insurance Type? 

Due to the fairly comprehensive coverage, homeowners with a mortgage may be required to sign up for an HO-3 policy. However, consider state-specific exclusions. For example, in Hawaii, HO-3 exclusions may include tidal waves, landslides, and hurricanes. If you need coverage for those exclusions, look for a standalone policy or work with a licensed insurance agent.

HO-4, or Renter’s Insurance 

This may also be called the Tenants Broad Form. Renters don’t have as many policy options as homeowners, and the policy doesn’t cover the structure itself because that is the responsibility of the building’s owner. This insurance covers property for named perils, similar to an HO-2 policy. Those who live in co-ops also use HO-4 policies.

Exclusions 

In general, if a peril isn’t among the covered perils described in the renter’s policy, it won’t be covered. For example, if mold damages your personal property but isn’t listed as a peril, it’s likely not covered according to the insurance policy. The policy will also exclude the building but could potentially cover some structural improvements you add. 

Coverages 

Renter’s insurance does not include dwelling coverage or other structures because you do not own the building. Instead, renter’s insurance covers your personal property, and typically also provides coverage for liability. Many renter’s policies also include loss of use coverage if your rental home is deemed uninhabitable after a covered peril.

Who Should Consider This Home Insurance Type? 

Landlords will likely require you to carry renter’s insurance to protect your belongings, whether you’re leasing an apartment, townhome, or house. 

HO-5, or Open Perils Insurance 

This policy, also known as Comprehensive Form, insures your dwelling and personal property for all risks possible, except for any that the policy directly excludes. This is the most expensive policy available, but it offers the most protection. 

Unlike other insurance policies, HO-5 provides all-risks coverage for personal property and the structure. So all damages or losses from all perils or causes are covered unless excluded from the policy. Property losses are often covered at replacement cost, and you may find higher limits for valuable items. 

Exclusions 

Similar to an HO-3 policy, exclusions can vary by policy. Typical exclusions include:

  • Flood damage
  • Earthquake damage
  • Wear and tear
  • Mold, fungus, and rot
  • Wind and hail damage to landscaping
  • Pests such as mice, termites, and other insects
  • Continuous and repeated water seepage 
  • Losses if your house is vacant for specified periods 

Coverages 

An open perils policy is the most comprehensive, and should cover dwelling, other structures, personal property, liability, medical payments, and loss of use.

Who Should Consider This Home Insurance Type? 

Because this is the most comprehensive policy, it’s a good fit for homeowners who can afford to pay for more protection, as well as those living in higher-value homes and who have more valuable belongings. However, HO-5 policies may not be offered by all insurers.

HO-6, or Condo Insurance 

Condo insurance, or a Unit-owner’s Policy, offers coverage for what you’d find inside the residence, such as your personal belongings, plus the interior of your condo or items not covered by your condo association’s master policy. For example, damage to your interior walls or floor coverings may not be covered by your condo association master policy. 

A condo association’s master policy provides protection for shared spaces and the structure of the condo building itself, such as hallways, courtyards, and entrances. Condo owners typically pay fees to help cover the association’s master policy.

Because an HO-6 policy offers limited coverage, it is usually less expensive than other types.

Exclusions 

A condo insurance policy doesn’t offer coverage for shared or common parts of the structure, which should be covered by your condominium association’s master policy. For example, this might include the condo’s lounge, pool, or roof. This policy should also have liability protection, for instance, if your guest falls and is injured while in your residence.

Coverages 

Condo policies typically cover your personal property and interior finishes within your unit’s walls. Some policies may include appliances within that coverage, though you should check your policy’s details to be certain. Condo policies may also offer liability, medical payments, and loss of use coverage.

Who Should Consider This Home Insurance Type? 

Condo owners should find a policy that fills the “gaps” in coverage from the condo association’s master policy. For example, if the master policy does not cover your unit’s windows or exterior wall, you may want to seek a condo policy that does cover these elements.

HO-7, or Mobile Home Insurance 

This policy type is only available to people who own mobile homes. Each state or insurance company may have a different definition of a mobile home and if your residence would qualify. Mobile home insurance premiums may be higher than standard home insurance premiums because mobile homes can be more easily damaged because they are not fixed to a foundation. You may also need special coverage or permission from your insurer if you move your mobile home. 

Exclusions 

Mobile home insurance can work as either named peril, in which all the covered dangers are listed, or open peril, which covers every danger to your home except those listed as excluded. It’s important to note which type of policy you’re examining to understand your coverage and which exclusions apply to your mobile home.

Coverages 

Mobile home insurance will offer dwelling coverage and personal property coverage. Beyond that, coverage can vary widely for mobile home insurance, though most policies also include other structures, personal liability, and loss of use coverage.

Who Should Consider This Home Insurance Type? 

Mobile homeowners should consider this home insurance type. Keep in mind that the definition of a mobile home can vary, so check your state’s criteria to determine if you need this type of policy or a standard home insurance policy.

HO-8, or Modified Coverage Home Insurance 

This insurance policy is also called a market value policy and is a less common type of coverage. It is for houses that do not meet the insurer’s requirements for a standard policy. This could be because the house depreciated significantly, or the house is a non-updated historical landmark.

The coverage purchased can’t exceed the home’s market value to repair or replace the house using materials similar in quality and kind. For example, suppose you buy a $200,000 residence that you plan to repair. However, the front porch is in shambles right now, the paint is peeling, and there’s a hole in the living room floor. The insurance company’s coverage will only cover the flooring as it is now, not how it will be once you fix it.

Exclusions 

Any peril or danger that is not one of the named perils is excluded from coverage. This means if your house’s hot water tank ruptures and ruins your basement carpets, you’ll have to pay for repair or replacement out of pocket because water damage is typically not one of the named perils.

Coverages 

Most HO-8 policies provide dwelling, other structures, personal property, and liability coverage. However, it may be more limited in scope and can be subject to state regulations. For example, in Alabama, you may get limited coverage for fire or other specific named perils, and coverage may be for the home’s structure only.

Who Should Consider This Home Insurance Type? 

If you cannot update your home immediately to make it eligible for other types of homeowner’s insurance, you should consider HO-8 insurance. However, this insurance may not satisfy your lender if you have a mortgage. In addition, some houses don’t qualify for HO-8 coverage at all.

 

Your Next Steps

  • Narrow your home insurance type based on the kind of home you live in and how much coverage you need
  • Determine whether a named or open peril policy is best for you
  • Be aware of policy exclusions — you may need to purchase a separate policy or add endorsements to your existing policy for some perils, such as flood or earthquake coverage