7 Types of Home Insurance Policies
Homeowners insurance is designed to protect your home and its contents from loss or damage due to what the insurance companies call “perils.” While most people assume that having homeowners insurance means that their home and belongings are protected, it is important to understand the various types of homeowners insurance and what is typically covered by each. There are seven different types of homeowners insurance policies based on forms standardized by the Insurance Services Office:
- HO-1 — Basic Form Homeowner Policy: This is the most basic type of homeowners insurance; it’s similar to liability insurance on a vehicle. The basic policy covers fire or lightning, smoke, windstorm or hail, explosions, volcanic eruption, theft, glass breakage, vandalism or malicious mischief, riot or civil unrest, damage caused by vehicles or aircraft, and personal liability. This type of policy does not cover damage caused by floods or earthquakes, and may have other exceptions. The contents of the home are usually included under this type of policy if damaged in a fire or other event is covered as a peril, but any property claimed must be individually identified and listed on the claim form. Several types of riders can be purchased for additional coverage, or a more comprehensive policy may be a better choice.
- HO-2 — Broad Form Homeowner Policy: This is the broad form homeowners insurance policy. It covers 17 listed perils, including all 11 that are listed on the basic HO-1 form. The HO-2 policy adds coverage for damages caused by falling objects, snow, ice, sleet, freezing, and problems caused by plumbing, heating, air conditioning, appliances, steam or the hot water heating system, and electrical fixtures or wiring. Because of the additional coverage, the HO-2 policy is attractive to many people living in areas affected by lots of snow, ice, and other harsh winter conditions. Most HO-2 policies also cover living expenses for a period of time if your home is declared uninhabitable. Typically, this is a “named perils” policy, which specifically lists which types of events and damages are covered. Any damage caused by an event or condition not specifically listed in the policy is excluded from coverage.
- HO-3 — Special Form Homeowner Policy: The HO-3 special form policy is the most common type of homeowners insurance for single-family homes. It is sometimes known as “all risk” coverage and protects the home and its contents against all named coverage. The main focus of a special policy is to protect the home itself and to protect it from all natural and accidental damage that could occur. Unlike a “named perils” policy, damages are covered under the special form, unless they are specifically excluded. Typically, named exclusions include flood, earthquake, war, terrorism, and nuclear accident. In areas prone to flooding, earthquakes, or other natural disasters, many homeowners purchase a rider or additional insurance to ensure coverage.
- HO-4 — Renters Insurance: This is renters or tenants insurance. It is designed to cover the personal property of people who rent a home or apartment. The structure itself is not covered, because the owner or landlord will have their own homeowners insurance policy, but it covers the tenant’s belongings. The policy usually covers either the cash value or replacement cost of covered property. An HO-4 usually also includes personal injury liability insurance and liability coverage for damage accidentally done to others’ property.
- HO-5 — Premier Homeowner Policy: The premier homeowners policy is the most expensive type of homeowners insurance, but it provides the most extensive coverage. An HO-5 policy usually covers everything, including wars, earthquakes, and floods. The home and its contents are covered on an open peril basis, meaning they will be covered for any loss that is not caused by something specifically excluded in the policy. These policies are not offered by all insurance companies, but can be attractive to those living in disaster-prone areas. Similar coverage can also be gained by endorsing an HO-15 as an addition to the HO-3.
- HO-6 — Condominium Policy: This form provides coverage for condominium owners. In a condo, the outside structure is covered by a master policy taken out by the condo owners, but the inside is still subject to damages, and is the responsibility of the unit owner. This type of policy can be adjusted to fit individual needs, but it typically covers personal property, the value of the condo unit itself, loss of use, and personal liability.
- HO-8 — No Replacement (Older Houses) Policy: The HO-8 is a “modified coverage” form most suited to owners of older homes whose replacement costs are likely to be much higher than their market value. Since older homes usually cost more to rebuild, and because they usually do not meet current building and wiring codes, they pose a greater risk to insurers. Because of this, they are usually covered under specially written “no replacement” policies. In the event of a loss, this type of insurance will cover the cost of the home minus depreciation, rather than paying for the full replacement cost to have it rebuilt as it was.