8 Types of Homeowners Insurance Policies to Know
Homeowners insurance is one of the most important purchases that you can make to protect your home — and by extension, your family — from unexpected expenses that you would otherwise need to cover yourself.
If you’re in the market for homeowners insurance, you probably have a lot of questions. How much coverage do you need? How much will coverage cost? What factors influence your deductible? Are there any home upgrades, improvements, or changes that might lower your premium?
These are all great questions to ask. Another important question you should ask is: What kind of homeowners insurance policy do I need?
Below, we walk through the main types of homeowners insurance policies you may come across and explain the key differences between them. We also offer some guidance to help you determine which type of policy you’ll need.
Types of Homeowners Insurance
There are eight different types of “standard” homeowners insurance policies that you might encounter as you shop for insurance. They are numbered 1-8, and each offers different types and levels of protection. These are:
HO-1: Basic Form
HO-2: Broad Form
HO-3: Special Form
HO-4: Contents Broad Form
HO-5: Comprehensive Form
HO-6: Unit-owners Form
HO-7: Mobile Home Form
HO-8: Modified Coverage Form
Of these, the most common types of policies held by most homeowners will either be HO-3 or HO-5.
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 the replacement cost.
1. HO-1: Basic Form
What it is: HO-1 insurance, also known as basic form homeowners insurance, is truly the most basic form of homeowners insurance out there. If you have an HO-1 policy, your home will typically be covered at its actual cash value. Personal belongings can be covered by HO-1 policies, but this is not always the case.
What it covers: HO-1 policies typically provide coverage only for damage or loss caused by 10 specifically named perils:
Fire or lightning
Windstorm or hail
Explosion
Riot or civil commotion
Aircraft
Vehicles
Smoke
Vandalism and mischief
Theft
Volcanic eruptions
Damage or loss caused by events that are not specifically listed are not covered.
Who it’s for: Because these policies provide so little coverage and do not cover some rather common events (such as damage caused by falling objects or the weight of snow or ice on a roof) many insurance carriers no longer offer these policies. HO-1 insurance isn’t recommended for most people.
2. HO-2: Broad Form
What it is: HO-2 insurance is also known as broad form homeowners insurance because it provides coverage for a broader variety of perils compared to an HO-1 policy. HO-2 policies will typically cover your home at its replacement cost. Personal property will be covered at its actual cash value.
What it covers: An HO-2 policy will typically cover everything that is covered by an HO-1 policy, plus additional coverage for perils such as damage caused by:
The weight of ice or snow on a structure
The accidental overflow or discharge of water or steam
Freezing
Cracking or bulging caused by a sudden and accidental event
Accidental discharge from an artificially generated electrical current (i.e., a power surge)
Falling objects
Individual HO-2 policies may provide coverage against additional named perils, depending on the company.
Who it’s for: While HO-2 policies are more common than HO-1 policies, they are still less common than HO-3 and HO-5. That’s because of the limited coverage that they offer.
3. HO-3: Special Form
What it is: HO-3 coverage is the most common type of homeowners insurance. It is also known as special form coverage. Under HO-3 insurance, your home will typically be covered at its replacement cost, while your personal property will be covered up to its actual cash value. An endorsement can in most cases be added to your policy to provide replacement coverage for your personal property for an additional cost.
What it covers: Compared to HO-1 and HO-2 policies, HO-3 provides coverage against a much broader number of perils. This is because while HO-1 and HO-2 policies only provide coverage against certain named perils, an HO-3 policy will provide coverage for your home against damages caused by any peril except for those specifically excluded in the policy.
Some perils commonly excluded from an HO-3 policy include:
Earthquake
Flood
Landslide/mudslide
Nuclear Accident
Sinkhole
Neglect
Act of war or government action
Among others
HO-3 policies typically only cover personal property against named perils listed in the policy, which typically corresponds to the named perils found in an HO-2 policy.
Who it’s for: This type of policy will be a good option for most homeowners. No wonder it is the most commonly held homeowners insurance policy!
4. HO-4: Contents Broad Form
What it is: HO-4 is more commonly known as renter’s insurance. As such, HO-4 policies are specifically designed for those who are renting or leasing an apartment, home, or condo.
What it covers: Renter’s insurance essentially covers a renter’s personal property (at its replacement cost) against the same-named perils found in an HO-3 policy. Renter’s insurance will also typically cover your living expenses if your rented home becomes unlivable due to damage caused by a named peril — for example, a fire — and you need to find a new place to stay.
An HO-4 policy may or may not provide liability coverage.
Who it’s for: If you’re renting an apartment, condo, or house, then this is the policy for you!
5. HO-5: Comprehensive Form
What it is: HO-5 insurance, or a comprehensive policy, is often considered to offer the highest level of coverage for single-family homes. It is in many ways similar to an HO-3 policy, but with added protection and a few key differences.
What it covers: Under an HO-3, only your home is insured at its replacement cost, while your personal belongings will be covered at their actual cash value. An HO-5 covers both your home and personal belongings at their replacement cost (which is typically higher than cash value).
Additionally, while an HO-3 limits coverage for personal belongings to only named perils, under an HO-5 your personal belongings will be covered for all of the same perils as your home is. Finally, an HO-5 policy will typically come with higher coverage limits for certain types of personal property, such as art, jewelry, and electronics.
Who it’s for: Because of the higher coverage limits offered by an HO-5 policy, this is a good choice if you have a lot of high-value personal property in your home, or if you simply want as much coverage as possible. After HO-3, HO-5 is the second most common type of homeowners insurance policy.
6. HO-6: Unit-owners Form
What it is: An HO-6, also known as condo insurance or unit-owners insurance, is a special type of policy designed for those who live in either a co-op or condominium.
What it covers: In most cases, the condo association will hold HOA insurance, which will typically cover the condo building itself and certain shared areas. While each HOA policy will vary in exactly how much (and what) it covers, you as the unit owner will need to purchase coverage for anything that the HOA does not insure. This will often include coverage for:
Any renovations, upgrades, or improvements made to the unit after you purchased it
The walls, floor, and ceiling of the unit
Personal property
Loss of use
Personal liability
and more
Because HOA policies can vary so significantly, it’s crucial that you understand exactly what is covered by the master policy so that you can purchase adequate coverage for your own unit.
Who it’s for: If you own a condo or co-op unit, then you’ll most likely need HO-6 coverage. If you rent one of these units, then you will need renters insurance (HO-4).
7. HO-7: Mobile Home Form
What it is: An HO-7 is essentially designed to provide the same coverage offered by an HO-3 policy, but for a mobile home. This is because mobile homes aren’t covered under an HO-3 policy, which is designed for a single-family home. These policies are also known as mobile home policies (MHP).
What it covers: HO-7 policies can provide coverage for a variety of structures, including:
Single- and double-wide manufactured homes
Single- and double-wide mobile homes
Trailers (including travel trailers and fifth-wheel trailers)
Sectional homes
Modular homes
Park model homes
It is important to note that, in most cases, mobile home policies will only cover the home while it is stationary. It doesn’t typically cover damages or losses caused while the home is in transit.
Who it’s for: If your home could be classified as any of the structures listed above, then this type of policy may be the right one for you. That being said, mobile home coverage may also be available in the form of an endorsement on another policy type, such as an HO-3 or HO-5. If you are unsure if your home qualifies for HO-7, HO-3, or HO-5 coverage, an insurance agent can help you understand your options.
8. HO-8: Modified Coverage Form
What it is: HO-8 policies are specifically meant to provide coverage for homes that otherwise don’t meet the insurer’s standards for other types of coverage. In most cases, this means that the home is at high risk of loss or damage, or has a replacement cost that is higher than the actual cash value of the home.
What it covers: HO-8 policies typically provide coverage against the same-named perils as an HO-1. The amount of coverage offered by the policy will be based on the home’s actual cash value and not its replacement cost.
Who it’s for: Very often, this type of policy is held by older homes such as those constructed with aluminum wiring (which is prone to fire), a damaged roof, significantly outdated plumbing, or other factors that would need to be corrected or replaced to qualify for other forms of coverage. If you can’t afford to undergo these updates, or else don’t want to (as might be the case for homes that are historical landmarks, etc.) then purchasing an HO-8 policy allows you to purchase coverage for your home even without undergoing these expensive updates.
Don’t forget about riders and other coverage!
In addition to the policy types discussed above, you’ll also want to make sure that you understand the different riders that are available to you and consider whether or not you should purchase them. Riders provide additional coverage for specific events, sort of like an add-on to your regular homeowners’ insurance policy. Flood insurance, sewer backup/pipe coverage, other structures coverage, and earthquake coverage are common riders, but many others may be available to you as well.
So, what type of policy is right for you?
At the end of the day, the type of homeowners insurance policy that will be right for you will depend on a number of factors, including:
The type of structure you’re covering
The age and condition of the structure
The types of coverage you want or need
The requirements of your mortgage lender (if applicable)
That being said, for most homeowners, an HO-3 or HO-5 should provide adequate coverage. Most renters, meanwhile, should be well-covered by an HO-4. If you own a condo or co-op then an HO-6 will likely make the most sense for you, while an HO-7 provides coverage for mobile homes. Older homes that do not qualify for coverage under an HO-3 or HO-5, such as historical landmarks, may need to purchase coverage under an HO-8 policy.
If your head is spinning thinking about everything that goes into purchasing homeowners insurance — from the policy types discussed above to optional riders to coverage amounts and more — the good news is that a trusted and unbiased insurance agency can help you select the perfect policy for your needs.