If you own a home, having homeowners insurance is important. It can help you financially if there are damages, theft, or liability problems. But there are many different types of homeowners insurance, and it can be hard to choose the right one for you.
Types Of Homeowners Insurance
It’s important to learn about the different types of policies so you can make sure you have enough coverage and don’t pay too much. This article will discuss the different types of homeowners insurance policies and what they cover. We’ll also give you some things to think about when you’re selecting a policy to protect your home.
What is Home Owners Insurance
Homeowners insurance is a type of insurance that protects an individual’s home, personal belongings, and furniture from losses and damages. It also provides liability coverage for accidents that occur on the property or within the home.
Importance Of Homeowners Insurance
You should insure your house for at least 6 reasons.
- Firstly, natural disasters like earthquakes, floods, landslides, and fires can happen anytime and cause damage to your home.
- Secondly, if your house is damaged, repairing it can be very costly.
- Thirdly, your home is not just a place to live but also an investment, and ensuring it can help maintain its value.
- Fourthly, if your house is also your place of business, damage can cause bankruptcy, but insurance can prevent this.
- Fifthly, property insurance often provides temporary housing during repairs.
- Finally, having insurance gives you peace of mind and a sense of security, knowing that your home is protected and your family will be okay even if something happens.
Types of Homeowners Insurance
When you’re looking for homeowners insurance, you might come across eight different types of policies that are called “standard”. They are numbered 1-8 and each one gives 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
Most homeowners usually have either HO-3 or HO-5 policies, which are the most common types.
HO-1: Basic Form
The HO-1 homeowners insurance policy is the most basic and has the least amount of coverage. With this policy, your home and personal belongings are covered for their actual cash value, and it only protects your home and belongings against 10 specific causes of damage or loss. These damages are called “named perils.” These perils include:
- Fire or lightning
- Windstorm or hail
- Explosion
- Riot or civil commotion
- Aircraft
- Vehicles
- Smoke
- Vandalism
- Theft
- Falling objects
HO-2: Broad Form
HO-2 policies are more common than HO-1 policies and are a significant improvement over the basic form policy. It covers the dwelling, the structure of your home at its replacement cost, and personal property at its actual cash value. An HO-2 also protects your home and personal belongings from six additional named perils, such as damage caused by:
- Ice, snow, or sleet weight
- Water or stream discharge or overflow by accident
- The sudden and unintentional tearing apart, cracking, burning, or bulging of a built-in appliance such as a water heater, central air conditioner, or heating system.
- Freezing
- Damage caused by an artificially generated electrical current, such as power surges, can be sudden and accidental.
- The eruption of a volcano
HO-3: Special Form
The most common type of homeowners insurance policy on the market, accounting for the vast majority of single-family home policies, is an HO-3, or special form policy.
HO-3 policies provide all-risks coverage for your home and personal property against the same named perils as HO-1 and HO-2 policies. All-risks coverage, also known as open-peril coverage, means you’re covered for everything except the causes of loss specifically excluded in your policy.
Perils Excluded from Your Policy
These are some of the excluded perils from your policy:
- Ordinance of law
- Earth movement
- Water damage from flooding, sewer backups, or water that seeps up from the ground
- Power failure
- Neglect
- War
- Nuclear hazard
- Intentional loss
- Government action
- Theft of a dwelling under construction
- Vandalism or malicious mischief (if the home was vacant for more than 60 days)
- Mold, fungus, or wet rot (except if it resulted from an accidental discharge or overflow of water)
- Wear and tear
- Mechanical breakdown
- Smog, rust, or other corrosion
- Smoke from agricultural smudging and industrial operations
- Discharge, dispersal, and seepage of pollutants
- Settling, shrinking, bulging, or expanding of parts of the structure like your foundation or walls
- Birds, vermin, rodents, insects Animals owned by insured
HO-4: Contents Broad Form
HO-4 policies, also known as renters insurance, are designed specifically for those who rent their home or apartment. Renters insurance protects your personal property both inside and outside of your rental property, such as if your laptop is stolen while you’re on vacation. Renters’ insurance protects against the same 16 named perils as broad and special form policies. Personal property is typically insured at its replacement cost.
Renters insurance, like HO-3 policies, covers your liability (aka legal expenses) as well as your additional living expenses if your apartment is damaged and you must temporarily relocate.
HO-5: Comprehensive Form
An HO-5 policy is the most comprehensive option, covering your house, personal belongings, liability, additional living expenses, and medical payments for others. In addition, these policies may have higher available limits for items such as jewelry than the more common HO-3 policy. However, not all home insurers offer HO-5 policies, and not all homeowners will qualify for an HO-5 policy due to stricter eligibility requirements.
Some exclusions on this policy include:
- Earth movement
- Government actions or laws
- Infestation of birds, rodents, or insects
- Intentional loss
- Mechanical breakdown
- Mold
- Nuclear hazard
- Pets
- Vandalism if the property is vacant more than two months
- War
- Water damage from floods or sewer backup
HO–6
HO-6 insurance is only available to condo owners. It includes coverage for everything inside your unit as well as personal liability and additional living expenses. Because condo owners may be responsible for the interior walls of their units, condo policies typically include some dwelling coverage.
Because condo residents only own their units and not the entire building, the condo association typically has its own insurance policy that protects common areas, grounds, and the building’s exterior. Condo or HOA fees typically contribute to the cost of the association’s insurance.
HO-7: Mobile Home Form
Mobile home insurance is similar to an HO-3 policy, but it is designed specifically for mobile homes, which are not covered by a standard single-family home policy.
Mobile homes covered by HO-7 policies include, but are not limited to:
- Trailers, travel trailers, fifth-wheel trailers
- Single-wide manufactured and single-wide mobile homes
- Double-wide manufactured and double-wide mobile homes
- Sectional homes
- Modular homes
- Park model homes and RVs
HO-8: Modified Coverage Form
HO-8 homeowners insurance is intended for older or historic homes with ornate features and other features that would be difficult to replace if a loss occurred. Essentially, if the home’s replacement cost exceeds its market value, it will most likely require HO-8 insurance.
Factors to Consider When Selecting a Homeowners Insurance Policy
Your home is most likely your largest investment, which is why it’s critical to have adequate insurance coverage to protect against unexpected losses. Inadequate coverage can lead to financial problems in the long run.
Finding the right home insurance can be difficult, so do your homework before making a decision. While low-cost insurance may appear appealing, it is critical to prioritize affordability over price.
Before purchasing a home insurance policy, consider the following:
- Home value and replacement cost
- Deductibles and premiums
- Exclusions and limitations
- Additional endorsements or riders
- Insurance company reputation and customer service
Frequently Asked Questions
How Much Should I Pay for Homeowners Insurance?
According to an analysis of 2022 home insurance rate data across the country, the average cost of homeowners insurance in the United States for an HO-3 policy is $1,899 per year or $158 per month. However, the cost of homeowners insurance varies depending on your location, the age of your home, the roof, and other factors.
What Is the Most Common Type of Homeowners Insurance?
An HO-3 policy is the most common type of homeowners insurance. HO-3 policies cover the majority of single-family homes.
How Do I Choose Homeowners Insurance?
When purchasing homeowners’ insurance, it is critical to understand what type of policy you require and how much coverage you require to protect your home. To ensure you’re getting the best deal, compare multiple insurers.
What If I Can’t Find Homeowners Insurance?
If you are unable to find homeowners insurance coverage due to the location of your home and the risk of damage, you have a couple of options to consider: a FAIR Plan offered by your state’s insurance department, or a surplus lines insurance policy offered by non-state-regulated excess and surplus (E&S) carriers.
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