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 home insurance policies
Types of Home Insurance Policies
Here’s a look at the 8 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
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 deprecation 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.
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Tips To Choose The Best Home Insurance Company
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Purchasing a home is likely one of the largest financial investments you’ll ever make. Protecting that investment is essential. Homeowners insurance can be crucial in safeguarding your home from unexpected and costly damages. However, navigating through various policies to find the right one for your specific needs can be overwhelming, and you may wonder what to look for in your homeowners insurance coverage. That’s where Bankrate can help. Our editorial team, with decades of combined experience in the insurance industry, is here to assist you. We’ll show you how to choose homeowners insurance by considering all factors from cost to coverage to determine how to find the best home insurance for you.
There are many home insurance companies on the market, so comparing providers can help narrow down your options. Some of the most important things to consider are your location, the cost of coverage and the provider’s third-party ratings. The following five steps will help you understand how to choose the best homeowners insurance company for your needs:
1. Consider your location
Home insurance rates vary by state, city and ZIP code, and are typically based on common causes of loss in the area. For example, the cost of home insurance in high-crime neighborhoods is typically more expensive than the average rates in an area with a lower incident rate. Knowing the common causes of loss in your location can help determine what kind of coverage you need. Here are some things to consider:
Crime rates: If you live in an area with a high rate of home break-ins or theft, it is possible that your home insurance premium could be more expensive. You may even consider a home alarm system to protect your home and potentially provide a discount with your insurance company
Weather events: Living in an area with severe weather risks, like hurricanes, tornadoes or hail, could have a major impact on your home insurance premium. Keep in mind that the cost of home insurance in states with a high risk of severe weather usually have more expensive premiums.
Proximity to fire station: Homes that are located within one mile of a fire station are often cheaper to insure. On the other hand, if you live several miles away from a fire station, you could pay more in premiums due to the increased time it would take for help to arrive. In this case, it may be beneficial to look for a company that offers discounts for fire risk mitigation.
2. Factor in your home’s features
Certain factors, like your home’s square footage, construction materials and safety features can influence the cost of home insurance. When shopping for insurance companies, it helps to look for providers that offer coverage for those features, as well as discounts. For instance, many home insurance companies will lower your rate for having an impact-resistant roof or a home security system.
To maximize your payout after a claim, consider adding an extended replacement cost value (RCV) endorsement, which would increase the dwelling coverage. It might also be a good idea to look at endorsements that could come in handy based on your home’s features, like yard and garden coverage or water backup and sump pump coverage.
3. Check trusted third-party ratings
Many home insurance companies are rated by third-party organizations. When comparing insurers, consider looking at their J.D. Power ratings for overall customer satisfaction, which takes into account real customer feedback around cost, agent interactions and claim handling.
Additionally, it can be helpful to look at each provider’s rating from AM Best and Standard & Poor’s (S&P) for financial strength. A company with strong financial stability has historically demonstrated the ability to pay policyholders’ claims. Many insurance companies publish these ratings on their website.
4. Compare quotes based on coverage
When you purchase a home insurance policy, the rate will vary based on a number of factors that are unique to you and your home. Additionally, every home insurance company charges a different rate. Comparing quotes from a few providers for the same amount of coverage will help you determine which home insurance company is the cheapest for you.
Keep in mind that home insurance policies may reimburse you for covered personal property losses based on actual cash value (ACV), which factors depreciation into your payouts. If your policy defaults to ACV on personal property, you have the option to upgrade to an RCV, but it will be more expensive. If you purchase options like home sharing coverage or scheduled personal property coverage, your rate will also increase.
Why it’s important to choose the best home insurance company
While the basic home insurance coverage types are standard across carriers, each home insurance company may offer a different experience to its policyholders. This could be during policy shopping, renewal or the claims process. Because of this, it may be a priority for some homeowners to also consider the experience they want in addition to their desired coverage amount and annual premium.
Here are some factors that could influence your decision when picking the best home insurance company:
Accessibility: Think about the customer service options and accessibility for each company. If you want peace of mind knowing that you can reach an agent at any time, you may want to prioritize companies that have 24/7 customer service and claim reporting.
Local agents: Although it may not always be the case, many top national insurance providers have offices spread across the country with local agents who have expertise in your geographic area.
Digital management: If you are someone who prefers not to work with an agent, you could look for home insurance companies that have a mobile app and online customer portal that will allow you to manage your policy and file claims any time, anywhere.
Claims: Check out the J.D. Power Property Claim Satisfaction Study to get a better sense of each company’s claim handling reviews. J.D. Power ratings account for things like settlements, claim servicing and the home repair process.
Available discounts: Discounts can be a great way to save on your premium. Before deciding on an insurance provider, it can be helpful to see which discounts they advertise and which ones you qualify for. Bundling discounts tend to offer the highest savings.
