Home insurance is essential for people who want to protect their home and personal property. But with so many types of homeowners insurance policies available, it can be challenging to know what kind of coverage is needed. Below, we'll look at the most common homeowners insurance coverage types to help you find what you need.
This article assumes homeowners already know how to answer the question "What is a homeowners policy?" If not, start with this primer on homeowners insurance.
What different types of homeowners insurance policies are there?
There are eight types of home insurance, which are outlined below.
HO-1
An HO-1 policy is the most basic of all the types of homeowners insurance for single-family homes. It only covers homes and personal belongings at actual cash value against the following perils:
- Damage from aircraft
- Damage from vehicles
- Explosions
- Falling objects
- Fire or lightning
- Hail or windstorms
- Riots and civil commotions
- Smoke damage
- Theft
- Vandalism
Many homeowners insurance companies don't even offer this type of policy anymore.
HO-2
HO-2 home insurance policies provide more broad coverage than HO-1s. Homes are covered at replacement cost while belongings are covered at actual cash value. Both are protected against the 10 perils listed above as well as:
- Accidental discharge or overflow of water or stream
- Freezing
- Sudden and accidental damage from an artificially generated electrical current
- Sudden and accidental tearing apart, cracking, burning, or bulging of a built-in appliance
- Volcanic eruption
- Weight of ice, snow, or sleet
HO-3
HO-3 policies are probably the most common of all the types of home insurance. These provide replacement cost coverage for homes and actual cash value coverage for personal property.
HO-3 insurance policies provide "all risks'' coverage for the home, which means they cover pretty much everything except for the exclusions listed in the policy. Personal property is typically only protected against the 16 named risks listed above.
HO-4
HO-4 policies are renters insurance. These protect personal property at replacement cost. They also provide liability coverage in case the policyholder is held responsible for damage to the rental. And there's usually additional living expenses coverage to help the policyholder pay for another place to stay if the rental is damaged.
HO-5
The main difference between HO-3 vs. HO-5 policies is the level of coverage. An HO-5 policy covers both the home and personal property at replacement cost. Both typically receive "all risks" coverage with an HO-5 compared to just the home itself with an HO-3.
These policies are typically for expensive homes and may include extra coverage for valuables, like jewelry and electronics.
HO-6
If you've ever searched "What is an HO-6 insurance policy?," you'll know they cover condos. They're similar to renters policies in that they cover personal property, loss of use, and liability coverage if the policyholder is found responsible for damaging the condo. These policies also include loss assessment coverage. This helps cover shared losses to common spaces in the homeowners association.
HO-7
HO-7 policies are similar to HO-3 policies, but they're designed to cover mobile homes. These are not typically covered under a traditional homeowners policy, so they require a special one of their own.
HO-8
You typically see an HO-8 policy with an older home that doesn't meet the requirements for an HO-3 policy. This could be a home with old electrical wiring, plumbing, or roofing that could make the home more likely to experience an accident. The home and property are only covered at actual cash value against the 10 named perils HO-1s cover.
What are the different homeowners insurance coverage types?
In addition to the types of property insurance listed above, home insurance can also be broken down this way:
Actual cash value
Actual cash value coverage means that in the event of a covered loss, the insurance company will pay the policyholder what the home or personal property is actually worth right now. This may not be enough to replace these items with new ones. Personal property is almost always covered at actual cash value, though some insurers enable policyholders to purchase riders that add replacement cost coverage for personal property.
This type of coverage usually has more affordable premiums than replacement cost coverage. But it could lead to huge out-of-pocket costs, above and beyond homeowners insurance deductibles, for policyholders who need to file a claim.
Replacement cost
Replacement cost coverage pays the policyholder what it would cost to rebuild their home or replace their personal property at today's prices, up to the limit on the policy. This limit usually increases gradually every year to keep up with inflation.
It's more expensive than actual cash value coverage, but it provides homeowners a greater sense of security because they won't have to worry about footing much of the rebuilding costs themselves.
Guaranteed or extended replacement cost
Extended replacement cost gives policyholders an extra cushion if rebuilding your home costs more than the limit on the policy. With this coverage, the insurer will usually pay 25% to 50% more than the policy limit to rebuild the home, if necessary.
Guaranteed replacement cost is the highest level of protection. With this coverage, insurers will pay whatever it takes to rebuild the home, regardless of cost.
What's not covered by standard types of home insurance?
Some things that all types of homeowners insurance typically don't cover include:
- Earthquakes
- Floods
- Maintenance issues
- Sewer backups
For a full list of what isn't covered, check the homeowners insurance policy.
How to choose between the different types of home insurance
Hopefully, the above guide has shown the various types of homeowners insurance policies available. When looking for a policy, an insurance agent may be able to help. Homeowners should first narrow down options by focusing on customer service and available discounts on homeowners insurance. Then, contact the companies to get advice on which type of policy makes the most sense.
Some homeowners insurance quote tools may also ask questions to help determine which types of home insurance could be a good fit for you.
Determining how much home insurance coverage you need
The amount of home insurance coverage a homeowner needs often isn't the same as what was paid for the home, particularly if it was bought a long time ago. You could consult a builder to estimate how much it would cost to rebuild your home at today's prices. Or, for a quick estimate, multiply the square footage of your home by the per-square-foot building costs in your area.
