Types of home insurance

Whether you’ve invested in a traditional single-family home, mobile home, or condominium, you want to make sure you’re financially protected if something happens to it. That’s where homeowners insurance comes in. Home insurance is an important tool for homeowners looking to protect their property.

In this article, we explore the most common types of home insurance policy forms and identify which ones are appropriate for which types of homes.

8 Common types of home insurance policies

There are eight different homeowners insurance policy types – or forms – and for good reason. The insurance needs of a single-family home are much different than the needs of a condo or rental unit. Policy forms help tailor coverage to fit those homes.

These are the eight types of home insurance policies:

HO-1: Basic form

In today’s world, the HO-1 policy is rarely used because its coverage is so limited. It only covers damage to your home from 10 named perils and insures your home at its actual cash value. That means your home is only covered for its depreciated value, not what it would actually cost to rebuild it today.

For example, it may cost $120,000 to rebuild your home given today’s cost of labor and materials. But if your home’s actual cash value is only $90,000, you’d need to come up with the $30,000 difference to rebuild.

HO-1 covers damage to your home from 10 named perils:

1. Fire or lightning

2. Windstorm or hail

3. Explosion

4. Aircraft

5. Riot or civil commotion

6. Smoke

7. Vehicles

8. Vandalism

9. Theft

10. Falling objects

Ideal homeowners for an HO-1 policy 

HO-1 policies don’t cover personal property, personal liability, other structures, loss of use, or medical payments. It only covers your dwelling. Homeowners may opt for this policy if their home doesn’t qualify for a higher level of coverage or if the home is usually vacant.

HO-2: Broad form

An HO-2 policy is an upgrade from the HO-1. It insures the home for its replacement cost and your belongings for their actual cash value when they’re damaged by any one of the perils named in the policy. The named perils include the 10 perils listed in an HO-1 policy plus the following six: 

1. Weight of ice, snow, or sleet

2. Accidental discharge or overflow of water or stream

3. Freezing

4. Volcanic eruption

5. Sudden, accidental tearing apart, cracking, or burning or a built-in appliance such as a water heater or an oven

6. Sudden and accidental damage from a generated electrical current

An HO-2 policy also adds other coverage parts to protect the personal property in your primary residence, other structures on your property, and your personal liability. It even has coverage to help you if your home is made temporarily uninhabitable during a covered claim.

Ideal homeowners for an HO-2 policy

Unlike HO-1, the HO-2 form has additional coverage that can be very attractive to homeowners. However, its coverage is narrower than an HO-3 policy. This makes HO-2 policies better for homeowners who want to pay lower premiums in exchange for limiting their protection to certain named perils.

HO-3: Special form

An HO-3 policy typically gives you far more coverage than an HO-2 or HO-1 policy because it covers your home and other structures on an open peril basis. That means it covers all sources of loss or damage except when policy language excludes the peril. 

Commonly excluded perils in an HO-3 policy include:

1. Flood.

2. Ordinance or law.

3. Earth movement.

4. Backup of sewer or drain.

5. Power failure.

6. Neglect.

7. War.

8. Nuclear hazard.

9. Intentional loss.

10. Government action.

11. Theft to a dwelling under construction.

12. Vandalism from vacancy of 60 days or more.

13. Mold, fungus, or rot.

14. Wear and tear.

15. Mechanical breakdown.

16. Smog, rust, or corrosion.

17. Smoke from industrial operations or agricultural smudging.

18. Discharge, dispersal, or seepage of pollutants.

19. Settling, shrinking, bulging, or expanding of structure such as foundation.

20. Birds, vermin, rodents, insects.

21. Animals owned by insured.

Your belongings are usually covered for their actual cash value in an HO-3, but you can often get an endorsement to change that. Most HO-3 policies also cover loss of use, personal liability, and medical payments.

Why HO-3 is the most common policy type for homeowners

The HO-3 policy is the most popular homeowners policy because it’s a good balance between robust coverage and affordable premiums. In fact, almost 80% of homeowners policies issued are HO-3 policies, according to data from the National Association of Insurance Commissioners.

HO-4: Tenant's insurance

An HO-4 policy, also called renters insurance or the contents broad form, covers only belongings and personal liability. It can be purchased for any type of property (condo, single-family, apartment) if it’s leased.

Belongings are typically protected against 16 named perils:

1. Fire or lightning

2. Windstorm or hail

3. Explosion

4. Riot or civil commotion

5. Aircraft

6. Vehicles

7. Smoke

8. Vandalism

9. Theft

10. Volcanic eruption

11. Falling object

12. Weight of ice, snow, or sleet

13. Accidental water overflow or steam

14. Sudden and accidental tearing apart, cracking, burning, or bulging of certain household systems

15. Freezing

16. Sudden and accidental damage from artificially generated electrical current

Most renters policies cover your belongings anywhere in the world. They also offer personal liability, loss of use, and medical payments coverage.

Why renters should consider HO-4 policies

As a renter, you only have an insurable interest in your own property, so you need a policy that covers it and your liability. That’s what you get with an HO-4. Unlike other home insurance policies, an HO-4 doesn’t cover the physical structure of the home or other buildings on the premises. It’s up to your landlord to insure these structures.

HO-5: Comprehensive form

The HO-5 policy is usually for high-value properties in high-risk areas. As the name suggests, this policy offers comprehensive coverage. It’s actually quite similar to an HO-3: Both policies cover the home, other structures, and belongings at their replacement cost. But there are some key differences:

• The HO-5 offers open perils coverage for your home and belongings. Remember, HO-3 defaults to named-perils coverage for belongings.

• An HO-5 policy usually has higher coverage limits for expensive belongings like electronics, jewelry, and furs.

For most homeowners, the extra coverage is not worth the extra premium when the HO-3 covers similar losses.

Ideal candidates for a comprehensive HO-5 policy

Because HO-5 policies include coverage similar to more popular HO-3 policies but have higher coverage limits for valuables like electronics and jewelry, it’s also typically more expensive than a standard HO-3 policy. This makes it ideal for homeowners who have valuable collections or expensive luxury items that may not be adequately covered with an HO-3 policy.

HO-6: Condominium insurance

Also called condo insurance or a walls-in policy, an HO-6 policy covers the interior of a condo unit and its contents. HO-6 policies also usually come with loss of use, personal liability, and medical payments. The HO-6 policy complements the HOA’s master insurance policy, which typically covers the exterior of the condo and common areas like terraces, pools, and hallways. 

Condo insurance policies also often have loss assessment coverage. This kicks in when you’re responsible for helping cover damage or repairs to shared property. For example, if your condo association files a claim on the master policy, unit owners may need to chip in to cover the deductible. Loss assessment coverage can help cover that unexpected cost.

Why condo owners should choose HO-6 policies

Condo insurance covers the part of the unit that the owner is responsible for – the walls, ceiling, floors, and fixtures. That way, condo owners are only paying to protect the parts of their home they’re responsible for.

HO-7: Mobile home insurance

The HO-7 policy is for manufactured homes, including single-wide, double-wide, or triple-wide manufactured homes. It’s also referred to as an MH-3 policy because it’s like the HO-3 policy for homeowners but designed to protect the unique characteristics of a manufactured home.

The policy covers the home itself, other structures on the property, belongings, personal liability, loss of use, and medical payments.

Please note: People tend to use “manufactured home” and “mobile home” as synonyms, but these aren’t technically the same thing. While both are built in factories and transported to the installation site, manufactured homes meet federal building regulations. Mobile homes, typically built before federal standards were implemented, don’t.

Ideal circumstances for choosing HO-7 coverage

In order to qualify for an HO-7 policy, a manufactured home typically needs to meet Department of Housing and Urban Development standards. Additionally, their home often need to be permanently installed on a lot and:

• Anchored down in accordance with state and local regulation.

• Fully skirted or have an enclosed foundation.

• Have handrails anywhere they have at least three steps.

• Owner-occupied.

• Properly maintained.

Mobile homes that don’t meet these requirements often have a hard time getting insured.

HO-8: Modified coverage form

The HO-8 policy is the go-to policy for older, high-risk homes. These homes may have a difficult time getting other coverage because they may not meet underwriting requirements. For example, older homes can have outdated electrical wiring that increases their fire risk. This may mean the home’s replacement cost outweighs the home’s value.

An HO-8 covers the home for its actual cash value against 10 named perils like the HO-1:

1. Fire or lightning

2. Windstorm or hail

3. Explosion

4. Aircraft

5. Riot or civil commotion

6. Smoke

7. Vehicles

8. Vandalism

9. Theft

10. Falling objects

Unlike the HO-1, it also covers other structures, personal belongings, loss of use, personal liability, and medical payments.

Homeowners who might benefit from HO-8 coverage

An HO-8 policy may be a good fit your home is:

• Older, especially more than 40 years old.

• A registered landmark.

• An architecturally significant home.

• Constructed of hard-to-replace materials.

How to choose the right type of home insurance

Choosing the right type of home insurance starts with whether you own or rent. If you rent, you need to get an HO-4 renters’ policy. If you own, then it’s a question of what you own. Are you a condo or townhome owner? Then you need an HO-6. Do you have a manufactured home? Then an HO-7 is right for you.

If you own a single family dwelling that isn’t a condo or a mobile home, then the final question to consider is whether any special circumstances come into play. Owning a historic home or a lot of valuable personal property impacts your insurance needs and may make an HO-8 or HO-5 policy appropriate. Otherwise, the ever popular HO-3 is usually a good choice.