Insurance is a economic association that offers safety towards monetary loss or danger. It includes a agreement, referred to as an coverage coverage, between an individual or entity (the policyholder) and an insurance agency (the insurer). Home coverage rules are types of coverage designed to shield house owners from financial losses because of damage or loss of their belongings.
Types of Home Insurance Policies
Here is an overview of the types of home insurance available.
- HO-1 Policy
- Principles of HO-2
- Principles of HO-3
- Principles of HO-4
- Principles of HO-5
- Principles of HO-6
- Principles of HO-7
- HO-8 Principles
Policy of Named Hazard Vs. Open Danger
To better understand how different types of home insurance work, it’s important to know how they’re set up. A “hazard” is an incident or problem that causes damage to your home, you or your belongings. Generally, there are two ways that coverage is basically spelled out – open perils and named perils:
Named hazard. All perils covered by this policy are specifically stated or named. Anything not listed is not included.
Open danger. Perils that are not covered are listed in your policy as exclusions. Everything not listed as an exclusion is included.
Here’s a summary of eight different types of homeowners policies.
What Is Ho-1 Home Insurance?
HO-1, also known as Basic Homeowners Insurance, provides bare bones coverage. An HO-1 policy will only pay if one (or more) of 10 specific perils damage your home:
- Fire or lightning
- Gale or hail
- Explosion
- Riots or civil disturbances
- Damage caused by aircraft
- Vehicle damage (such as a car crashing into your house)
- Smoke damage
- Vandalism or malicious mischief
- Theft
Volcanic Eruptions
HO-1 policies are limited because they usually only cover these 10 perils instead of the 16 or more that other policies do. Generally, it only provides coverage for the structure of the house at the actual cash value. This means that you won’t get the amount you would need to completely rebuild, but rather the value of the house after deducting depreciation due to its age. And it generally does not cover personal property, liability or other living expenses.
HO-1 costs less than other types of coverage because it provides the least coverage. It’s not available in most states, and if you have a mortgage, your lender usually requires a higher level of protection.
What Is Ho-2 Home Insurance?
An HO-2 policy, also called a broad form, provides coverage for more perils than an HO-1 policy. The HO-2 policy covers all perils in the HO-1 policy plus:
- The weight of snow and ice
- Accidental overflow or leakage of water or steam
- Freezing plumbing, air conditioning
- Bulging or bursting caused by a sudden and accidental event
- Falling objects
- Sudden, accidental damage caused by an artificially generated electric current
HO-2 policies include:
- Covering your house and other structures on your property
- Covering your personal belongings
- Personal responsibility
- Loss of use or additional living expenses coverage
- Medical payments to others
- Also, under HO-2, your belongings are only covered for their actual cash value, which is the value the items have after they are written off.
What Is Ho-3 Home Insurance?
An HO-3 policy provides adequate coverage for most homeowners and is the most common type of home insurance. It covers your home and property and includes liability coverage, medical payments to others and other living expenses.
HO-3 policies, unlike HO-1 and HO-2 policies, protect your home against all perils unless specifically listed as exceptions. This is called an “open peril” policy.
The HO-3 policy, known as a special form, will pay to repair or replace your home up to your insurance limits, unless the damage was caused by these typical exclusions:
- Power failure
- Industrial pollution or smoke
- Earthquake
- Floods
- Intentional damage
- War/nuclear accidents
- Pets and insects
- Sedimentation, wear and tear
- Negligence
- Government action and legal action due to lack of permits, faulty construction, design or maintenance by government and other associations
- Damage or theft in unoccupied houses or under construction
- Aggravation due to weather conditions that aggravate other excluded causes
- For your belongings such as electronics, furniture and clothing, the HO-3 policy provides coverage for 16 perils:
- Fire or lightning
- Gale or hail
- Explosion
- Riots or civil disturbances
- Damage caused by aircraft
- Damage caused by vehicles
- Smoke
- Vandalism or malicious mischief
- Theft
- Volcanic eruption
- Falling object
- The weight of snow, ice and sleet
- Accidental water overflows from home appliances or heating, plumbing, air conditioning or sprinkler systems extinguishing a fire
- Freezing home appliances or heating, plumbing, air conditioning or sprinkler systems that put out fires
- Accidental bursting, burning, or tearing of heating, plumbing, air conditioning, or sprinkler systems that extinguish a fire
- Accidental damage due to an electrical short circuit
What Is an Ho-4 Renters Insurance Policy?
An HO-4 policy, known as renters insurance, is designed for people who rent houses and apartments. The property is covered by the same 16 perils listed in the HO-3 policy. Additional living expenses and liability coverage are also included.
Policy HO-4 does not apply to damage to the rental unit itself. The landlord would need their own landlord’s insurance to cover the construction.
What Is Ho-5 Home Insurance?
Called a comprehensive policy, the HO-5 policy offers the highest level of home and property insurance coverage. It covers your home and property in all circumstances except those listed as exclusions in the policy. Exceptions for the HO-5 policy are the same as for the HO-3 policy.
The HO-5 policy will pay replacement cost rather than actual cash value. The HO-5 also includes liability coverage, medical payments to others, and other living expenses.
These comprehensive policies are often good for new construction insurance. Not all home insurance companies offer HO-5 policies.
What Is Ho-6 Home Insurance?
The HO-6 policy is intended for people who live in an apartment or cooperative. Condo insurance, known as “wall-in coverage,” includes:
- Any renovations you have done to the apartment after you bought it
- Walls, floors and ceilings
- Personal belongings
- Other living expenses
- Responsibility
- Medical payments to others
- Before purchasing an HO-6 policy, it is a good idea to check your condo association’s policy. You want to avoid gaps in coverage and also avoid any duplicate quotes with association insurance.
What Is Ho-7 Home Insurance?
The HO-7 policy has similar coverage to the HO-3 policy, but covers mobile homes. Mobile home insurance is an open risk for the construction of a mobile home or trailer. Like the HO-3, this means it covers any damage if listed as an exclusion. Property insurance covers only the specific perils listed in the policy, such as HO-3.
The HO-7 policy provides for the following types of structures:
- Single and double wide manufactured homes
- Mobile homes single and double wide
- Trailers
- Sectional houses
- Modular houses
- Policy HO-7 usually only applies to a mobile home when it is stationary. Does not provide cover
What Is the Difference Between Ho-3 and Ho-5 Policies?
- An HO-5 policy provides a wider range of coverage for your belongings than an HO-3 policy.
- It covers your property in any event not excluded in the policy.
- The HO-5 policy covers jewelry, furs, watches, gold, silver, and firearms in the event of damage, theft, loss, or misplacement. In the HO-3 policy, these items are covered if damaged or stolen.
- Here’s a comparison of HO-3 and HO-5 home and personal property coverage:
- HO-3: Standard coverage HO-5: Better coverage
- Dwelling
- It covers damage to your home caused by all issues except those specifically listed as exclusions.
- They usually only pay real cash value.
- It covers damage to your home caused by all issues except those specifically listed as exclusions.
- Pays the value of replacement costs.
- Personal property
- It only covers damage to your belongings for issues listed in your policy.
- Covers jewellery, gold, silver, watches and firearms if stolen or damaged.
- They usually only pay real cash value.
- It covers damage to your belongings from all issues except those specifically listed as exclusions.
- Covers jewellery, gold, silver, watches and firearms if stolen, damaged, lost or lost.
- Pays the value of replacement costs.
Related: Ho-3 Vs. Ho-5 Home Insurance
An explanation of the types of home insurance
Here’s a look at what each type of coverage will include under standard home insurance policies.
Dwelling coverage. Homeowner’s coverage pays to repair or replace your home if it’s damaged by an issue covered by the policy. You should purchase an amount of home coverage that is equal to what it would cost to rebuild your home based on local labor and material costs. Your home insurance company or agent can help you with this estimate.
Other structures. This coverage applies to additional structures on your property such as a fence, shed, barn or gazebo. Cover for other structures is usually set at 10% of home cover, but the amount varies by insurer. If 10% isn’t enough, you can increase the amount by obtaining an endorsement or purchasing additional home coverage.
Personal property. Personal property insurance is paid for the compensation of damaged or stolen items. The coverage limit is usually set as a percentage of your home coverage, usually between 50% and 70% of your home coverage. You can purchase a higher limit if needed.
Liability coverage. Liability insurance covers injuries and damages you accidentally cause to others. It pays for judgments against you or settlements plus your legal defense costs if you are legally responsible for injuries to others or property damage. Liability limits usually start at $100,000, but that may not be enough. It is wise to have adequate liability coverage to protect your savings and assets if you are sued.
Medical payments to others. This cover pays for minor injuries to non-household members who are injured on your property and pays regardless of fault. It is sold in small quantities, usually between $1,000 and $5,000.
Other living expenses. Additional living expenses cover pays for extra costs such as hotel and food bills when you are temporarily unable to live at home due to damage caused by a covered event – such as a fire. It is usually set at 20 to 30% coverage of your home. This coverage is also called loss of use.
Replacement cost vs. actual cash value
With a homeowners policy, you’ll generally be able to choose between replacement cost coverage and actual cash value coverage.
With replacement cost coverage, your damaged items and home are replaced with new and similar versions.
With real cash value, you receive depreciated value. For example, if you have an eight-year-old couch, your insurance company would reimburse you for the cost of the eight-year-old couch, not the new one.
Replacement cost coverage is more expensive, but you get more when you apply.
Tips for Buying Home Insurance
Get an accurate estimate of renovation costs. The key mistake is not buying enough coverage. Insuring it for less than the cost of rebuilding your home means you won’t be short of the money you need to replace it if there’s a fire or other major disaster, says Janet Ruiz, a spokeswoman for the Insurance Information Institute. To avoid this, get an accurate estimate for your home remodeling from your insurance company. Choose home coverage that matches the amount to rebuild your home.
Improvement bill. Another mistake people make when buying or renewing home insurance is not providing enough information about the home to the insurance company. If your insurance company doesn’t know the full value of your home, you risk being underinsured.
“If you are remodeling, let your insurance company know. Providing more information does not mean it will cost you more,” says Ruiz.
Consider additional coverage. Many homeowners overlook the additional coverage that can increase the base coverage in their insurance policies.
“Consumers may not be paying attention to the add-ons that may be needed,” says Trevor Chapman, a spokesman for Farmers Insurance. “For example, is your home an older house that has not been renovated? In such a case, it is recommended not to miss the code upgrade coverage. This can give you extra money to bring your home up to current building code” if you have an insurance claim.
Consider the value of your property. Accessories are also available for valuable items.
“Do you own special or valuable items such as jewelry or collectibles?” Chapman asks. “It may make sense to plan these items with your [insurance company] as many policies will have special sub-limits for certain types of personal items. By scheduling them, you can insure your special or valuable items for their full value.”
Ask about home insurance discounts. Don’t forget to ask about home insurance discounts. For example, if you’ve upgraded your roof or electrical system, or installed safety or security features, you may qualify for a discount. And if you have auto insurance with the same company as a potential home insurance company, ask about bundling insurance products together for additional savings.
Customer Service Research. Don’t base your choice on price alone – if you ever need to make a claim, you want a responsive company. Research insurance company reviews to see which ones have excellent customer service.
To help you identify the best homeowner insurance companies, Forbes Advisor ranked home insurance companies based on a variety of metrics that reflect their level of protection, customer care and pricing.
Compare multiple offers. Once you know what type of home insurance you want to buy and how much, you’re ready to comparison shop. Rates vary between companies for the same coverage, so it’s important to check homeowners insurance quotes from multiple home insurers.
s
