The eight different types of home insurance available to homeowners are classified as HO-1 through HO-8. These types are broken down based on the category of house you have and the level of coverage you require.
Home insurance coverage ranges from the most basic (HO-1) to more commonly used policies (HO-2 and HO-3) and the most comprehensive (HO-5). The other categories cover other types of housing like rental housing, condos and mobile homes.
This article will cover:
Homeowners insurance coverage categories
A homeowners insurance policy is made up of six parts. The limits of these coverages depend on the type of policy you have. These parts are:
Coverage A (dwelling)
Also referred to as "hazard insurance," this part of your homeowners insurance policy covers repair or replacement of your home if damaged or destroyed by a peril named in the policy. Covered perils need to be sudden or accidental in nature. Exclusions to this coverage include flood, earthquake and other natural disasters originating outside the structure of the home.
Coverage B (other structures)
This covers unattached structures on your property including garages, sheds and fences. While in-ground swimming pools may be covered under some insurers' Coverage B, they are often considered high-risk attractive nuisances and may require separate coverage.
Coverage C (personal property)
Coverage C includes repair or replacement of belongings such as:
- Electronics such as computers and TVs
Coverage C covers not only your stuff in the home for repair or replacement but also possessions in off-site storage as well as in your car if someone breaks into it.
Home insurance companies will have a specific limit for personal property coverage. This limit is often set between 20% and 50% of your Coverage A limit. So, if you have $300,000 in dwelling coverage, your personal property limit will be between $60,000 and $150,000.
Coverage D (additional living expense)
Also known as loss of use (LOU) and ALE, if you have to relocate for repairs or rebuilding due to covered home damage, this coverage takes care of extra costs that can accrue. This includes:
- Extra commute costs
ALE limits vary from insurer to insurer and often have a time limit for use. Keep in mind also that it only covers extra costs. For example, if your average monthly food bill is $500 and getting meals from restaurants is $700 a month, ALE will cover the remaining $200.
Coverage E (personal liability)
If you, a family member in your home or your pet injures someone or causes property damage to another, Coverage E will cover your legal costs. Liability coverage starts at a minimum of $100,000. This may sound like a lot, but an extended court case can eat through that quickly, which could lead you to have to pay any costs beyond your policy limit out of your own pocket. To avoid this, we recommend raising your personal liability limit to $300,000.
Coverage F (medical expense)
This part of your home insurance policy works similar to Coverage E, except it covers medical expenses for injuries on your property or that were your fault. The dollar limit is usually between $1,000 and $5,000 per person injured.
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Homeowners insurance policy types
The home insurance policy type you need depends on your home type and coverage needs. They are:
HO-1 coverage is the most bare bones you can buy. It covers structural damage due to:
- Fire and lightning
- Windstorm and hail
- Aircraft and vehicular damage
- Smoke damage
- Theft and vandalism
- Volcanic eruption
- Riot or civil unrest
An HO-1 is what's known as a named peril policy. This means if the damage caused to your home is not expressly stated in your policy, it will not be covered by your home insurance.
Most HO-1 policies pay out claims at replacement cost. This means that the damages repaired or replacements will be paid out without factoring in depreciation. Otherwise, your policy will pay out at actual cash value (ACV), meaning repairs or replacements figure depreciation value into your final payout. Obviously, replacement cost is the more preferable of the two.
It is rare to find home insurance companies that offer HO-1 policies anymore. This is because other policy types offer much better coverage at reasonable prices.
HO-2 insurance policies cover everything that HO-1 policies cover as well as the following:
- Building collapse
- Frozen or burst pipes, as well as steam discharge
- Damage due to the weight of snow or ice
- Damage due to burst water heaters
- Personal property coverage
An HO-2 is also a named peril policy and pays out at ACV.
The HO-3 is the most commonly used type of home insurance policy due to its range of coverage and cost. It covers everything an HO-2 does, including offering liability coverage.
HO-3s are open peril policies. This means that unless a damage source is expressly excluded in your policy, it will be covered. Common exclusions are:
- Wear and tear
- Foundation settling or expansion
- Government action
This "tenant form" insurance policy is strictly for renters, whether it be a rented apartment, condo or house. It covers your personal property against named perils. An HO-4 policy may also cover personal liability, medical payments and LOU, as well. Dwelling coverage is not included in an HO-4 simply because the rental structure would be covered by the landlord's insurance.
This is the most comprehensive home insurance coverage you can get. It offers HO-3 coverage but also includes:
- Greater limits for expensive items, such as jewelry and electronics
- Dwelling and content coverage, such as open peril
- All damage and loss claims paid at replacement cost
Due to the high potential payouts, home insurers usually offer HO-5 policies in low-risk areas.
HO-6 is condo insurance, providing coverage for much of what your condo association doesn't. It includes named peril coverage for:
- Building property protection
- Personal property
- Personal liability
- Medical coverage
HO-6 pays out at ACV by default, but you can get a replacement cost policy for a higher price.
This policy type is specifically for mobile homes. It provides:
- Dwelling coverage against open perils at replacement cost
- Content coverage against named perils at ACV
An HO-7 policy also covers detached structures such as fences and sheds.
Similar to an HO-1, this policy type is for homes older than 40 years. Replacement costs for older homes can be very expensive and possibly involve materials that are obsolete. HO-8 policies provide for repairs or replacements using up-to-date materials at non-prohibitive costs.
Standard HO-8 policies pay out at ACV but can pay out at replacement cost as an endorsement.
What home insurance policy is best for me?
The best home insurance policy for your house depends in part on your budget. It should be noted that unless you have a mortgage on your home, you are not actually required to have homeowners insurance, but the low amount you pay in a premium compared to the huge amounts you could wind up paying for repairs or replacement of the entire house makes it practically a no-brainer regardless.
If you own a house, at least get an HO-2 policy for dwelling and property coverage. Finding an insurer that offers liability coverage as part of their HO-2 policy shouldn't be difficult. Be sure to compare home insurance quotes from multiple providers.
When you compare coverage limits and prices, you'll probably find that the coverage an HO-3 provides is superior and available at a reasonable cost. An HO-3 provides dwelling, personal property and liability coverage usually for just a little more than the cost of an HO-2.
If it is in your budget, consider getting an HO-5 policy. While the cost may be high, the long-term savings can be worth it for all that it offers.
If your home is 40-plus years old and the construction materials are outdated, you should consider an HO-8 policy. The standard coverage may not be optimal, but if you have a historic home, the replacement costs will not break you.
If you have a rental home, condo or mobile home, you're pretty much limited to an HO-4, HO-6 or HO-7, respectively.
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