By Wendy Connick
Your homeowner's insurance policy can protect your home and its contents in case of disaster. However, no homeowner's policy protects you against every possible threat.
It’s important to understand how your particular policy works and what it covers so that you can be sure you’re getting the protection you need.
Homeowners insurance coverage categories
A homeowner's insurance policy may include as many as five different coverage categories. The basic coverage categories for homeowners insurance are:
Dwelling protection: This protects the physical structure of your home.
Other structures: This protects structures on your property that aren’t directly attached to your home, such as fences and sheds.
Personal property: This protects your personal belongings inside your home. Basically, anything inside the house but not attached to it is considered personal property.
Loss of use: If you can’t live in your home temporarily because it’s been damaged, this type of coverage will reimburse you for some or all of your relocation expenses (e.g. hotel bills).
Personal liability: If someone sues you because of damage or injury they suffered on your property, this coverage may help out with related legal and other expenses.
Each of the eight different types of homeowners insurance provides different types of coverage within these five basic categories.
The basic types of homeowners insurance policies
Nearly every type of insurance policy that protects your living space will fall into one of these eight classifications.
Basic form (HO1)
The simplest and least comprehensive type of homeowners insurance provides coverage for only a handful of potential problems:
Fire and/or smoke
Hail and/or windstorms
Damage from vehicles
Damage from aircraft
Riots and civil commotion
Volcanic eruption (yes, really)
HO1 insurance policies usually only provide dwelling protection. Some insurance companies may allow you to add personal property coverage at an additional cost. Most mortgage providers don’t consider this type of policy to be adequate coverage, so if you’ve financed your home an HO1 policy is likely not an option.
Broad form (HO2)
A broad form of homeowners insurance policy will cover all the dangers included in basic form coverage, plus:
Weight of ice, snow, or sleet
Freezing of household systems, including HVAC systems
Sudden and accidental damage to pipes and other household systems
Accidental discharge or overflow of water or steam
Sudden and accidental damage from artificially generated electrical current
HO2 policies typically cover both dwelling protection and personal property. In some cases, they may also include liability coverage. However, they still only cover the specific damages listed in the policy.
Special form (HO3)
Special form policies are the most common type of homeowner's insurance. While HO1 and HO2 policies are “named peril” policies, meaning they only cover dangers that are specifically listed in the policy, HO3 policies are “open peril” policies. That means they’ll cover all dangers except those specifically excluded in the policy documents.
Most HO3 policies exclude the following types of damage:
Mold and fungus
General wear and tear
Exclusions can vary depending on whether the insurer believes your home is at high risk for certain types of damage. For example, HO3 policies on homes in areas at high risk of wildfires will often have a fire damage exclusion. HO3 policies typically include dwelling protection coverage, other structures coverage, personal property coverage, and liability coverage—many will also include loss of use coverage. However, the personal property coverage is usually limited to a narrower range of perils than the dwelling protection coverage.
Tenant’s form (HO4)
HO4 policies, more commonly known as renters insurance, are for people who rent rather than own their homes. Tenant’s form policies typically cover all the same dangers as HO2 policies. These policies include personal property coverage and liability coverage, but don’t cover the physical structure of the house. Some HO4 policies may also include loss of use coverage for the tenant.
Comprehensive Form (HO5)
Comprehensive form policies are usually the broadest and provide the highest level of coverage; not surprisingly, they also tend to be the most expensive type of homeowner's insurance policies.
The biggest difference between HO3 and HO5 policies is that most HO3 policies are “actual cash value” policies, whereas typically HO5 policies are “replacement cost value” policies. An actual cash value policy will only reimburse you for the actual value of a damaged or destroyed item, while a replacement cost value policy will reimburse you for however much it would cost to completely replace or repair the damaged or destroyed item (up to the coverage limits on the policy). HO5 policies also provide personal property coverage against a wider range of dangers than the typical HO3 policy. Many HO5 policies also have extra coverage for high-value personal property such as jewelry and artwork.
Condo form (HO6)
Not surprisingly, condo form insurance is for condominium owners. HO6 policies generally protect against the same types of dangers as HO3 policies. They provide dwelling protection coverage with a twist: HO6 policies cover the walls, floors, and ceiling of the condo unit but not the rest of the building. These policies also include personal property and liability coverage and may include loss of use coverage.
Mobile home form (HO7)
If you own a mobile home or manufactured home, you likely have an HO7 policy. Mobile home form policies are typically identical to HO3 policies, except they’re designed specifically for mobile and manufactured homes. Like HO3 policies, they provide dwelling protection coverage, other structures coverage, personal property coverage, liability coverage, and possibly loss of use coverage as well. HO7 policies generally only protect the home when it’s stationary; if you plan to move your mobile or manufactured home, you’ll need to get a special policy to cover it while it’s in transit.
Older home form (HO8)
Older homes have generally been built to less stringent code standards than recently built homes, and so insurers have designed a specialized type of homeowner's insurance policy for them. HO8 policies often only cover the basic perils listed in HO1 policies and generally apply to homes that are registered landmarks or otherwise deemed historic homes. Owners of registered landmarks are typically forbidden from updating HVAC, electrical and other parts of the home to enable them to qualify for a standard HO3 policy, so an HO8 policy is often the only option for them.
What about additional coverage?
As you can see, certain hazards are excluded from all eight types of homeowners insurance policies—floods and earthquakes were two of the most common. However, if you want to get coverage for a commonly excluded hazard, you can purchase a separate policy for that purpose.
If you want flood insurance, you can get a policy from the government’s National Flood Insurance Program. A few private insurance companies also sell flood insurance; a public insurance policy is usually the cheapest option, but if you want coverage that goes above and beyond what the National Flood Insurance Program will offer, private insurance is likely your best bet.
You can purchase earthquake insurance through many private insurance providers. Be aware that while earthquake insurance premiums are typically low, these policies usually set a deductible of 10% to 20% of your coverage limit. In other words, if you had a dwelling coverage limit of $200,000 and you filed a claim for earthquake damage, the insurer would require you to cover the first $20,000 to $40,000 in damages.
Choosing the right homeowner's insurance policy for you
With eight possible options to choose from, picking the right type of homeowners insurance policy might seem like a daunting task. However, since most of these policies are specialized, you really only have a few options at most. If you own a manufactured home or a condominium, for example, then you’ll want to stick with the type of homeowner's policy that’s designed for those particular sorts of homes.
Owners of traditional style homes have the most options to choose from, but remember that it’s not the type of policy that matters—it’s the type of coverage it provides. Before you choose your homeowners insurance policy, decide what types of dangers you want to be covered in the policy, how much of a deductible you’re comfortable with, whether you’re willing to settle for actual cash value or you insist on replacement cost value, and how high you want to set your coverage limits.
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