Types of Homeowners Insurance | Bankrate

Homeowners insurance is not a single policy type; consumers have eight types of home insurance policies to choose from when purchasing coverage. While some policies are tailored to specific types of homeowners or renters, others allow the homeowner to personalize what coverage they want. Before you purchase or renew a policy, ensure you understand all your options. To make it easier, Bankrate’s insurance editorial team explores the features of the different types of home insurance so you can make an informed decision.

HO–1 insurance

An HO-1 is the most basic homeowners insurance policy. It only provides coverage for the structure of your home, attached structures like garages and appliances and home features like carpeting. It does not include coverage for personal property, liability or additional living expenses. Because of those limitations, it is not as popular as more robust policy options.

HO-1 insurance is a named perils policy, meaning it only covers your home in specific loss events, which typically include:

• Damage from aircrafts or vehicles
• Explosions
• Fire and lightning
• Hail and windstorms
• Riots
• Smoke
• Theft
• Vandalism
• Volcanic eruption

With an HO-1 policy, your home, attached structures, appliances and home features will only be protected if they are damaged from one of the perils that is specifically listed in your policy. If they incur damage from anything else, you will need to pay for the repairs out of pocket as any claim filed for uncovered losses would be denied by your home insurer. It is worth noting that an HO-1 policy does not include liability, loss of use coverage or medical payments coverage, which are part of standard home policies. Because coverage is so limited, many insurers do not write this type of policy.

Learn more: HO-1 insurance

HO–2 insurance

An HO-2 insurance policy is also known as a broad form and covers your home and your personal belongings. Most home insurance companies will cover your personal belongings up to a specified level if they are at home, in your car or somewhere else, such as an offsite storage facility. HO-2 policies may include liability coverage in some circumstances. To determine if your HO-2 policy includes liability coverage, contact your insurance carrier directly.

Like an HO-1 policy, HO-2 insurance is a named perils policy that covers your home and your personal items from the losses that are listed out in your policy. Typically, the losses found in an HO-2 policy are similar to the ones in an HO-1, but may include a few additional ones:

• Accidental discharge or overflow of water or steam within the home
• A falling object
• Freezing of pipes and heating and air conditioning systems
• Sudden and accidental damage from certain electrical currents
• Tearing apart, burning, cracking from some household systems
• Weight from ice, snow or sleet

Learn more: HO-2 insurance

HO-3 insurance

The most common type of homeowners insurance is the HO-3 policy — accounting for more than 90 percent of all home policies written in the U.S. — which covers your home, your personal property, liability, additional living expenses and medical payments. Unlike an HO-1 and HO-2 policy, your home and attached structures are protected on an open-peril basis; they are protected from all kinds of losses except the ones that are specifically excluded from your policy.

Personal finance and insurance expert Laura Adams says, “An HO-3 is considered the standard coverage. It gives you ‘open perils’ coverage for your home structure, which protects you from all disasters unless the policy lists exceptions. However, you receive ‘named perils’ coverage for personal possessions, which applies to disasters named in the policy.”

Your home and other structures typically have the following perils excluded:

• Any animals owned by the insured
• Birds, rodents, varmint
• Defective construction or maintenance
• Earth movement
• Flood
• Foundation issues
• Government actions
• Intentional loss
• Mechanical breakdown
• Mold, fungus, wet rot
• Neglect
• Nuclear hazard
• Ordinance or law
• Pet or animal damage
• Pollution and corrosion
• Power failure
• Smog, rust, or corrosion
• Theft, vandalism and frozen pipes in vacant houses
• Wear and tear
• War and insurrection

Although floods and earthquakes are not covered by a standard HO-3 policy, you may be able to get an endorsement or separate flood insurance or earthquake policy to meet these coverage needs.

• Damage from aircrafts or vehicles
• Damage from the weight of snow or ice
• Damages caused by an electrical current
• Explosions
• Falling objects
• Fire and lightning
• Hail and windstorms
• Pipes freezing
• Riots
• Smoke
• Theft
• Vandalism
• Volcanic eruptions
• Water damage from plumbing or HVAC overflow
• Water heater damage

Learn more: HO-3 insurance

HO–4 insurance

An HO-4 policy, also known as renters insurance, is intended for renters who want to insure their personal belongings and get additional coverage, like liability and additional living expenses. An HO-4 is not technically a “homeowners” policy, as renters don’t own the property where they are living, which is why this policy type excludes coverage for the building’s structure whether it is a single-family home or multi-family structure like an apartment building. Renters would need to purchase separate coverage for flood and earthquake damage.

Renters insurance policies are usually named perils policies that cover the following events:

• Damage from aircrafts or vehicles
• Damage from the weight of snow or ice
• Damages caused by an electrical current
• Explosions
• Falling objects
• Fire and lightning
• Hail and windstorms
• Pipes freezing
• Riots
• Smoke
• Theft
• Vandalism
• Volcanic eruptions
• Water damage from plumbing or HVAC overflow
• Water heater damage

Learn more: HO-4 insurance

HO–5 insurance

An HO-5 policy is the most robust option available, covering your home, your personal belongings, liability, additional living expenses and medical payments for others. It typically covers personal possessions at replacement cost value versus actual cash value. These policies may also have higher coverage limits for personal possessions like jewelry compared to the more common HO-3 policy. However, not all home insurers offer HO-5 policies and not all homeowners will be able to purchase an HO-5 policy due to the strict qualification guidelines.

To get an HO-5 policy, your home typically needs to be newer construction, have higher than average replacement cost value, and/or located in a low-risk area for natural disasters.

Adams discusses how an HO-5 policy could be beneficial for individuals with high-value items. She says, “It typically costs more and may not be offered by every insurer, but could be worth it if you have many valuable possessions.”

With an HO-5 policy, your home and your personal items are both covered on an open perils basis. Some common exclusions include:

• Earth movement
• Government actions or laws
• Infestation of birds, rodents or insects
• Intentional loss
• Mechanical breakdown
• Mold
• Nuclear hazard
• Pets
• Vandalism if the property is vacant more than two months
• War and insurrection
• Water damages from floods or sewer backup

Because an HO-5 policy is written on an open perils basis rather than on a named perils basis, it covers more circumstances and can make it easier to get coverage when you file a claim. Because of its higher coverage limits for personal property, an HO-5 policy is usually more expensive than a standard HO-3.

Learn more: HO-5 insurance

HO–6 insurance

HO-6 insurance is specifically for condo owners. These policies exclude the structure of the condo and anything else that would fall under the overarching policy for the condo facilities insurance policy. Instead, the HO-6 covers your belongings, some appliances and devices within the condo, personal liability and additional living expenses. The structure and features are generally covered under a master insurance policy written for the entire collection of condos and the surrounding property of common areas, such as pools, laundry rooms or social rooms. HOA fees are commonly charged to condo owners to help cover these collective, overarching insurance policies.

It is important to have enough coverage in your condo policy to not only pay off your mortgage, but to purchase a similar unit if your building is damaged or destroyed and you need to move elsewhere. For flood and earthquake coverage, separate coverage would need to be purchased.

HO-6 policies are named perils policies that generally cover:

• Damage from aircrafts or vehicles
• Damage from the weight of snow or ice
• Damages caused by an electrical current
• Explosions
• Falling objects
• Fire and lightning
• Hail and windstorms
• Pipes freezing
• Riots
• Smoke
• Theft
• Vandalism
• Volcanic eruptions
• Water damage from plumbing or HVAC overflow
• Water heater damage

Learn more: HO-6 insurance

HO–7 insurance

An HO-7 insurance policy covers mobile or manufactured homes, including trailers, sectional homes, RVs and modular homes. This type of policy provides coverage for your home’s structure, your personal belongings, liability, additional living expenses and medical payments. Flood and earthquake coverage would need to be purchased separately.

The exterior of your home is covered under an open perils policy, which covers any situation that is not explicitly stated in your insurance policy.

However, HO-7 policies cover your personal belongings under a named perils policy. That means your personal items are only covered under a specific list of circumstances, including:

• Damage from aircrafts or vehicles
• Explosions
• Fire and lightning
• Hail and windstorms
• Riots
• Smoke
• Theft
• Vandalism

HO–8 insurance

HO-8 insurance rounds out the eight types of home insurance policies. This type of home insurance is generally considered best for old or historic homes that may have a relatively high rebuild cost because of their age, design or materials. Homes that have been designated as historic landmarks may do well with such a policy, as would older homes that use less common design features and materials. If it would cost more to repair your damaged home than its current value, an HO-8 policy may be a suitable option.

HO-8 policies include the standard coverage for dwelling, personal property, liability, additional living expenses and medical payments. Both your home’s structure and your personal property are covered under a named perils policy. This includes events such as:

• Damage from aircraft or vehicles
• Explosions
• Fire and lightning
• Hail and windstorms
• Riots
• Smoke
• Theft
• Vandalism
• Volcanic eruption

Like a standard home policy, flood and earthquake coverage would need to be purchased separately.

How do I choose the right home insurance policy?

Depending on your living situation, some types of homeowners insurance may be better choices than others. For instance, some policies are geared toward renters, condo owners, mobile homes, landlords or homeowners living in their homes. The first step is going to be identifying which category fits you best.

• If you live in a relatively modern home that you own on a mortgage or otherwise, you may be best with an HO-3, the most common home insurance policy.
• If you live in a rental property, you might consider an HO-4.
• If you live in a mobile home, you may do best with an HO-7.
• If you live in a condo that you own, then you should consider an HO-6.
• If you live in a historic home that you own, you might consider an HO-8.
• If you have a lot of high-value personal items and want the maximum amount of protection possible, an insurer may offer you an HO-5 policy.
• If you’re looking for a standard home insurance policy with slightly less protection and reduced cost, you may want an HO-2.
• If you’re looking for a minimalist policy that only covers the structure of your home, attached building and certain appliances, you may want an HO-1.

Ultimately, the type of policy you choose should meet your needs, provide adequate financial protection, and not cost more than your budget allows.

Frequently asked questions

• What is the cheapest home insurance?
  

  Home insurance rates can vary significantly between people, properties, policies and carriers. The cheapest home insurance for you may not be the cheapest for a friend. Where your home is located, when it was built, what types of materials it has, what types and levels of coverage you have and much more go into calculating your premium. In general, there are a few things you can do when looking for the cheapest policy. You can prioritize carriers with low average rates, focus on companies that offer several discounts and consider taking on increased risk by raising your deductible or lowering your coverage, to name a few approaches. If you choose to take on more risk, it’s wise to speak with an insurance expert before reducing your coverage or raising your deductibles, as both moves can result in you paying more out-of-pocket if a peril occurs.

• Can I decide to make my homeowners insurance named peril or open peril?
  

  Customers may select carriers that offer options between named and open peril policies, but these decisions are ultimately up to the insurance carrier. The most common form of home insurance, the HO-3, uses a combination of open and named peril. The structures are covered under open peril, with a list of exceptions, and personal belongings are covered under named peril.

  Open peril policies cover any damaging event that isn’t excluded, as opposed to named peril policies, which only cover damaging events that are specifically named within the policy. It is also possible to round out your named peril policy by adding further insurance endorsements.

• Is homeowners insurance required?
  

  Traditionally, home insurance is not legally required by the state or federal government. Mortgage lenders often require home insurance as a stipulation of the mortgage loan. In general, however, homeowners insurance is the homeowner’s choice and is an optional form of financial protection rather than a mandate. Even if you aren’t required to have home insurance, it can still be a wise choice. Without a policy, homeowners can get stuck paying out-of-pocket for any damages, repairs or replacements.

  When determining what policy type is right for you, you should know that the eight policy types described on this page follow standard national industry forms created by the Insurance Services Office (ISO, so there is consistency in the policy contract regardless of who your insurer is or where you reside.

• How much dwelling coverage do I need to replace my home in the event of a catastrophic loss?
  

  In general, you’ll want enough dwelling coverage to replace your home in case of a total loss. How much that takes can vary over time as the cost of materials and rebuilding fluctuates. Material and construction prices, both with and independent of inflation, have fluctuated significantly in the last five or six years. According to the Insurance Information Institute, cumulative replacement costs increased 55 percent between 2019 and 2022 due to supply chain disruption, escalating costs of construction materials and labor shortages. As a result, it is likely wise to speak with your insurance agent and have them do a full assessment of the replacement cost of your home. If your dwelling coverage limit is lower than that, you may want to increase that coverage limit.