Types of Homeowners Insurance: Which Policy is Right for You?

Homeowners insurance protects your dwelling, personal belongings, and personal liability. Unlike car insurance, homeowners insurance is not required by state law. However, if you have a mortgage, your lender will require homeowners insurance to protect the investment.

There are eight different types of home insurance. Here's everything you need to know about homeowners insurance policies, what they cover, and which is right for you.  

Overview of Homeowners Insurance Policies

Most people are familiar with renters insurance, homeowners insurance, and condo insurance, but there are eight types of homeowners policies based on your home type. 

Understanding the Different Levels of Coverage

Homeowners insurance policies offer various levels of coverage, including one or more of the following:

1. Dwelling coverage: This protects the structure of your home against damage from events like fire, hurricanes, and lightning. It also covers detached structures like garages and sheds.
2. Personal belongings coverage: This covers furniture, clothing, and personal items against theft or damage from insured disasters, typically ranging from 50% to 70% of the dwelling coverage amount. 
3. Liability protection: This covers lawsuits for bodily injury or property damage caused by you or your family members, including pets. 
4. Additional living expenses: This covers the extra costs of living away from home if it's uninhabitable due to an insured disaster, including hotel stays and meals. 
5. Medical payments to others:This coverage pays for minor injuries of non-household members injured on your property. 

Why Choosing the Right Policy Matters

Choosing the right policy matters because it'll protect you from unexpected events and also help you avoid financial headaches from damage or liability claims.

If you have a mortgage, your lender may prefer the type of coverage necessary to secure the home loan. Therefore, it is best to talk to your agent and lender to ensure proper coverage. Additionally, some condominium associations will have by-laws rules about minimum homeowners insurance coverage. 

Common Types of Homeowners Insurance

Here's a roundup of the eight different types of homeowners insurance and what they cover.

HO-1: Basic Form

What It Covers

Also known as basic form homeowners insurance, the HO-1 policy provides bare-bones coverage for only 10 specific perils, including fire or lightning, windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, vandalism or malicious mischief, theft, and volcanic eruption. 

Since it provides the least amount of coverage compared to other types of homeowners insurance, it's typically the most affordable. 

Limitations and Exclusions

HO-1 policy only covers 10 perils, meaning any risk not explicitly mentioned is not covered. It also doesn't cover personal property, liability, or additional living expenses.

HO-2: Broad Form

Expanded Coverage Compared to HO-1

The HO-2 policy broadens the coverage significantly by including additional perils beyond those listed in HO-1.

Commonly Covered Perils

Commonly covered perils include vandalism, falling objects, and the weight of ice or snow, in addition to the basic perils provided by the HO-1 form. An HO-2 policy also includes coverage for your personal belongings, personal liability, loss of use or additional living expenses coverage, and medical payments to others. 

HO-3: Special Form

Most Common Type of Homeowners Insurance

HO-3 is the most common type of homeowners insurance because it covers the house, your belongings, liability coverage, medical payments to others, and additional living expenses.

Open Perils vs. Named Perils

Unlike HO-1 and HO-2, which only provide coverage for specific, named perils, HO-3 home insurance policies cover your dwelling and other structures on your property under open perils coverage. This means it protects your house from all perils unless they are specifically listed as exclusions. 

HO-4: Tenant's or Renter's Insurance

Coverage for Personal Belongings and Liability

Generally, renters insurance covers your belongings from theft, damage, and unexpected events. Renters insurance policies cover up to a specific dollar amount, usually around $20,000 or $30,000 worth of coverage.

It's worth noting that renters insurance doesn't cover the building itself. The exterior and common areas are generally covered under the landlord's insurance policy. Conversely, your property is not covered under your landlord's insurance.

Renters insurance is generally cheaper than other types of home insurance because it doesn't cover the building itself, just your possessions.

Who Needs HO-4 Insurance

HO-4 insurance is best for tenants who want to protect their personal property and liabilities but do not need coverage for the dwelling itself, as that is the landlord's responsibility.

Read our guide to the best renters insurance here.

HO-5: Comprehensive Form

Highest Level of Coverage

The HO-5 form offers the highest level of coverage available for homeowners. This means it covers your house and personal belongings under all circumstances except those listed as exclusions in the policy. 

Differences Between HO-3 and HO-5

While HO-3 covers personal property on a named-perils basis, HO-5 covers personal property against all risks except those specifically excluded, providing even broader protection.

HO-6: Condo Insurance

Coverage for Condo Owners

Condo insurance offers "walls-in" coverage, which means it covers everything inside your walls, whether it's your property, your liability, or damage inside your unit. 

How HO-6 Differs from Standard Homeowners Insurance

The major difference between standard homeowners insurance and condo insurance is the dwelling coverage. Condo insurance typically covers the personal property and appliances within the home but not the structure itself. On the other hand, a standard homeowners insurance policy covers the entire structure of a property, plus your personal belongings. As a result, the average condo insurance cost is lower than standard home insurance.

HO-7: Mobile Home Insurance

Specialized Coverage for Mobile and Manufactured Homes

The HO-7 policy has similar coverage to an HO-3 policy, but it's specifically designed for mobile and manufactured homes. Like an HO-3 policy, an HO-7 policy covers personal property on a named-perils basis and dwelling on an open-perils basis.

What's Included in HO-7 Policies

HO-7 policies generally include coverage for the dwelling, personal property, and liability, similar to traditional homeowners policies but tailored to fit the specifics of mobile home ownership.

Mobile home insurance is generally more expensive than HO-3 policies because mobile homes pose a higher risk than homes with permanent foundations.

HO-8: Modified Coverage Form

Designed for Older Homes

HO-8 home insurance policies are designed for older homes that may not meet the criteria for standard policies and provide coverage that reflects the home's actual cash value rather than replacement cost.

With an HO-8 policy, your house and personal belongings are covered only for 10 specific perils, including fire or lightning, windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, vandalism or malicious mischief, theft, and volcanic eruption. 

How HO-8 Addresses Replacement Cost and Market Value

HO-8 addresses replacement costs by focusing on the market value of the home, ensuring that older properties are insured fairly without requiring updates that could inflate their replacement costs.

Choosing the Right Type of Homeowners Insurance

If you're in the market for homeowners insurance, check out these tips to help you choose the best homeowners insurance for your needs. 

Assessing Your Home and Coverage Needs

The first step in choosing how much homeowners insurance you need and which policy to buy is assessing your home. Some factors to consider are the size, age, and features of your home. For example, a larger home typically requires more coverage, and older homes may have unique risks that could increase your coverage needs. 

Comparing Costs and Other Factors

It's always smart to shop around for quotes before committing to an insurance provider. But remember, the cheapest price is probably not the way to go if that means a company isn't responsive when you file a claim or doesn't meet your insurance needs. So, besides cost, also look into the insurer's customer service, complaints, reputation, and coverage levels. 

Your find our guide to the cheapest homeowner insurance here.

Understanding Deductibles

Your deductible amount can affect your premiums, so you'll want to know how it works before shopping for homeowners insurance. Typically, the higher your deductible, the lower your premiums. A deductible applies every time you file a claim and only to property damage (dwelling and personal property coverage), not personal liability coverage. The deductible is subtracted or deducted from your claim payout. 

Your deductible can be a dollar amount or a percentage of your home's value. The Insurance Information Institute noted that the standard homeowners deductible is typically between $500 to $1,000.

*Available as add-on coverage if not part of the policy

**Flood insurance is available through the NFIP and approved insurers

***If you live in hurricane or tornado areas, additional windstorm rider may be required

Customizing Your Homeowners Insurance Policy

Since homeowners insurance isn't one-size-fits-all, most insurers allow you to customize your home insurance policy with optional coverage add-ons, called endorsements, to supplement the coverage in your policy.

Optional Coverages for Specific Risks

For example, most homeowners insurance policies don't cover damage caused by specific risks such as earthquakes or flooding, but you can customize your policy with a separate flood and earthquake insurance if you live in an area prone to these natural disasters. 

Endorsements for High-Value Items

If you have valuable items like jewelry, artwork, or collectibles, standard homeowners insurance might not cover them fully. Thankfully, endorsements for high-value items are a way to increase coverage for your valuables within your homeowners insurance policy. You may also "schedule" specific items up to their appraised value so that you're fully covered for your policies' perils, such as theft and fire.

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