Paul Sanchez
Homeowners insurance tiers, also known as policy forms, refer to the different types of property insurance available to homeowners, condo owners, or renters. There are eight main types of homeowners insurance policies, designated HO-1 through HO-8, each offering varying levels of protection depending on the needs of the homeowner and the type of residence. The most basic type of homeowners insurance is HO-1, which covers the structure of the home and attached structures but does not include coverage for personal property, liability, or additional living expenses. The most common type of homeowners insurance is HO-3, which covers the home, personal property, liability, additional living expenses, and medical payments. HO-5 policies offer the broadest coverage, including protection for high-value properties and access to coverage add-ons.
| Characteristics | Values |
|---|---|
| Number of insurance tiers | 8 |
| Most common type | HO-3 |
| Most basic type | HO-1 |
| Most coverage | HO-5 |
| For renters | HO-4 |
| For condos | HO-6 |
| For mobile homes | HO-7 |
| For older homes | HO-8 |
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What You'll Learn
Homeowners insurance policy types
Homeowners insurance policies typically cover a wide range of perils and events that can cause damage to your property or belongings. However, it is important to note that there are also common exclusions that are not covered by standard policies, such as flood and earthquake damage.
There are eight types of homeowners insurance policies, designated HO-1 through HO-8, offering various levels of protection depending on the homeowner's needs and the type of residence. The HO-1 policy is the most basic type of homeowners insurance, offering limited coverage for the structure of the home and attached structures, but not including coverage for personal property, liability, or additional living expenses. This type of policy is not widely available and is considered the least costly option.
The HO-2 policy is a named perils policy, covering the home, personal items, and additional perils such as accidental discharge or overflow of water or steam within the home. This type of policy is more common than HO-1 but is still less popular than HO-3 and HO-5 due to its limited coverage.
The HO-3 policy is the most common type of homeowners insurance, providing coverage for the home, personal property, liability, additional living expenses, and medical payments. This type of policy is considered "open peril," meaning it covers all kinds of losses except those specifically excluded in the policy.
The HO-4 policy, also known as renters insurance, is intended for renters who want to insure their personal belongings and get additional coverage for liability and additional living expenses. This type of policy does not cover the building's structure.
The HO-5 policy is the most comprehensive form of homeowners insurance, offering broad coverage for the home, personal belongings, liability, additional living expenses, and medical payments. This type of policy covers personal property losses based on replacement cost rather than actual cash value, resulting in higher coverage limits and fewer restrictions on perils.
The HO-6 policy is designed for condo owners, providing coverage for personal property, personal liability, and additional living expenses. Condo owners may not need to insure common areas outside of their unit, which are often covered by the homeowners association.
The HO-7 policy is for mobile or manufactured homes, and the HO-8 policy is for older properties, typically built more than 40 years ago and may include provisions to insure an aging home.
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What does homeowners insurance cover?
Homeowners insurance provides financial protection for your home, which is likely to be one of your biggest assets. It covers damage to your home, property, personal belongings, and other assets in your home. It also covers personal liability for harm to others, for example, if someone sues you for accidental injuries.
The specific coverage depends on the insurer’s standard inclusions and any endorsements or extensions you select. Common endorsements include identity theft protection, inflation guard, and scheduled personal property coverage. There are several types of homeowners insurance policies, designated HO-1 through HO-8, with various levels of protection depending on the homeowner's needs and residence type. The most basic policy is HO-1, which covers the structure of your home and attached structures, but does not include personal property, liability, or additional living expenses. HO-2 policies cover the same as HO-1, plus additional perils such as accidental discharge of water. The most common type of policy is HO-3, which covers your home, personal property, liability, additional living expenses, and medical payments. HO-4 is for renters, and HO-5 is the most comprehensive option, covering personal belongings, liability, additional living expenses, and medical payments, with higher coverage limits and fewer restrictions on perils. HO-6 is for condo owners, HO-7 for mobile homes, and HO-8 for older properties.
Standard policies typically cover damage caused by disasters such as fire, hurricanes, and hail, as well as theft and accidents. However, there are some common exclusions, such as damage caused by floods and earthquakes, which usually require separate coverage. Home repair and maintenance costs are also typically not covered.
Homeowners insurance is not mandatory in any US state or Washington, D.C. However, if you are financing your home, mortgage lenders will usually require you to have a homeowners insurance policy in place. Even if you own your home outright, it is still advisable to have insurance to protect your assets.
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How are insurance rates determined?
Homeowners insurance policies typically cover a wide range of perils and events that can cause damage to property or belongings. However, standard policies often exclude certain natural disasters, such as floods and earthquakes. The rates for these policies are largely determined by the insurer's risk of the policyholder filing a claim. This risk is assessed based on the past claim history associated with the home, the neighbourhood, and the home's condition.
The least costly homeowners insurance will likely provide the least amount of coverage, and vice versa. In the United States, there are several forms of homeowners insurance designated from HO-1 to HO-8, offering varying levels of protection depending on the homeowner's needs and residence type. The HO-1 policy is the most basic type, offering limited coverage and protecting the home's structure against specified perils such as fire, lightning, windstorms, and hail. It does not include liability or personal property coverage.
The HO-2 policy is less common and covers all the perils of HO-1, plus additional ones like accidental discharge or overflow of water or steam within the home. The HO-3 policy is the most prevalent type, accounting for over 90% of home policies in the US. It provides coverage for the home's structure, personal property, liability, additional living expenses, and medical payments. The dwelling and other structures on the property are protected on an open-peril basis, meaning they are covered unless specifically excluded.
The 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. It does not cover the building's structure. The HO-5 policy is the most comprehensive option, offering the highest level of coverage for single-family homes with high-value properties and possessions. It covers the home, personal belongings, liability, additional living expenses, and medical payments. The HO-6 policy is for condo owners, covering personal property, personal liability, and additional living expenses.
The HO-7 policy, also known as the MHP (mobile home policy), is tailored for mobile or manufactured homes, while the HO-8 policy is designed for older homes, typically built more than 40 years ago. It provides coverage based on the home's actual cash value rather than replacement cost and includes protection against ten specific perils, such as fire, windstorm, theft, and vandalism.
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Exclusions from standard policies
Home insurance policies do not cover all types of damage, and it is important to know what your policy does and does not cover. While exclusions depend on the type of policy, insurance company, location, and specific situation, there are several common exclusions from standard policies.
Firstly, flood damage is excluded from standard home insurance policies. This includes natural flooding, rain, sewer line or sump pump backups, or water that seeps into your home's foundation. However, water damage from burst pipes or a defunct water heater is typically covered. Secondly, damage caused by earthquakes is also usually excluded, although insurers in some states are required to offer optional earthquake coverage. Thirdly, standard policies often exclude damage caused by pests and termites, as well as mould or mildew resulting from long-term leaks or poor maintenance.
Other common exclusions include normal wear and tear, power surges caused by utility companies, and certain dog breeds considered aggressive or dangerous. Additionally, home-based businesses are typically not covered by standard liability policies, and losses due to faulty zoning, construction, or maintenance may also be excluded. Furthermore, war, nuclear incidents, and government action are generally not covered by standard policies.
It is important to note that some companies may include coverages that are typically excluded, while others may have rare exclusions. Endorsements or additional policies can be purchased to fill coverage gaps and protect against excluded risks.
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Customising your insurance
Homeowners insurance policies are highly customisable, allowing you to tailor your coverage to your specific needs. While there are standard elements that dictate what costs the insurer will cover, you can customise your policy to suit your requirements.
Firstly, it is important to understand the different types of homeowners insurance policies available. The most basic type is HO-1, which covers the structure of your home, attached structures, appliances and home features. HO-1 policies do not include coverage for personal property, liability or additional living expenses. HO-2 policies are similar but cover a few additional perils, such as accidental discharge or overflow of water or steam within the home. The most common type of homeowners insurance is HO-3, which covers your home, personal property, liability, additional living expenses and medical payments. HO-4 is intended for renters, while HO-5 offers the broadest coverage, including high-value properties and extra protection for possessions. HO-6 is for condo owners, HO-7 is for mobile or manufactured homes, and HO-8 is for older homes.
When customising your insurance, you can choose the level of coverage you need. The three basic levels of coverage are actual cash value, replacement cost, and extended replacement cost/value. Actual cash value covers the cost of the house plus the value of your belongings, minus depreciation. Replacement cost covers the cost of repairing or replacing damaged property, while extended replacement cost covers unexpected repair costs that exceed your policy limit.
You can also customise your insurance by adding endorsements or separate policies to meet specific coverage needs. For example, standard homeowners insurance usually doesn't cover damage caused by floods or earthquakes, but you may be able to purchase additional coverage for these perils. Other common exclusions include sinkhole damage, home repair and maintenance costs.
Additionally, consider your personal circumstances and the specific features of your home when customising your insurance. For example, if you have valuable possessions, you may want to increase your coverage limits. If you live in an area prone to natural disasters, you may need additional coverage for those events. You can also customise your deductible, which is the amount you pay out of pocket before your insurance coverage kicks in. A higher deductible will lower your premium, while a lower deductible will result in a higher premium.
Finally, shop around and get quotes from multiple insurance companies to find the best policy for your needs. Don't forget to check with any insurer you already work with, as current clients often receive better deals.
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Frequently asked questions
There are eight types of homeowners insurance, designated HO-1 through HO-8. The HO-1 policy is the most basic type of homeowners insurance, offering limited coverage and is not available in most states. The HO-3 policy is the most common type, accounting for more than 90% of all home policies in the US. The HO-5 policy offers the broadest coverage of all policy types.
The HO-1 policy covers 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.
The HO-3 policy covers your home, your personal property, liability, additional living expenses, and medical payments. It protects your home from all kinds of losses except those specifically excluded from your policy.
The HO-5 policy is the most comprehensive option, covering your home, your personal belongings, liability, additional living expenses, and medical payments. It offers more protection than any other type of homeowners insurance, with higher coverage limits and fewer restrictions on perils.
