Types of Homeowners Insurance

There are many types of homeowner’s insurance policies available to fit our unique lifestyles and needs, including plans for those who choose to rent apartments or single-family homes.  Homeowner’s policies can be thought of as your personal liability insurance and the insurance for your personal and real property.  They cover your home, its contents, and the occupants’ liability.

The differences between the policies lie with what is actually covered in a property and liability sense, and what perils (or causes of loss) the policy will cover against.  Ultimately, you can choose from the HO-1, HO-2, HO-3, HO-4, HO-6, and HO-8.  I know, it sounds like Christmas.

To make sense of it all, let’s review the basics of these policies.  Remember to speak to your insurer or an independent agent for advice on which policy best suits your individual needs.  Similar to any other type of insurance, these plans can be confusing and it’s important to read the fine print

HO-1: This is the most basic of homeowners’ policies.  Those of us with home mortgages would not get by with this policy.  It only covers damage to the dwelling as a result of fire and lightning.  There are few places in the U.S. where this limited coverage would be satisfactory.  Also note that there is not personal liability included in this policy format.  So if you’re sued by someone who slips on your property, your insurance company won’t defend you in court or pay the plaintiff if you are found to be at fault.

HO-2: This is known as the Broad Form policy.  The HO-2 is similar to the HO-3 described next because it covers the dwelling (house) and other structures (detached garage, fence), but it insures against only named perils (causes of loss).  For example, you will only be reimbursed for damages that occur if they are caused by one of the acceptable perils listed explicitly on the policy.  If something damages your home and is not listed as an acceptable cause of loss, you will not receive any money.  However, this policy does include personal liability coverage.

HO-3: This is known as the “Special Form Homeowner’s policy.”  This is the most common HO policy sold today.  It’s designed for 1-to-4-unit, owner occupied homes.  It covers your home against a wide variety of perils, even if not listed specifically in the policy.  Of course, it’s more expensive than the HO-2, but probably substantiated because your home may be the largest debt you have.  Also included in this policy is personal liability coverage.

HO-4: This is the only insurance policy designed for renters.  It is however, part of the homeowner’s policy group; know as the tenant homeowner’s policy.  Known as the “Contents Broad Form policy,” it covers only the contents of the home, which makes sense, because the person who owns the home should have their own insurance policy on the actual dwelling.  Personal liability is included in the HO-4 in addition to the coverage for the property insured.  This is necessary because your lease probably states the landlord is not responsible for bodily injury that may occur in your apartment or rented home.  The policy limits on the remaining coverage are reduced in some cases versus what they would be in the HO-3 policy.  Unfortunately, very few renters have this very inexpensive insurance, which means everything they own may be destroyed in a fire and they will receive no compensation whatsoever.

HO-6: This is known as the condominium owners’ policy. The HO-6 policy is similar to the HO-4 because the policy holder does not own the actual dwelling.  Condo owners typically own the building jointly with the other condo owners in the co-op.  Basically, the HO-6 covers just the specific unit and contents within.  This policy includes liability insurance as well, which means you’ll be covered if someone is injured in your unit.

HO-8: Finally, the “Modified Coverage Form Homeowners policy.”  Put simply, you need this insurance if the cost to rebuild your home far exceeds its current market value.  Your home may currently be valued at $250,000, but costs $350,000 to rebuild if completely destroyed by fire.  For example, if you live in a very old home built using methods unique to the period it was built, this policy would be your best option.  Some of these lesser-used methods include hand carved wood throughout the home.  Victorian homes are a good example of this type of construction.

Note that some states have modified versions of these policies.  In Texas for example, instead of the basic HO-3, you can purchase the HO-A or the HO-B.  The difference between the two lies in the perils, or causes of loss your home is insured against, namely back-up water damage and wind-driven rain.  The best advice I can give is similar to automobile insurance: the best practice is to have the highest policy limits and broadest coverage you can possibly afford.  Your home and all of your worldly possessions are not something to be skimped on.