Home insurance policies can be confusing at times. However, by taking a deeper look at the different types of home insurance policy types can help take the confusion out of the insurance shopping process.
Navigating the home insurance market is made easier by a series of eight standard policy types, numbered from HO-1 to HO-8. Each type shares common features so you can easily find policies that suit your situation and compare deals. Remember though that these are simply broad categories of policy so you’ll always need to look at the specific details of each policy to make sure it’s right for you.
We’ve detailed the policy types below, but here’s a quick guide: If you own a standard home, check out HO-1, HO-2, HO-3 and HO-5. If you own a condo or are in a co-op, check out HO-6. If you own a non-standard home, check-out HO-7 and HO-8. If you rent, HO-4 is for you.
People who own a standard home have four main options, covering two variables: whether you want a broad or narrow range of coverage and whether you want personal property covered as well as the building itself.
HO-1 and HO-2 are both “named peril” policies, meaning only events specifically listed in the policy are covered. This means premiums tend to be lower. HO-1 covers the building against ten risks:
Aircraft damaging the building
Hail (and windstorms)
Riots and civil unrest
Vehicles damaging the building
HO-2 is much more commonly available than HO-1. It usually adds in coverage for falling objects and water damage from events in the home itself, for example from burst pipes or washing machines. (Note that this doesn’t cover flooding from outside.) HO-2 also extends the coverage to personal property.
HO-3 and HO-5 take an “all perils” approach, meaning they cover any damage unless it’s from a peril specifically excluded by the policy. Common exclusions include earthquakes, flooding and landslides.
The difference between the two is that HO-3 uses the “all perils” approach for the building itself, but only covers personal property for the “named perils” used in an HO-2 policy. An HO-5 policy uses “all perils” for both the building and personal policy.
HO-4 is for renters. It covers damage to their personal property, which is usually not covered by the landlord’s homeowner policy. A standard HO-4 policy covers the renter’s property on a “named peril” basis similar to HO-2. It will also usually pay for temporary accommodation if the rental property is damaged and becomes uninhabitable.
(When getting an HO-4 policy, check whether it covers accidental damage by the renter to the building or to the landlord’s property. Check also whether it covers liability for damage and injury to visitors.)
HO-6 is for condo owners and co-op tenants. In effect it’s an enhanced HO-4 renter policy that also covers damage to the walls, floors and ceilings. While an HO-6 policy is usually a very sensible purchase, always check how it will work alongside your condo association or co-op association’s own coverage.
HO-7 covers mobile/manufactured homes. Generally it works in the same way as an HO-3 policy, meaning “all perils” coverage for the structure and “named perils” coverage for personal property.
Unlike a standard homeowner policy, a HO-7 policy doesn’t automatically assume you will be living in the property full-time. Instead it may offer varying premium costs depending on how much of the year you use it. (An uninhabited property represents a greater risk to insurers as it’s at greater risk of burglary or fires that aren’t quickly tackled.)
Usually an HO-7 policy only covers the mobile home when it’s stationary, not when it’s being transported.
HO-8 covers older homes. Usually they’ll be at least 40 years old and will have some components such as electrics or plumbing that don’t meet modern standards and thus make the home ineligible for standard homeowner insurance.
A HO-8 policy works on a “named peril” basis. One big difference is that if the home is destroyed, the policy pays out only the actual value of the house (taking into account depreciation) rather than the cost to completely rebuild and replace it.
Texas has an extra set of standard policies.
HOA: This is similar in principle and coverage to HO-1 but adds cover for smoke damage.
HOA+: This is similar in principle and coverage to HO-2 but adds cover for falling trees.
HOB: This is similar to HO-3 but includes coverage for some water damage excluded by HO-3. Examples include sewer systems backing up, slow leaks and the cost of replacing foundations that have to be torn up to access pipes.
HOC: This is similar to HO-5, but adds the same extra water damage coverage as HOB.
None of the eight “HO” policy types cover external flood damage (meaning not caused by leaks in the home) as standard. Depending on your location you may be able to buy flood insurance from an insurance company through the government administered National Flood Insurance Program. You may be required to have flood insurance as a condition of your mortgage.
While all policies in a particular “HO” category share the common features detailed above, they can still vary significantly. In particular, they may have different deductibles, both for claims overall and for specific covered items. They may also have different payout limits, again for total claims and for individual items. This means that even when comparing within a particular “HO” category, it’s important to check the details of a policy rather than simply opt for the cheapest premium.