Types of Homeowners Insurance: Which One Do You Need?

When it comes to buying homeowners insurance, you have plenty of choices. Whether you’re looking to insure a new condo in the city or a big ranch out in the country, it’s important to find a policy that meets your home’s specific needs.

“You never want to file a claim and realize you’re underinsured,” says Marilyn Attia, founder of Ariston Brokerage Corp. in Brooklyn, New York. “So when you’re buying insurance, do your research and seek out coverage that is adequate for your home.”

Below, we’ll outline the eight different policy types so that you can choose insurance that protects you best when the unexpected occurs.

Types of homeowners insurance policies

Eight different types of homeowners insurance policies exist, each with different covered perils. A peril is a cause of a loss to your home or personal property. Policies differ in terms of how many perils they cover and which homes they cater to.

HO-1: Basic form

A basic form policy covers your home and personal property if damage is caused by any of the following perils:

• Fire

• Smoke

• Wind

• Hail

• Lightning

• Explosion

• Vehicles

• Civil unrest

• Theft

• Vandalism

This policy type covers the actual cash value (ACV) of your home and personal property. ACV differs from replacement cost value (RCV), which refers to the actual cost of rebuilding your home. Because an HO-1 pays out the ACV of your home, you may not be paid enough to rebuild your home in the event of a total loss.^[1]

Who is it for? A basic form policy doesn’t cover damage from snow or freezing, so it makes sense for homeowners in warmer climates that rarely experience severe weather. Almost any climate features the occasional severe storm, so an HO-1 policy is rarely advisable.

What’s the cost? As the most basic form of coverage, an HO-1 policy covers fewer perils than other types of coverage. A basic form policy costs $1,654 per year on average, based on NAIC data for 2020.^[2]

HO-2: Broad form

A broad form policy covers slightly more than a basic form policy. It covers damage to your home or personal property caused by any of the following perils:^[3]

• Fire

• Smoke

• Wind

• Hail

• Lightning

• Explosion

• Vehicles

• Civil unrest

• Theft

• Vandalism

• Trees and other falling objects

• Weight of snow, ice, and sleet

• Frozen pipes

An HO-2 policy differs from an HO-1 policy in two key ways:

• An HO-2 policy covers damage from the weight of snow and other cold weather.

• This policy type pays out the RCV of your home rather than the ACV. That means that if damage is severe, an HO-2 policy will pay out enough to rebuild your home and repair damages in full.

Who is it for? An HO-2 policy is for homeowners who want a modest amount of coverage at a good value. While this broad form policy covers plenty of perils, it’s still missing some key features found in other policy types.

What’s the cost? On average, an HO-2 policy costs $1,175 per year.^[2]

HO-3: Special form

A special form policy is the most common type of homeowners insurance policy, covering more than the basic form and broad form policies. It covers your home for all perils, except damage or loss from any of the following excluded perils:

• Flood

• Earthquake

• War/nuclear incident

And it covers your personal property against the same named perils as the HO-2 policy. Read your policy closely to see if it specifically excludes any other perils. Similar to the broad form policy, an HO-3 policy covers your home for its replacement cost value.

Even this robust policy doesn’t cover damage from floods or earthquakes — in fact, homeowners insurance rarely covers these perils. If you live in an area that’s at high risk for flooding or earthquakes, you’ll need to add a separate flood or earthquake insurance policy.

Who’s it for? Due to the wide range of perils covered, an HO-3 policy works well for most homeowners. You get extensive coverage without paying as much as you would for comprehensive coverage, making it a smart choice for first-time homeowners.

What’s the cost? The average annual cost of an HO-3 homeowners policy is $1,311.^[2]

HO-4: Renters form

An HO-4 homeowners insurance policy is the technical term for renters insurance. This policy covers damage or loss of personal property in a rental that was caused by any of the following perils:

• Fire

• Smoke

• Wind

• Hail

• Lightning

• Explosion

• Vehicles

• Civil unrest

• Theft

• Vandalism

• Trees and other falling objects

• Weight of snow, ice, and sleet

• Frozen pipes

Renters insurance only covers your personal property, like your belongings inside your rental. Your landlord’s homeowners insurance will cover damage to the property itself.

Who’s it for? As you might expect, HO-4 policies are the best choice for renters. Though not always required when you sign a lease, renters insurance coverage is typically worth the relatively low cost.

What’s the cost? A recent study on renters insurance prices found an average premium of just $180 per year.^[4]

HO-5: Comprehensive form

The most robust form of homeowners insurance, a comprehensive policy covers your home and belongings against all perils, except those specifically excluded in your policy. It covers your home for its replacement cost value and your personal property for ACV.

Who’s it for? An HO-5 policy is best for homeowners who want the highest level of homeowners insurance coverage. Given the price, this policy works best for those who have more money at their disposal and extensive assets to protect.

What’s the cost? The comprehensive form protects you more than all other types of policies, making it more expensive than some other options. On average, an HO-5 policy costs $1,471 yearly.^[2]

HO-6: Condo/co-op insurance

An HO-6 policy, also known as condo/co-op insurance, covers the personal property inside a condominium or cooperative unit, as well as the unit’s walls, floors, and ceilings. It covers damage from the following perils:

• Fire

• Smoke

• Wind

• Hail

• Lightning

• Explosion

• Vehicles

• Civil unrest

• Theft

• Vandalism

• Trees and other falling objects

• Weight of snow, ice, and sleet

• Frozen pipes

Before purchasing condo insurance, you should figure out what the building or condo association’s master policy covers. Reaching out to management directly and reading the building’s bylaws are essential before finalizing your condo insurance policy.^[5]

Who’s it for? As you would expect, HO-6 policies are best suited for condo owners or co-op owners.

What’s the cost? On average, condo/co-op insurance costs $511 per year.^[2]

HO-7: Mobile home insurance

The HO-7 homeowners insurance policy is designed for mobile home insurance. As the name suggests, mobile home insurance covers accidental damage to your mobile home caused by any of the following perils:

• Fire

• Hail

• Wind

• Theft

• Vandalism

• Falling objects

Coverage varies by insurance provider, so read your policy closely to see if your mobile home insurance covers other perils. Mobile home coverage also covers damage to personal items in the mobile home, as well as damage to any attached structures, such as a patio.^[6]

Who’s it for? If you have a mobile or manufactured home, you’ll want a mobile home policy. Note that your mobile home might not be covered while it’s in transit. Speak to your insurance agent to confirm, as they might be able to offer an endorsement or limited coverage while your mobile home is in transit.

What’s the cost? Many factors determine the cost of mobile home insurance, so it’s difficult to pinpoint how much you should expect to pay. In some cases, you may be able to get mobile home insurance as an add-on to your existing home and auto insurance.

HO-8: Modified coverage form

An HO-8 policy covers older homes, where the cost of rebuilding exceeds their market value. For that reason, these policies typically only offer basic coverage, covering damage from the following perils:

• Fire

• Smoke

• Wind

• Hail

• Lightning

• Explosion

• Vehicles

• Civil unrest

• Theft

• Vandalism

Designed for older homes, an HO-8 policy covers you for the actual cash value of your home. If you’re hoping to rebuild your home after a total loss, you might want a more robust policy that offers replacement cost coverage for your home.

Who’s it for? This is a solid, affordable policy for owners of older homes. Just know that you’re covered only slightly more under HO-8 than you would be with basic form coverage.

What’s the cost? The typical modified coverage form offers less coverage than a broad form or comprehensive policy, explaining why it carries a slightly cheaper yearly premium of $1,162.^[2]

Types of home insurance coverage

Homeowners insurance is known as a “package policy,” where one policy contains multiple types of coverage. These coverage types may cover the property itself, people inside the property, or belongings inside the property. Here’s a breakdown of the different coverage types.

Dwelling and other structures

Dwelling coverage pays for damage to the structure of your home, as well as any structures attached to the home, like a garage. Most standard policies cover detached structures too, such as tool sheds or gazebos.

When buying dwelling insurance, you should buy enough coverage to rebuild your home. If your home is relatively expensive and will cost a lot to repair, you’ll probably end up paying more for homeowners insurance.

Read More: How Much Dwelling Insurance Do I Need?

Personal property

Personal property coverage pays the value of damaged or stolen personal belongings, such as furniture and electronics. It doesn’t cover the basic wear and tear of an item, but it does cover damage or loss from theft, fire, hurricanes, and any other perils outlined in your policy.

Expensive items, like artwork and jewelry, may only be covered up to a certain dollar limit. You can purchase a personal property endorsement or floater to cover these items.

Take inventory of your home to determine how much personal property coverage you need. If you have quite a bit to insure, your rates will be higher. As you take inventory, note that you can also cover trees, plants, and shrubs, typically for about $500 per item.

Loss of use

Loss of use coverage reimburses you if you’re displaced from your home during repairs for a covered peril. This might include hotel bills, restaurant bills, and other expenses that come up during this time.

Personal liability

Personal liability coverage financially protects you if you or a family member causes bodily injury or property damage. For example, if your child — or even your pet — damages your neighbor’s property, you’re covered.

In general, liability coverage starts at $100,000, though you can add additional coverage or an umbrella policy if you have significant assets that need extra protection. Talk with your trusted insurance professional to get a better idea of how much liability coverage you need.

Medical payments

If someone is hurt on your property, medical payments coverage will pay the injured person’s medical bills. The injured party would simply submit their medical bills to your insurer.

No-fault medical payments coverage may be included with your liability coverage, so check with your insurer to help determine how much coverage you need.

Flood insurance

Though they rank as the most common natural disaster in the United States, floods aren’t listed as a peril in homeowners insurance. Many homeowners — particularly those in high-risk flood areas — add flood insurance to their policy to cover flood-related property damage.

Areas with a 1% chance of flooding each year qualify as high-risk. Homeowners in these areas are often required to buy flood insurance. Depending on your location, you may qualify for flood insurance through the National Flood Insurance Program.

Earthquake insurance

Homeowners insurance also doesn’t cover property damage caused by earthquakes. Earthquake insurance covers damage from an earthquake by calculating pure loss. This is the total dollar amount of damage from the earthquake, which will be paid out by your insurer.

A relatively new approach to earthquake insurance is “parametric insurance.” In this case, insurance companies set parameters, such as earthquake severity or ground-shake intensity. If an earthquake meets or exceeds these parameters, insured parties will be paid out according to their contract.

How to choose a homeowners insurance policy

Several options are available when it comes to homeowners insurance. Consider the following factors as you compare different homeowners insurance policies:

1. Location: Your home’s location affects your insurance needs. For instance, if you live in a climate with cold weather, you’ll certainly want a policy that covers damage from freezing and snow.

2. The condition of the property: The home inspection process can give you a good idea of which parts of your home might be older and at a higher risk for damage. For instance, a house with an older frame might need robust coverage for wind damage.

3. The property’s claims history: After you buy a home, ask the seller for a CLUE or A-PLUS Report, which outlines the home’s claims history. Understanding the home’s past claims can help you better understand what kind of policy you need.

4. Price: Once you know the type of policy you need, it’s time to compare prices. Comparing prices of similar policies from a wide array of insurance providers helps you get the best value. You might even find that a certain company offers a discount you qualify for. 

5. Company reviews: Before you commit to a company, you should read some reviews from customers. Make sure you’re working with a company with robust knowledge about your area, trustworthiness, and responsiveness.

Learn More: Homeowners Insurance Companies with the Cheapest Rates

How to compare home insurance rates

Comparing home insurance rates from a wide range of insurers can help you find the best value. Insurify makes quote comparison simple. You just need to complete a short questionnaire about your home and coverage preferences to receive real quotes from the nation’s best home insurance companies.

You can go deeper with your search, toggling between different coverage options and comparing discounts from different companies. In just a few clicks, you can find the best coverage option for your home.

See Also: 10 Best & Worst Sites to Compare Home Insurance Quotes

What factors influence homeowners insurance rates?

Where you live affects how much you pay for homeowners insurance. For instance, if you live in an area with high crime rates, you might pay more given the higher risk of theft or vandalism to your property.

Similarly, you may pay more if your home is far from a fire department, police department, or water supply source. Other factors that can influence your homeowners insurance rates include your home’s age and construction type (such as a brick versus a frame house).

Additionally, how much coverage you buy will affect your rates. If you buy a more robust coverage package, you’ll end up paying more. You can offset this high price by increasing your deductible to reduce your monthly premiums.

Many insurance companies offer discounts for certain homes. For instance, homes with safety features like alarm systems can qualify you for lower premiums. You can also bundle your car insurance and homeowners insurance with the same company to unlock savings.

What are the common perils of home insurance?

No one wants to think about the unexpected incidents that can damage a home, but you should still be aware of some of the common causes of property damage. The top five reasons for claims include the following, according to a recent study by the Insurance Information Institute:

1. Wind and hail (45.5% of property damage claims)

2. Fire and lighting (23.8% of property damage claims)

3. Water damage and freezing (19.9% of property damage claims)

4. Theft (0.6% of property damage claims)

5. Other, including vandalism and mischief (7.9% of property damage claims)

Though fire and lightning damage is uncommon, it still comes with some of the highest expenses. The average claim severity for fire damage was over $77,000 (from 2016 to 2020), compared to $11,695 for wind and hail damage across the same period.

Broad form and comprehensive policies will cover you against most of these common perils. For water damage — which accounted for only 1.6% of filed claims between2016 and 2020 — you should consider buying flood insurance.

Check Out: The 5 Best Home Warranty Companies

Types of homeowners insurance FAQs