8 Types of Homeowners Insurance

A guide to choosing the right home insurance policy

Fact checked by Suzanne KvilhaugReviewed by Katie Miller

Your home, all of the stuff in it, and the people who live there are what you treasure most in life, so it’s important to protect your property and your family. Homeowners insurance is a key tool for doing just that. 

“The risks of not having homeowners insurance are significant,” says Mark Snyder, principal consultant at Hi Marley, a property and casualty (P&C) insurance platform. “By not having homeowners insurance, we not only increase the risk of serious financial consequences or even ruin to ourselves and our families, but also to others who may have been damaged as a result of negligent acts on the part of the homeowner, their family, or their pets.”

Key Takeaways

• Home insurance policies provide coverage for the structure of the home, personal belongings, liability, and additional living expenses should your home be uninhabitable after a loss.
• Specialized policies like flood insurance and earthquake insurance may be necessary in certain areas.
• Factors to consider when choosing home insurance include coverage limits, deductibles, and additional coverages.

Choosing the right home insurance policy is important, and there are many options available to cover all types of needs. The most common type of home insurance policy for single-family homes is an HO-3. In fact, it accounts for nearly 77% of owner-occupied home insurance policies. 

Learn more about all eight homeowners insurance types, specialized policies, and factors to consider when choosing the best home insurance for you.

Home Insurance Coverage Types

When you open a home insurance policy, there are a few different coverages included in your policy. Here’s a breakdown of the most common elements:

• Dwelling coverage: This component of your home insurance covers the physical structure of the home and any attached fixtures within it, such as cabinets or a water heater.
• Other structures coverage: This covers structures that are separate from the main dwelling, such as detached garages, sheds, or fencing around the property.
• Personal property coverage: This part of the policy protects the contents within the home itself—in other words, your personal belongings. From your furniture and clothing to electronics, decor items, and other home goods, personal property coverage will help you recover the cost of replacing your items if they are destroyed in a covered peril. 
• Liability coverage: This aspect of your policy is important since it helps protect you from lawsuits arising from allegations that your or your insured residents caused bodily injury, personal injury, or property damage to someone else as a result of negligence. There is a coverage limit, but there typically is not a deductible for liability. “Liability is the place I see people cut the most,” says Stuart Winchester, CEO and founder of Marble, an app to manage all insurance types and compare rates. But, he adds, it’s important to make sure you are adequately covered, even if it bumps up your premium a bit.
• Medical payments coverage: If a guest is injured on your property, your homeowners insurance should have you covered for limited medical payments as well. “It’s usually between a $1000 and $10,000 coverage limit should a guest be injured on the homeowners premises and need medical treatment, regardless of whether there is a finding of negligence on the part of the policyholder,” Snyder says.
• Additional living expenses: Also called loss of use coverage, this type of coverage pays for additional expenses incurred as a result of the property being uninhabitable after a loss. For example, if you have fire damage and need to stay in a hotel, you can draw on additional living expense coverage.

Home Insurance Policy Types

Because there are different types of properties and financial situations, there are different types of homeowners insurance policies that correspond to your needs. For most single-family, owner-occupied homes, the HO-3 “Special Form” policy is the standard.

“An HO-3 homeowners policy is considered ‘all peril’ in nature for the dwelling, which means that your homeowners carrier will pay for damage as a result of any type of loss unless it’s specifically limited or excluded under those sections of the policy,” Snyder says. However, he points out that an HO-3 policy only covers damage to personal property as a result of specific or named perils, which can include theft, fire or lightning, explosion, smoke, freezing, falling objects, volcanic eruption, etc.

There are other types of policies beyond HO-3, however. “At a high level, understanding policy exclusions, limitations, and conditions can help the purchaser understand potential coverage blind spots and gaps associated with homeowners policies,” Snyder says.

Other types of homeowners insurance policies:

• HO-1: The “Basic Form” policy that provides coverage for fewer perils than the HO-3. While HO-3 covers 16 perils, HO-1 covers 11. For example, HO-1 will not cover your dwelling for damages caused by falling objects, the weight of ice or snow, and freezing of HVAC systems.
• HO-2: Called the “Broad Form,” you get slightly more coverage than you do with the HO-1, but not as much as the HO-3.
• HO-4: This policy type is for renters as opposed to homeowners. It covers personal property only.
• HO-5: While the HO-3 policy only covers your personal property on a “Named Peril” basis, an HO-5 homeowners policy, which is usually more expensive, provides personal property coverage on an “all peril” basis in the same way the HO-3 policy covers the dwelling, Snyder says.
• HO-6: This policy is personal property coverage for condo and co-op owners.
• HO-7: If you have a mobile or manufactured home, this is a specialized policy for you. It’s also sometimes called a “Mobile Home Form.”
• HO-8: Called the “Modified Coverage Form,” HO-8 is a policy designed for older properties (built more than 40 years ago). It covers fewer perils than an HO-3, and the dwelling coverage limits are lower.

Note

If you have a mortgage on your home, your mortgage lender will require that you have homeowners insurance in place to protect their financial interest in the property. 

Specialized Homeowners Insurance Policies

Among the perils that are not included in standard homeowners insurance are flood and earthquake. If you live in certain areas, these are add-ons that you may want to consider.

Flood Insurance

“Flood insurance is becoming more and more a thing with the rise of flooding throughout the United States,” Winchester says. Though it’s traditionally been for people who live close to bodies of water, today, more than 20% of the National Flood Insurance Program’s (NFIP) claims are coming from outside high-risk flood areas.

“Floods are usually a total loss and they are not covered [under homeowners insurance],” Winchester says, adding that it’s worth getting a quote to protect your home. If you are interested in coverage, you can look for private insurance or you can explore the National Flood Insurance Program (NFIP).

Earthquake Insurance

In earthquake-prone areas like California, you may opt to get additional earthquake coverage. It is limited and won’t cover all losses in the event of a major earthquake, but it will help you recover some of the rebuilding costs. Like your regular policy, an earthquake policy will have separate coverage for dwelling, personal property, and additional living expenses.

Replacement Cost Plus Coverage

It’s important to understand the difference between getting the actual value of your lost property and the replacement cost. For example, say your kitchen appliances were ruined in a kitchen fire. If they were older, their actual cost would be a fraction of today’s cost to put in new appliances. A replacement cost policy will cover the full cost of replacing damaged items without depreciation.

Factors To Consider When Choosing Home Insurance

When choosing home insurance, you’ll want to find a policy that is affordable within your budget, but that will also provide adequate coverage so that you’re not left devastated should something catastrophic happen.

“Ask yourself, ‘What do I need to cover the stuff I own, what do I need to cover the physical replacement of my house, and what are the liabilities I have if someone has an accident on my property?'” Winchester says.

Here’s a more detailed breakdown of the factors you should consider when selecting a home insurance policy:

• Cost: The price of a homeowners policy is an important factor since it affects your budget. You want to find the one that offers you the most coverage for a premium that is affordable to you. Be sure when you compare home insurance quotes that you are looking at the same coverage amounts.
• Coverage limits: The higher the limits you choose, the higher your premium, but you don’t want to skimp on protecting your home and belongings.
• Assessment of who lives in and frequents the home: Think about not only the amount and types of stuff you need to cover but also about the potential for liability or medical coverage needs. You may want to bump up coverage if you have small children, elderly relatives, or people working within the home such as a nanny, Winchester says.
• Deductibles: A deductible is the amount you pay out of pocket before your coverage kicks in. The higher your deductible, the lower your premium. If you have adequate savings to pay a higher deductible, that’s a good way to offset your insurance bill.
• Additional coverages: Based on your specific needs, think about if you want to add on flood coverage or other policy additions.
• Loss of use: Most people take the minimum loss of use coverage, but you may want to bump that up if you’re someone who works from home, for example, Winchester says. That could help you pay for a coworking space if needed. 
• Location: Where you live, environmental factors, and climate change can impact the kind of coverage you need. 

Frequently Asked Questions (FAQs)

How Does Flood Insurance Work?

Flood insurance covers any damage in your home related to flooding, which is not otherwise covered by regular home insurance. You can get flood insurance in addition to your regular homeowners policy through the National Flood Insurance Program (NFIP), or from a private carrier.

Can I Customize My Home Insurance Coverage?

Most insurance carriers let you customize your homeowners insurance policy. For example, you can choose to raise or lower your coverage limits, change your deductible, or include additional coverages.

How Do Deductibles Affect Home Insurance Premiums?

Deductibles, or the amount you must first pay out of pocket when you make an insurance claim, can impact your premiums. If you choose a low deductible, your premiums will be higher; higher deductibles will lower your premiums.

The Bottom Line

When shopping for homeowners coverage and determining what coverage limits you should carry, it’s a good idea to work with an insurance agent who can answer all of your questions and shop around for a couple of quotes to compare rates. “A professional can help you assess your home and personal property replacement cost, homeowners risk factors, appropriate deductible, and any special coverage needs to determine the most appropriate coverage approach and strategy,” Snyder says.

Read the original article on Investopedia.