Types of Homeowners Insurance Policies

Charles BaisdenOctober 6, 2021

Homeowners insurance is a policy—made up of several policies—that’s meant to provide a certain level of financial compensation should something cause damage or destruction to your home and personal items. 

In some cases, your homeowner’s insurance policy will cover you if you accidentally injure someone else or damage their property.

It’s important to note that while homeowners insurance isn’t required by law in most states, it is usually required for taking out a mortgage on your home. Regardless of whether you need a mortgage to buy a home, it’s still in your best interest to get coverage. 

Keep reading to learn more about homeowners insurance.

What Exactly Does Homeowners Insurance Cover?

The main function of homeowners insurance is to ensure the following are covered for damages:

• Your house, yard, and other structures
• Your personal belongings
• If you cause injury or damage to someone else or their property

Here’s a breakdown of the coverage you would get with a standard homeowners insurance policy:

• Your dwelling. This extends to damage to your home and any attached structures, such as a porch or a deck, and the amount you would be compensated should be enough to rebuild your home if needed
• Other structures. This extends to stand-alone structures on your property. For example, a fence, shed, or gazebo. 10% of your dwelling coverage would go into the compensation for this category
• Personal property. This extends to replacing your belongings or repairing them if they are stolen or damaged during a covered event. The compensation for personal property is generally 20% of your dwelling coverage
• Additional living expenses. This helps to pay for any temporary living expenses for the duration that your home is under construction due to damage in a covered event. Living expenses are compensated for up to 20% of your dwelling coverage
• Liability. Your liability coverage can pay anywhere from $100,000 to $500,000 if you accidentally injure someone or cause damage to their property
• Medical payments. Medical payments coverage for homeowners goes to the medical expenses of someone injured on your property, regardless of who may be at fault. It also has you covered should you, a family member, or a pet is injured elsewhere. Medical payments usually range from $1,000 to $5,000 

The amount of coverage you have under each separate policy will entirely depend on the type of homeowner’s insurance policy you purchase. 

The Different Types of Homeowners Insurance Policies

The different types of homeowners insurance policies are referred to as “policy forms,” and each provides a certain range of coverage. 

It’s important to understand the difference between these policy forms to ensure that you choose the right one. Keep in mind, the costs and coverage will vary by state and company.

Here are your options:

HO-1 and HO-2 Limited Coverage

Ho-1 and HO-2 policy forms are limited as they typically only compensate for damages caused by the issues listed in the policy—which is why they’re referred to as “named-perils only” insurance.

You’ll find that HO-2 insurance typically covers up to a certain amount of events, such as theft, damage from forms, explosions, lightning, smoke, vehicles, and so on. Of course, HO-1 insurance only covers the bare minimum in terms of perils, and both HO-1 and HO-2 policy exclusions include coverage for floods or earthquakes. 

HO-3 Special Form Coverage

HO-3 insurance policies are the most popular and typically required by most mortgage lenders.

HO-3 policies coverage virtually every type of damage, including the following:

• Fire
• Lightning
• Smoke
• Hail and windstorms
• Explosions
• Rioting and vandalism
• Damage by aircraft
• Damage by vehicles
• Theft
• Volcanic eruptions
• Falling objects
• Weight of ice, snow, and sleet.
• Water overflow or discharge from plumbing, air conditioning, or other appliances
• Freezing caused by the same household systems mentioned above
• Sudden damage from power surges
• Sudden tearing, cracking, or bulging caused by a hot water system, steam system, air conditioning, or fire protection system

However, these policies also exclude earthquakes and floods, and in terms of your personal belongings, you’re only covered up to a certain amount of damages—usually what the item would sell for at its current market value.

HO-5 Broad Coverage

HO-5 insurance policies are the most extensive form of homeowners coverage you can get. This policy will compensate for damages to your home and belongings from virtually all causes, minus those the policy specifically excludes.

Other types of policy forms include HO-4 renters insurance, HO-6 insurance for condo owners, and HO-7 insurance for mobile homes. You can also find HO-8 insurance, which offers limited coverage for older homes.

Many homeowners also choose to purchase NFIP private flood insurance and other policies that would cover them for the typical exclusions, such as earthquakes, power failure, infestations, etc.  

What Is Loss of Use Coverage on Homeowners Insurance?

Loss of use coverage, also known as Class D insurance or additional living expenses insurance, is typically built into your existing policy. However, it can also be purchased separately.

This portion of your policy is limited, but it provides coverage for the following:

• Temporary residencies, such as a hotel stay or short-term apartment rental
• Moving costs
• Grocery or restaurant bills
• Laundry expenses
• Parking and transportation fees
• Pet care and boarding

Of course, loss of coverage only kicks in if and when you and your family become temporarily or suddenly displaced from your home during a covered event. 

Finding the Right Homeowners Insurance Policy

Before you talk to an insurance agent, you’ll want to prepare yourself by assessing your home and belongings first. 

Create a home inventory list for all your possessions and how much they’re currently worth, any serial numbers they have, and how much they cost initially. 

You’ll also want to take into account the size of your home, the crime rate in your area, the prevalence of natural disasters there, and your credit history. These are the things an insurance agent will use to determine whether they can offer you a policy and for how much. 

When it comes to purchasing a homeowners insurance policy, it’s also important to shop around and compare rates to get the best deal