Policy Types

  • Published on Oct 22, 2024
  • 7 minute(s) read

Understanding Homeowner Policy Types (HO1, HO2, HO3, HO5, HO8)

When you purchase, build, or rebuild a home, selecting the right Homeowners Insurance policy is a crucial step in protecting your investment. Each type of homeowners policy offers different levels of coverage, exclusions, and features.

This article will break down the five main types of homeowners insurance policies—HO1, HO2, HO3, HO5, and HO8—explaining what they cover, how they differ, and who they are best suited for.

Why Understanding Homeowner Policy Types is Important

Choosing the right policy type ensures your home and Personal Property are adequately protected. Knowing the differences between policy types helps you:

  • Ensure Adequate Coverage: Select a policy that provides sufficient protection for your home’s structure, personal property, and liability risks.

  • Match Coverage to Your Needs: Choose a policy that aligns with your location, budget, and potential risks (e.g., fire, theft, weather).

  • Avoid Coverage Gaps: Understand which perils are covered and excluded, preventing unexpected out-of-pocket costs after a loss.

1. HO1: Basic Form

The HO1 policy, also known as the "basic form," provides limited coverage for the most common perils:

Coverage Overview

  • Structure: Covers the structure of your home against a set list of perils.

  • Personal Property: Provides limited coverage for personal belongings.

  • Liability: Typically does not include liability coverage.

Covered Perils

HO1 policies cover a limited list of named perils, which may include:

  • Fire or lightning

  • Hail or windstorm

  • Explosions

  • Vandalism or theft

  • Damage from vehicles or aircraft

Who It’s For

  • Budget-Conscious Homeowners: This policy offers basic protection at a lower cost, making it an option for those seeking minimal coverage.

  • Limited Availability: HO1 policies are not available in all states and are rarely offered due to limited coverage.

2. HO2: Broad Form

The HO2 policy, also known as the "broad form," offers a wider range of coverage than HO1, protecting against more perils.

Coverage Overview

  • Structure: Covers your home’s structure against more perils than HO1.

  • Personal Property: Covers personal belongings for the same set of named perils.

  • Liability: Some HO2 policies may include liability coverage, but it’s not standard.

Covered Perils

In addition to the perils covered under HO1, HO2 policies also cover:

  • Falling objects

  • Weight of ice, snow, or sleet

  • Accidental discharge of water (e.g., burst pipes)

  • Electrical surges

  • Sudden cracking or bulging of HVAC systems

Who It’s For

  • Homeowners Seeking Broader Protection: HO2 is suitable for those who want more comprehensive coverage than HO1 but at a lower cost than other options.

  • New Homeowners with Limited Budgets: It provides a cost-effective upgrade from the basic form.

3. HO3: Special Form

The HO3 policy is the most common homeowners insurance policy, offering more comprehensive protection.

Coverage Overview

  • Structure: Covers the structure on an "open-peril" basis, meaning it covers all risks except those specifically excluded.

  • Personal Property: Covers personal belongings on a named-peril basis, typically with broader coverage options.

  • Liability: Includes liability coverage, protecting against lawsuits for bodily injury or property damage to others.

Covered Perils

  • Open-Peril Coverage for Structure: Covers all perils except those explicitly excluded, such as earthquakes or floods.

  • Named-Peril Coverage for Personal Property: Covers personal belongings against a set list of perils, similar to HO2.

Who It’s For

  • Standard Homeowners: HO3 is ideal for most homeowners, offering a balance of comprehensive coverage and affordability.

  • New Homeowners: It is often recommended for first-time buyers because it provides solid coverage for both the home and personal property.

4. HO5: Comprehensive Form

The HO5 policy offers the highest level of coverage, often called the "comprehensive form," as it expands coverage beyond the HO3.

Coverage Overview

  • Structure: Covers the home on an open-peril basis, like the HO3.

  • Personal Property: Covers personal belongings on an open-peril basis, offering broader protection than HO3.

  • Liability: Includes extensive liability coverage, similar to HO3.

Key Features

  • Open-Peril Coverage for Personal Property: Covers personal belongings against all perils unless specifically excluded, offering the most comprehensive personal property protection.

  • Higher Limits for Valuable Items: Often includes higher limits for jewelry, electronics, and other high-value items.

Who It’s For

  • High-Value Homeowners: HO5 is ideal for homeowners with high-value homes or extensive personal property, offering the broadest coverage.

  • Homeowners Seeking Maximum Protection: It provides peace of mind with fewer coverage gaps, making it suitable for those willing to pay a higher Premium.

5. HO8: Modified Coverage Form

The HO8 policy, or "modified coverage form," is designed for older or historic homes that may not qualify for standard coverage.

Coverage Overview

  • Structure: Covers the home’s structure at Actual Cash Value (ACV) rather than replacement cost.

  • Personal Property: Covers personal belongings on a named-peril basis, similar to HO2.

  • Liability: Typically includes liability coverage.

Key Features

  • Actual Cash Value: Pays for repairs or replacements at the depreciated value, making it less expensive but providing lower payouts.

  • Special Provisions for Historic Homes: Designed for homes with unique architectural features that may be more costly to replace.

Who It’s For

  • Owners of Older Homes: HO8 is best suited for homeowners with older, historic, or architecturally unique homes that would be difficult or expensive to replace with modern materials.

  • Budget-Conscious Homeowners: It offers basic coverage for homes that may not qualify for HO3 or HO5 policies.

How to Choose the Right Homeowners Policy

When selecting a policy type, consider the following:

  • Home Type & Age: Newer homes may qualify for HO3 or HO5, while older homes may require HO8.

  • Location Risks: If you live in a high-risk area (e.g., prone to hurricanes, wildfires, or floods), you may need additional coverages beyond standard policies.

  • Personal Property Value: If you have expensive items, consider HO5 for broader personal property coverage or purchase additional endorsements.

  • Budget: HO1 and HO2 are more affordable but offer limited coverage, while HO3 and HO5 provide broader protection at a higher cost.

Wrap-Up

Understanding the differences between homeowners policy types is essential for protecting your home and personal property. By knowing what each policy offers, you can choose the right level of coverage for your needs, ensuring your home is safeguarded against potential risks. Consult with an insurance agent to discuss your specific situation, get quotes, and tailor coverage to suit your budget and protection needs.

Additional Resources

  • Insurance Information Institute (III): Offers detailed guides on homeowners insurance types and additional coverages. Visit III for more information.

  • National Association of Insurance Commissioners (NAIC): Provides resources on understanding homeowners insurance policies and regulations. Visit NAIC for additional guidance.