What are the different types of homeowners insurance?

Key points

• There are eight types of homeowners insurance policies to choose from, depending on your coverage needs.
• The most common policy is an HO-3 homeowners insurance policy, which includes six areas of coverage.
• The type of policy you choose will affect how much you pay for home insurance. 

If you live in a new condo, you’ll need a different type of homeowners insurance than someone who lives in a Victorian farmhouse. Likewise, if you’re renting an apartment or own a mobile home. Your budget and other coverage needs will also influence the type of homeowners insurance you purchase.  

Understanding the different types of homeowners insurance available can help you decide which policy you should purchase. 

8 types of homeowners insurance and what they cover

Here is a breakdown of the eight different types of homeowners insurance policies:

• HO-1 policy.
• HO-2 policy.
• HO-3 policy.
• HO-4 policy.
• HO-5 policy.
• HO-6 policy.
• HO-7 policy.
• HO-8 policy.

HO-1 policy

Considered a basic form of homeowners insurance, HO-1 policies provide limited coverage for 10 named problems, or “perils.” These include:

• Damage caused by aircraft (not your own).
• Damage caused by vehicles (not your own).
• Explosions.
• Fire or lightning. 
• Riot or civil commotion. 
• Theft.
• Vandalism or malicious mischief. 
• Volcanic eruption.
• Windstorm or hail.

This is the least comprehensive form of home insurance, as most other policies cover 16 identified perils. HO-1 typically provides only coverage for your house’s main structure, so personal property, liability and other important types of coverage are excluded. 

An HO-1 policy pays out for the actual cash value of your house, factoring in depreciation. That means it may not be enough coverage to fully pay to rebuild your home at current costs for labor and materials.

Insurance coverage for disasters: Is tornado damage covered?

HO-2 policy

HO-2 policies pick up where HO-1 policies leave off, covering 16 identified perils. This includes the 10 named perils in and HO-1 policy as well as the following:

• Accidental overflow or discharge of water or steam.
• Bulging or cracking caused by a sudden and accidental event.
• Falling objects.
• Freezing of plumbing or air conditioning.
• Sudden, accidental damage caused by artificially generated electrical current.
• Weight of snow and ice.

An HO-2 policy also extends coverage outside of the structure of your house, after a covered loss. Here are the six coverages included in an HO-2 policy.

• Dwelling: Pays to rebuild your house and its attached structures, like a deck. 
• Other structures: Pays to rebuild other structures on your property, like a shed or gazebo. 
• Personal property: Pays to replace or repair your personal belongings, like your clothing and furniture.
• Loss of use: Pays for additional living expenses (ALE) above your normal household spending, like a hotel stay and restaurant meals, if you need temporary housing while your house is being repaired. 
• Personal liability: Pays for property damage repair bills or medical expenses to someone else if they’re injured and you’re at fault, like if your dog attacks a guest or someone at the park. Liability insurance also pays for your legal fees, representation and settlements if you’re taken to court over the matter. 
• Medical expenses to others: Pays for someone else’s minor medical expenses, such as up to $5,000, if they’re injured in your house, regardless of who was at fault. 

HO-2 policies are actual cash value policies, so depreciation is factored into your claim payout when you file a property damage claim for your house and/or belongings.  

HO-3 policy

HO-3 policies are the most common option. They contain the same six coverages as an HO-2 policy but use an “open peril” model for the structure of your house. This means that all perils, or types of loss, are covered unless denoted as exclusions. 

For your personal property coverage, HO-3 policies cover the same 16 covered perils, or types of damage, as an HO-2 policy.

Some exclusions include: 

• Earthquake damage.
• Flood damage.
• Negligence.
• Pest infestations.
• Water, drain or sewer backups.
• War and nuclear hazards.
• Wear and tear.

You may be able to add endorsements, or additional coverage, to your HO-3 policy to include coverage for the excluded types of damage. 

With an HO-3 policy, your house is insured at its replacement cost value, which means you’ll be paid out at the market price for repairs at the time of the claim. 

However, like HO-2 policies, your personal belongings are insured at their actual cash value, so depreciation is factored into the claim payout. You may be able to upgrade to replacement cost coverage for your belongings for an additional fee. 

HO-4 policy 

Also known as renters insurance, HO-4 policies provide coverage for those renting houses, apartments, or condos. This type of policy does not cover the actual structure of the building, which is typically covered by landlord insurance. 

Renters insurance includes the following types of coverage: 

• Personal property coverage.
• Loss of use coverage.
• Liability coverage.
• Medical payments to others coverage. 

Your belongings are protected by the same 16 perils listed in HO-2 and HO-3 policies and are insured at their actual cash value. Like HO-3 policies, you may be able to upgrade your personal property coverage so that your belongings are insured at their replacement cost value and you’re paid out at today’s prices to replace them. 

Renters insurance doesn’t cover the dwelling structure, attached structure or other structures on the property since as a renter you do not own the property and have no financial interest in protecting it. 

HO-5 policy

Also known as comprehensive coverage, an HO-5 policy is the most robust form of coverage. It pays to rebuild your house and replace your personal belongings if they’re damaged by anything other than a listed exclusion, such as flood and earthquake damage. 

Comprehensive policies automatically provide replacement cost coverage for both your house and personal property, rather than cash value, so you’ll be paid out at today’s prices for repairs. It also includes the same four other types of coverage that HO-2 and HO-3 policies provide — other structures, loss of use, liability and medical payments to others.

HO-6 policy

HO-6 policies are for those who own a condo or co-op. If you live in a condo, your condo association will have what is called a master insurance policy, which all condo unit owners in the building pay into. 

There are different types of master policies, and they typically pay to repair the structure of the condo building and shared spaces. Some master policies include more coverage than others. How much dwelling coverage you need in your HO-6 policy will be directly affected by how comprehensive your master policy is, as they are meant to complement each other.  

Your HO-6 policy will likely pay to repair post-purchase renovations, interior walls, floors and ceilings and your personal property. HO-6 policies also provide standard coverage for loss of use, liability and medical payments to others.

HO-7 policy

Homeowners with mobile or manufactured houses may need an HO-7 policy, which functions similarly to an HO-3. 

Some insurance companies may only offer named peril coverage for both your mobile house and belongings. But depending on the insurance company, you may be able to get an open peril policy for the structure of the mobile house and coverage for 16 named perils for your belongings. The open peril policy will provide coverage for any type of damage to the structure of your mobile house, unless listed as an exclusion. 

Other structures, loss of use, liability and medical payments to others coverage are included in HO-7 policies. 

These policies offer coverage for manufactured and mobile homes, sectional homes, modular homes and trailers. The properties must be stationary to qualify for coverage.

HO-8 policy

Designed for older homes with historic elements, HO-8 policies cover the same 10 named perils as an HO-1 policy. When you own a historic house, you may not qualify for an HO-3 home insurance policy — the most popular type of home insurance. This is because historic and older houses are usually made with outdated or vintage materials that can’t easily be replaced, which can make the cost to rebuild the house to its prior state extremely expensive. 

HO-8 policies can help pay out if your house is damaged by the following: 

• Fire and lightning.
• Windstorms and hail.
• Explosions.
• Riots and civil commotions.
• Aircraft.
• Vehicles.
• Smoke.
• Vandalism and malicious mischief.
• Theft.
• Volcanic eruptions. 

HO-8 policies also include loss of use, liability and medical payments to others coverage.

What is homeowners insurance?

Homeowners insurance is a type of property insurance that includes coverage to rebuild or repair your house, repair or replace your belongings and pay for additional living expenses if you’re displaced. It also includes liability coverage to pay for medical expenses if you’re at fault for someone’s property damage or injury as well as any associated legal fees and settlements if you’re sued over it. 

Although not required by law, if you have a mortgage your lender will require homeowners insurance as this helps reduce the risk of their investment — as well as yours. You can drop homeowners insurance after paying off your mortgage, but this can be risky. A home is often the most expensive purchase you’ll ever make. Protecting that investment is critical.

How homeowners insurance works

Homeowners insurance reimburses you for repairs and replacements if the main structure of your house or personal possessions are damaged due to a covered issue. It’s common for a policy to also provide coverage for other structures associated with your home, such as a shed or detached garage. 

In addition to coverage for your home, other structures and personal possessions, a homeowners policy also usually will provide loss of use coverage, which will pay for necessities like temporary housing and meals while your home is being repaired or rebuilt, as well as liability coverage and medical payments for injuries to others or damage to their property. 

When you file a property damage claim and it’s approved, your insurer will issue a claim payout, up to your policy limits and minus the amount of your deductible. You choose your deductible when you purchase your policy — typically $500 or $1,000, but some companies may offer higher amounts. Other insurers may issue policies with a percentage-based deductible, such as 2% of the value of your policy. 

Actual cash value vs replacement cost value

Depending on the policy you have, the structure of your home and your belongings will either be insured at their actual cash value or replacement cost value. 

• Actual cash value policies factor depreciation into your claim payout. 
• Replacement value policies issue payment based on the market price at the time of your claim.

For instance, if your 8-year-old television is stolen and you have an actual cash value policy, your claim check will reflect the depreciated value of the television. If you have a replacement value policy, your claim payout would reflect the price of a comparable television as it is priced at the time of the claim. As such, replacement value policies are typically more expensive. 

Typical home insurance policies run in annual cycles and are renewed each year. 

What homeowners insurance covers

Homeowners policies typically include six types of coverage: 

Dwelling. This type of coverage helps cover the cost to repair or rebuild your home if it is damaged or destroyed due to a covered problem, like a fire. To determine how much coverage you may need, consider local labor and building costs and the square footage of your home.

Other structures. If your property has a barn, shed, fence or other structure, this coverage will help cover the cost of repair if they are damaged due to a covered issue. Your other structures limit is typically set at 10% of your dwelling coverage limit. So if your dwelling coverage limit is $500,000 then your other structures limit is $50,000. 

Personal property. Personal property coverage helps pay for replacing or repairing damaged, destroyed or stolen belongings such as electronics, furniture, clothing, appliances and other possessions up to your policy limit, which is typically set at a percentage of your dwelling coverage limit, such as 50%. 

Most home insurance policies insure your personal property at its actual cash value, which means depreciation is factored into your claim reimbursement. You may be able to upgrade to replacement cost coverage so that you’re paid out at the market price at the time of the claim. 

Loss of use. Also called additional living expenses (ALE) coverage, this covers your expenses if your property becomes uninhabitable due to a covered loss. It will pay for things like short-term housing, meals and other approved expenses over and above normal living costs while your house is repaired or rebuilt. 

Liability. If you, your family, or your pet cause property damage or bodily injury to another, liability coverage helps pay for others’ medical expenses or repair bills and for your legal defense costs and any settlements and judgments against you. You can typically get $100,000 to $300,000 in liability coverage, but you may be able to increase these limits depending on the insurance company. If you have more than $300,000 worth of assets to protect from a potential lawsuit, you might consider buying umbrella insurance. 

Medical payments to others. If someone outside your household receives a minor injury on your property, this no-fault coverage can cover their medical bills up to your policy limit. You can typically get $1,000 to $5,000 in this type of coverage.

What homeowners insurance doesn’t cover

Every homeowners insurance policy has limits and exclusions, and you should understand what these are before deciding on a policy or filing a claim. 

A standard homeowners insurance policy typically does not cover damage caused by: 

• Flooding.
• Earthquakes.
• Poor home maintenance or neglect. 
• Dry rot, smog, or rust.
• Animals or pets you keep on your property.
• War or nuclear hazards.
• Government-required renovations or repairs (ordinance or law).
• Water or drainage backups.
• Pest infestations.
• Expanding, building, sinking or settlement of pavers, patios, bulkheads, etc. 
• Wear and tear.
• Intentional losses.

There are still ways to protect your home from some of the issues listed above. For instance, earthquake and flood insurance are separate policies that homeowners can purchase separately.

You may also be able to add endorsements, or additional coverage, for some of these exclusions, such as water backup coverage to pay for water damage caused by a sewage backup.

Likewise, “If you suspect that elements of your home are not up to current building codes, consider getting an Ordinance or Law [coverage], which pays a specific amount toward bringing a house up to code during a covered repair,” said Loretta Worters, vice president of media relations at the Insurance Information Institute.

How much does homeowners insurance cost?

How much you spend on homeowners insurance will depend on several factors, including the amount of coverage and deductible you choose as well as your home’s age, location and size. How close your home is to fire protection services, your credit score and your claim history also affect home insurance rates.

Here’s how much different home insurance coverages cost for an HO-3 policy, according to our analysis of rates.

Average annual cost of homeowners insurance by coverage amount

How to get homeowners insurance

These steps can help you find the best homeowners insurance based on your needs and budget.  

Know how much coverage you need. You need enough dwelling coverage to fully rebuild your house back to its prior state after a covered disaster. There are several replacement cost calculators available online to give you a rough estimate, your insurance company can give you an estimate or you can hire a licensed appraiser. You also should purchase enough liability coverage to protect your assets in a lawsuit.

Shop around. Always shop around before choosing an insurance company, as insurance costs and coverage types can vary substantially from policy to policy. Aim for at least three quotes before making a decision.

Find out which companies offer the cheapest homeowners insurance. 

Decide on additional coverage. There are several ways to customize your coverage to meet your specific insurance needs. For instance, if you live in an area at risk of flooding, you may need or want to purchase a flood insurance policy. There are also ways to enhance your policy, such as adding extended or guaranteed replacement cost coverage.

Inventory your personal property. It’s difficult to know how much personal property coverage you need without considering the value of your possessions. Create a home inventory to get a realistic figure and avoid the risk of under-insuring your belongings. 

“Think about whether you want to insure them for actual cash value or for replacement cost,” said Worters. “The price of replacement cost coverage is about 10% more but is generally a worthwhile investment in the long run.”

If you own particularly valuable jewelry, art or other collectibles, you may need to ask about scheduling or endorsements to protect these to their full value in the event they’re stolen.

Ask about discounts. Many insurers offer multiple discounts to policyholders, including ones for making home upgrades, such as a new roof or electrical system, as well as safety features like deadbolts, security systems and smoke detectors. 

You may also be able to secure a bundling discount if you take out multiple policies, such as car insurance or RV insurance, with the same insurance company. See the best home and auto insurance bundles. 

Consider customer reviews. Not all insurance agencies are created equally, with some garnering much higher customer satisfaction scores than others. In addition to researching contenders online, ask friends and family about their experiences.

Frequently asked questions (FAQs)

What is the most common homeowners insurance policy?

An HO-3 is the most common type of homeowners insurance policy. It provides six standard types of coverage: dwelling, other structures, personal property, loss of use, liability coverage and medical payments to others. 

HO-3 coverage provides open peril coverage for the structure of your house, meaning all perils, or problems, are covered unless specifically identified as exclusions. 

Is homeowners insurance required?

There are no state laws that require you to purchase homeowners insurance for your property, but mortgage lenders often mandate coverage. Even if you don’t have a mortgage, you should consider purchasing (or keeping) homeowners insurance.

What are the six categories typically covered by homeowners insurance?

Within a standard homeowners insurance policy, you can expect to find six different types of coverage. These include: 

• Dwelling coverage for your home’s structure.
• Other structures coverage for detached structures on your property, such as a shed or barn.
• Personal property coverage for your personal possession, such as furniture.
• Loss of use or additional living expenses (ALE), which covers additional expenses if your home is deemed uninhabitable.
• Liability coverage which can pay for medical bills if you, a member of your family or a pet injures someone or damages their property. It also pays for your legal defense if you are sued, and any settlements or judgments against you, up to your policy limit. 
• Medical payments to others which covers small expenses if an individual outside your home received a minor injury on your property, regardless of who is at fault.