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Understanding the Different Types of Homeowners Insurance

Understanding different types of home insurance forms can be complicated. Homes and properties are protected for different perils depending on the type of coverage the home buyer chooses. Here’s our comprehensive guide to unlocking some of the complexities.
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Home insurance is probably the most important purchase you can make for your home. After all, your house or condo is probably the most valuable thing you own -- and you want to protect it from unforeseen events and damage.

But navigating the world of insurance isn’t easy. There are several different types of insurance homebuyers need to look at. Each covers different perils and costs depending on the policy form that you buy.

Here’s our comprehensive guide to understanding the different types of home insurance forms homebuyers have to choose from.

1. HO-1 Basic Form

This is a limited insurance policy form and, as its name suggests, it’s a barebones homeowners insurance policy. It covers ten perils, including fire or lightning, hail and windstorms, explosions, and smoke.

It also covers policyholders in case of riots or even damage from aircraft and vehicles. HO-1 also provides protection against some vandalism costs and it covers volcanic eruptions, should the policyholder need it.

HO-1 policies are rare. According to a 2015 National Association of Insurance Commissioners report, only about 1% of homeowners had this policy. The reason for the low numbers may be due to the fact it covers only a limited number of perils.

It doesn’t include coverage for personal liability in case someone is injured on a policyholder’s property. It also doesn’t automatically cover personal belongings in the home.

2. HO-2 Broad Form

HO-2 insurance coverage is slightly more popular than HO-1 coverage. About 2.7% of policies fall into this category.

HO-2 policy forms are written on a named-peril basis. They cover the basic perils under HO-1 policies plus a few more. These additional perils include damage from falling objects, water damage if plumbing overflows, and damage of appliances.

It also covers damage from the weight of snow or ice, along with any damage that may be sustained by the freezing of household systems. It usually also covers personal property and personal liability.

Homeowners considering this policy form should note that it only pays for damage caused by specific perils named in the policy.

3. HO-3 Special Form

HO-3 policies are the most common types of house insurance coverage. The 2015 NAIC report notes that about 63% of homeowners were insured by these policies.

This policy form has a broad range of coverage. The coverage is on an open perils basis for structures on your property such as fences and detached garages. That means it protects against 16 perils that are considered most common.

It also gives protection against other perils, as well. The policies also cover damage or theft of personal belongings like furniture. But the policy form has significant exclusions.

Earthquake damage or damage from sinkholes and mudflows is not covered. Neither is water damage from flooding or sewer backup. It also does not protect policyholders from lawful demolition if the home is not up to code.

4. HO-5 Comprehensive Form

This policy form is more expansive and comprehensive than the HO-3 form. Like the HO-3, it is written on an open-perils basis. It will cover damage not only to your home but also personal property damage and other perils unless they are specifically excluded.

HO-5 is a robust homeowner’s insurance policy, but it’s also the most expensive. Unlike HO-3 policies, the HO-5 policies are an open form for personal property and for structures on the property. HO-5 policies also have greater limits for losses for jewelry, fur, and electronic items.

HO-5 policies usually exclude losses due to earthquakes, mold or wet rot, or collapse. They also exclude reimbursements for damages incurred by the settling, shrinking, or expansion of a home’s foundation.

5. HO-6 Condo Form

This policy form is typically known as condominium insurance. It’s not uncommon for a condo association to have responsibility for only common areas. HO-6 policies cover the part of the units owned by the policyholder and the property housed inside the condo.

Homeowners insurance considers each condo unit fundamentally as a single home. HO-6 policies will also cover any liability and living expenses if the policyholder is not able to live in the unit anymore.

Want to Know More About Homeowners Insurance?

Home insurance may be the most important purchase you make after buying your home. It’s your protection from unforeseen events and perils. That’s why understanding the different types of home insurance is so vital.

But understanding the complexities of insurance can be daunting. And not fully comprehending what your policy covers can have devastating consequences. That’s why it’s important that prospective homebuyers connect with an experienced local Clever Partner Agent for guidance.

Partner Agents are an essential first step to unraveling questions you may have about the various home insurance forms. They can also recommend trustworthy insurance agents and carriers.



Thomas O'Shaughnessy
Thomas O'Shaughnessy

Tommy O'Shaughnessy is the Head of Research at Clever Real Estate, the free online service that connects you with top local agents to save on commission. Tommy's team of data scientists create surveys, gather data, and analyze trends in housing, real estate, and personal finance. He directs public relations efforts, acting as a "data communicator" between his team and the press. Clever studies have been featured in Politico, the LA Times, CNBC, Forbes, Yahoo Finance, and other publications.

See all Thomas's Posts

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