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Best Home Insurance Policy (Updated)

Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted...

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella...

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UPDATED: Jun 26, 2020

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Homeowners Insurance Policy Types and Average Annual Rates
Policy TypePolicy NameDefinition2017 Average Annual Rates
HO-1Basic Form PolicyNamed peril coverage for single-family dwelling.$1,657
HO-2Broad Form PolicyExtended named peril coverage for single-family dwelling.$1,144
HO-3Special Form PolicyStandard homeowners insurance; open peril coverage for single-family dwelling.$1,211
HO-4Renters InsurancePersonal property coverage for renters.$180
HO-5Comprehensive Form PolicyExtended open peril coverage for single-family dwelling.$1,292
HO-6Condominium Form PolicyOpen peril coverage for condo owners.$488
HO-7Mobile Home Form PolicyOpen peril coverage for mobile home owners.N/A
HO-8Older Home Form PolicyOpen peril coverage for older single-family dwellings.$989
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So you need to purchase a home insurance policy and don’t know where to start. We get it. It’s hard to tell which home insurance policy is best.

Upon first glance, the many types of homeowners insurance may seem complicated — but don’t let all the numbers and acronyms fool you. Once you understand what each policy type does, it’s easy to determine which homeowners policy is best for you and your property.

This expert guide will break down the difference between each policy type in detail so that you are well-prepared to make your decision.

First, we’ll go over the HO-1 vs HO-2 vs HO-3 vs HO-4 vs HO-5 vs HO-6 policies and which policy is best for each type of home. Then, we’ll review average rates, special policy types, and how to purchase a homeowners policy. By the end of this guide, you’ll have all the information you need to protect your home.

Know what kind of policy you need? If you’d like to get the best homeowners insurance rates, you can enter your ZIP code in the quote box above to start comparing quotes.

Table of Contents

What is a policy form?

Before we compare specific policies, let’s define what a policy form is. A policy form is a contract between an insured person and their insurer. It outlines what the insurer will or will not cover in the event of damage to the insured person’s property. In exchange for the insured person’s payments, which are called premiums, the insurer promises to pay for the potential losses outlined in the policy form.

Still confused? Here’s a hypothetical scenario. In this scenario, Sally is the insured person. X Insurance Company is the insurer.

Sally is a new homeowner. She lives in a city that’s susceptible to snowstorms. Sally reaches out to X Insurance Company to get coverage in advance of the next snowstorm.

Sally purchases a policy from X Insurance Company that states X Insurance Company will insure her home in the event of a snowstorm. Every month, Sally pays a premium to X Insurance Company for that continued protection. One day, when a snowstorm hits Sally’s city and destroys her roof, X Insurance Company pays for the cost of repairing the roof.

Real-life insurers typically offer policy forms with multiple protections, giving a homeowner like Sally insurance for additional perils, not just a snowstorm.

Let’s go over the most common policy forms.

Common Types of Homeowners Insurance Coverage

There are eight main policy forms for homeowners. They are called:

  • HO-1 Policy
  • HO-2 Policy
  • HO-3 Policy
  • HO-4 Policy
  • HO-5 Policy
  • HO-6 Policy
  • HO-7 Policy
  • HO-8 Policy

Though these eight policies cover a wide breadth of insurance needs, there are several additional insurance types. They are:

  • Dwelling Fire Policies
  • Landlord Insurance
  • Seasonal Insurance
  • Flood and Earthquake Insurance

Later, we’ll go over each of those policies in detail. For now, let’s begin by defining the six major policy types.

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Which home insurance policy is best?

In this section, we’ll identify the key uses and components of the HO-1, HO-2, HO-3, HO-4, HO-5, HO-6, HO-7, and HO-8 policies. First, let’s go over what each code means.

What do the codes mean?

Let’s start with the simplest homeowners policy and work our way up.

HO-1

An HO-1, also known as a basic form policy, covers 10 specific perils. They are:

  • Fire and smoke
  • Explosions
  • Lightning
  • Hail and windstorms
  • Theft
  • Vandalism and malicious mischief
  • Riots and civil commotion
  • Damage from vehicles
  • Damage from aircraft
  • Volcanic eruption

These 10 are called named perils. We’ll go over what that means in a bit.

Any peril other than the above 10 is not insured under an HO-1 policy.

In addition, an HO-1 may not insure your personal property. If any personal property is covered, the items being insured, much like the perils being insured, must be named on the policy.

HO-2

An HO-2, also known as a broad form policy, offers more extensive coverage than an HO-1. An HO-2 policy covers not only the perils listed on an HO-1, but also:

  • Falling objects
  • Ice, snow, or sleet damage
  • Freezing
  • Water or steam overflow
  • Sudden and accidental damage to household systems
  • Electrical damage

An HO-2 covers 16 named perils in total and — typically — personal property.

HO-3

An HO-3, also known as a special form policy, is the most popular homeowners policy. This is because it offers all three parts of a home insurance policy in one package:

  • Dwelling coverage
  • Personal property coverage
  • Liability coverage

An HO-3 also covers medical fees, additional living expenses, and other structures on your property.

An HO-3’s dwelling coverage protects your home from all perils except those that are excluded on your policy. Your personal property, however, is protected from the 16 named perils typically listed on an HO-2 policy.

HO-4

An HO-4, also known as renters insurance, covers a renter’s personal property. Unlike HO-1, HO-2, and HO-3 policies, an HO-4 does not insure the “dwelling,” meaning the outer structure, of the renter’s house.

HO-5

An HO-5, also known as a comprehensive form policy, is much like an HO-3. Its key difference is that it offers all-perils coverage for both your dwelling and your personal property.

Instead of your personal property being protected from only 16 named perils, it is protected from all perils except those that are excluded on your policy.

HO-6

An HO-6, also known as a condominium form policy, insures a condo owner’s property. It provides HO-3 coverage, but only insures the portion of the dwelling a condo owner is responsible for, which makes HO-6 insurance different from renters insurance.

HO-7

An HO-7, also known as a mobile home form policy, insures a mobile home owner’s property. It provides HO-3 coverage to a mobile homeowner.

HO-8

An HO-8, also known as an older home form policy, is a policy designed for older homes. It provides HO-3 coverage that is adapted for an older home’s needs.

There you have it — all eight policy forms. Before we go over each form in greater detail, let’s break down a policy form’s most important components.

Named Perils vs Open Perils

The first thing to note is whether a policy is a named perils policy or an open perils policy.

If you’re wondering what a “peril” is, you can learn more by watching this video breakdown.

A peril is an event that causes damage to your house. It can be anything from a harsh storm to a break-in. If you have a named perils policy, every peril your house is protected from is listed in the policy. Damage from any peril not listed in the policy will not be covered by your insurer.

The HO-1 and HO-2 policy forms are examples of named perils policies. The HO-1 form has 10 named perils, while the HO-2 has 16. Any peril not listed on those forms will not be covered by your insurer.

If you have an open perils policy, which is sometimes also referred to as a special perils policy or all-perils policy, your house is protected from every peril except those that are specifically excluded in your policy.

The HO-3 policy form, which is widely considered to be the standard form of homeowners insurance, is an example of an open perils policy. It protects you from all perils, with a few listed exceptions. Flood damage, for example, is often not covered by an open perils policy and requires its own type of insurance.

Because it provides comprehensive protection, an open perils policy is generally considered to be the safer and more preferable form of insurance.

Levels of Coverage

Another important factor is the level of coverage a policy form provides. Purchasing an appropriate level of coverage will prevent you from joining the majority of American households that are underinsured. There are three major levels of coverage.

Actual Cash Value

If your policy form provides actual cash value coverage, your insurer will pay up to the actual cash value of the object or structure that has been lost or damaged by an insured peril. Do note that, because the value of objects and structures depreciates over time, the actual cash value will not be the same amount as the original price you paid for your object or structure.

Let’s break this down with another hypothetical:

Sally’s garage, which she installed five years ago for $5,000, has been destroyed in a storm. It was protected by an actual cash value policy. She files a claim with her insurer and the insurer determines the actual cash value of the garage at the time it was destroyed. The insurer then sends Sally a check for $4,500.

The insurer’s payment is less than the initial cost of Sally’s garage because the value of her garage depreciated over the five years it was in use.

Because actual cash value coverage may not compensate an insured person with enough money to replace or repair their damaged object or structure, it is more restrictive than other forms of coverage.

Replacement Cost

Another form of coverage is replacement cost coverage. Unlike an actual cash value policy, a replacement cost policy compensates the insured person with the amount of money it would take to replace the damaged object or structure with an exact or similar replica.

Replacement cost coverage is generally the most recommended form of coverage, as it guarantees that the insured party receives a replacement for the object or structure they have lost.

Guaranteed or Extended Replacement Cost

Lastly, we have guaranteed replacement cost coverage and extended replacement cost coverage. These forms of coverage are the most comprehensive and expensive.

Guaranteed replacement cost coverage compensates the insured person with the amount of money it would take to replace the damaged object or structure even if the cost of replacement is higher than the original price of the object or structure.

Guaranteed replacement cost coverage is useful, for example, for homeowners in disaster-prone areas such as those listed by the Insurance Information Insititute (III). After natural disasters, the cost of building materials skyrockets, making it more expensive to build a structure the second time around.

Extended replacement cost coverage is a slight variation on guaranteed replacement cost coverage. Rather than covering all replacement costs, extended replacement covers an additional 20 to 25 percent of the structure’s replacement value.

Coverage Limits

It’s important to note that many plans have coverage limits. A coverage limit is a cap on the amount your insurer will compensate you for your loss. If the cost of replacing your damaged object or structure exceeds your coverage limit, you’ll have to make up the difference yourself.

Add-Ons, Endorsements, & Riders

If you’re not satisfied with the parameters of your homeowners insurance policy, you can amend it with add-ons, endorsements, and riders. Add-ons, endorsements, and riders are additional coverages you can purchase to customize your policy.

Add-ons are purchased to gain additional coverage. Here are a few examples of what can be insured/insured against using add-ons:

  • Musical instruments
  • Sports equipment
  • Yards and gardens
  • Flood damage

You can use endorsements and riders to change the scope of your coverage plan. For example, you can purchase an endorsement to extend your coverage limit.

If you’re interested in purchasing an add-on, endorsement, or rider, consult with your insurer to learn what’s available through your policy.

Average Policy Form Rates

Before we break down each policy form, let’s examine average policy form rates. Here are the average premiums, courtesy of the National Association of Insurance Commissioners (NAIC) for HO-1, HO-2, HO-3, HO-5, and HO-8 policy forms nationwide.

Average Annual Home Insurance Rates by Policy Form
Policy FormsAverage Annual Rates
HO-1$1,657
HO-2$1,144
HO-3$1,211
HO-4$180
HO-5$1,292
HO-6$488
HO-7N/A
HO-8$989
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According to this data from the National Association of Insurance Commissioners, it’s more economical to purchase an HO-3 special form policy than it is to purchase an HO-1 basic form policy — despite the fact that an HO-3 provides more coverage. This is something to note as we dive into each policy in greater detail.

Let’s first break down homeowners insurance policies designed for single-family homes.

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Insurance for Single-Family Homes

This section of our guide will walk you through the HO-1, HO-2, HO-3, HO-5, and HO-8 policy forms. Each of these policies is designed for single-family homes.

HO-1 Policies

Let’s begin with the simplest policy, the HO-1.

What is an HO-1 policy?

An HO-1 policy, also known as a basic form policy, is the simplest form of coverage. It covers 10 named perils. They are:

  • Fire and smoke
  • Explosions
  • Lightning
  • Hail and windstorms
  • Theft
  • Vandalism and malicious mischief
  • Riots and civil commotion
  • Damage from vehicles
  • Damage from aircraft
  • Volcanic eruption

Only your dwelling — the outer structure of your home — is protected from these perils.

What is not covered by an HO-1 policy?

An HO-1 policy does not cover other common perils like:

  • Falling objects
  • Snow damage
  • Freezing
  • Electrical damage
  • Flood

An HO-1 also does not typically provide personal property coverage, liability insurance, medical payments to others, or additional living expenses coverage.

If any personal property is covered by an HO-1, the items being insured, much like the perils being insured, must be named on the policy.

How much does an HO-1 policy cost?

Let’s take a look at the average cost of an HO-1 policy from 2014 to 2017.

Average Annual HO-1 Home Insurance Rates (2014–2017)
YearAverage Annual HO-1 Rates
2014$1,148
2015$1,412
2016$1,481
2017$1,657
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As you can see, the average cost of an HO-1 policy has risen in recent years. While the average premium nationwide was once $1,148, average premiums rose to $1,657 in 2017. This steep increase in premiums may have occurred because the HO-1 is becoming less common.

HO-1 Policy Pros & Cons

So is an HO-1 the right policy for you? Here are the HO-1 policy form’s biggest pros and cons.

HO-1 Pros and Cons
HO-1 ProsHO-1 Cons
The HO-1 covers 10 common perils.The HO-1 only insures your dwelling. It does not protect you from additional perils and does not provide liability insurance, medical payments to others, additional living expenses coverage, or insurance for most personal property.
The HO-1 is a good option for vacant homes, seasonal homes, and other properties that don't require comprehensive protection.On average, the HO-1 is more expensive than HO-2 and HO-3 policy forms.
The HO-1 is easily customizable. When paired with other policies and add-ons — like flood insurance — it can be a useful policy.Many mortgage lenders will not approve HO-1 policies because they provide so little protection.
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The HO-1 can be a great option for vacant or seasonal homes that don’t require comprehensive insurance coverage. Take a look at this news report from Springfield, Massachusetts, that outlines what can happen if vacant homes are neglected.

Despite these uses, the HO-1 has many downsides. Because the HO-1 provides minimal coverage, we don’t recommend using it as the only form of insurance for your primary residence.

In addition, because the HO-1’s minimal coverage poses a high risk to your home, many mortgage lenders will not approve your mortgage if an HO-1 is your only form of coverage.

Lastly, because the HO-1 policy is growing less common, it’s more expensive than other insurance policies designed for single-family homes.

HO-2 Policies

If you’re looking for minimal coverage but feel the HO-1 is too limited for you, you may prefer an HO-2 policy form.

What is an HO-2 policy?

An HO-2 policy, which is also known as a broad policy form, covers 16 perils — six more than the HO-1 policy. They are:

  • Fire and smoke
  • Explosions
  • Lightning
  • Hail and windstorms
  • Theft
  • Vandalism and malicious mischief
  • Riots and civil commotion
  • Damage from vehicles
  • Damage from aircraft
  • Volcanic eruption
  • Falling objects
  • Ice, snow, or sleet damage
  • Freezing
  • Water or steam overflow
  • Sudden and accidental damage to household systems
  • Electrical damage

An HO-2 protects your dwelling and your personal property from these perils.

What is not covered by an HO-2 policy?

Despite its greater level of coverage, an HO-2 has its limits. It does not protect your home from any peril other than its 16 named perils. An HO-2 also does not provide liability insurance, medical payments to others, or additional living expenses coverage.

How much does an HO-2 policy cost?

Still, one of the HO-2 policy form’s advantages is that it provides more coverage than an HO-1 for a lower price. While the average cost of an HO-1 policy was $1,657 in 2017, the average cost of an HO-2 policy was $1,144.

Let’s take a look at the average cost of an HO-2 policy from 2014 to 2017.

Average Annual HO-2 Home Insurance Rates (2014–2017)
YearAverage Annual HO-2 Rates
2014$1,130
2015$1,129
2016$1,122
2017$1,144
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As you can see, the cost of an HO-2 has remained relatively stable over the past couple of years.

HO-2 Policy Pros & Cons

Next, let’s examine the biggest advantages and disadvantages of the HO-2 policy form.

HO-2 Pros and Cons
HO-2 ProsHO-2 Cons
The HO-2 provides more coverage than an HO-1 policy at a cheaper price.The HO-2 does not protect your home from any peril other than its 16 named perils.
The HO-2 is a good option for vacant homes, seasonal homes, and other properties that don't require comprehensive protection.The HO-2 does not provide liability insurance, medical payments to others, or additional living expenses coverage.
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The HO-2 policy form’s biggest advantage is that it provides more extensive coverage than an HO-1 at a much cheaper price. This makes it a great choice for vacant or seasonal homes that require minimal insurance.

However, an HO-2 does not provide comprehensive coverage and therefore is not the safest form of insurance for a primary residence. For comprehensive coverage, you will need an HO-3 policy.

HO-3 Policies

An HO-3 policy is the most comprehensive policy for a single-family home. It is generally the most recommended policy because it offers so many protections. Let’s take a detailed look at how an HO-3 policy can protect your home.

What is an HO-3 policy?

An HO-3, also known as a special form policy, is an open perils policy. This means that it insures policyholders against all perils except those excluded on the policy. As a result, it provides far more coverage than an HO-1 or HO-2 policy and is considered to be standard homeowners insurance.

An HO-3 insures your dwelling as well as your personal property. Dwelling coverage typically extends to other structures on your property, and personal property is insured against the 16 named perils listed on HO-2 policies.

An HO-3 also provides you with liability insurance, medical payments to others, and additional living expenses coverage.

Let’s go over what each of those protections means.

Liability insurance protects you from being held financially responsible if a guest is injured on your property. A policy that provides medical payments to others not only protects you from being held liable if there is a medical emergency but also compensates the other party for their medical bills. Lastly, additional living expenses coverage compensates you for expenses you incur if you have to temporarily vacate your home.

These extensive protections make an HO-3 policy the best fit for a single-family home you live in all year round. However, there are a few perils not covered by an HO-3.

What is not covered by an HO-3 policy?

An HO-3 policy does not cover damages caused by neglect. It also does not cover:

  • Maintenance issues
  • War or nuclear hazard damage
  • Government seizure
  • Earthquake or water damage

Let’s quickly go over that last bullet point. An HO-3 does not include water or earthquake insurance. If you want to protect your house from floods and earthquakes, you need to purchase a separate flood or earthquake insurance policy. We’ll review the parameters of these policies and where to purchase them in a bit.

How much does an HO-3 policy cost?

Because HO-3 policies are so common, they are relatively cost-effective. Here is a breakdown of the average cost of an HO-3 policy from 2014 to 2017.

Average Annual HO-3 Home Insurance Rates (2014–2017)
YearAverage Annual HO-3 Rates
2014$1,132
2015$1,173
2016$1,192
2017$1,211
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While the cost of an HO-3 has risen slightly over the past couple of years, its price remains relatively stable.

It’s also worth noting that the average premium for an HO-3 policy is about the same as the average premium for an HO-2 policy. If you’re thinking of purchasing an HO-2 policy, make sure to consult with your insurer about the cost of an HO-3, as you may get more bang for your buck.

HO-3 Policy Pros & Cons

Next, let’s break down the HO-3 policy form’s pros and cons.

HO-3 Pros and Cons
HO-3 ProsHO-3 Cons
The HO-3 offers comprehensive coverage for your dwelling and personal property. It also provides you with additional coverages like liability insurance.The HO-3 protects your personal property on a named perils basis.
The HO-3 is relatively cost-effective, and provides more protection for the same price as an HO-2 policy.The HO-3 does not provide flood or earthquake insurance.
Get Your Rates Quote Now

Overall, there’s a lot to love about the HO-3. Its biggest benefit is the extensive coverage it provides. Another is that, because the HO-3 is the most standard form of homeowners insurance, nearly every insurer offers an HO-3 policy.

If you live in a disaster-prone area, the HO-3’s biggest downside is its lack of earthquake and flood insurance. However, you can purchase add-ons, endorsements, and separate policies to make sure you’re getting the coverage you need.

HO-5 Policies

While an HO-3 policy is extensive, its coverage may not be enough for some. Let’s take a look at a popular alternative, the HO-5 policy.

What is an HO-5 policy?

An HO-5 policy, also known as a comprehensive form policy, gives policyholders even more insurance coverage than an HO-3.

It has all the trappings of an HO-3 — open perils dwelling coverage, personal property coverage, liability insurance, medical expenses coverage, and additional living expenses coverage — with a few expansions.

While an HO-3 policy only protects personal property from 16 named perils, an HO-5 policy protects personal property through open-perils coverage, meaning personal property is insured against any peril unless it is specifically excluded on the policy.

In addition, an HO-5 typically has higher coverage limits than an HO-3.

What is not covered by an HO-5 policy?

Much like an HO-3, an HO-5 does not cover damages caused by neglect. It also doesn’t cover:

  • Maintenance issues
  • War or nuclear hazard damage
  • Government seizure
  • Earthquake or water damage

To get additional coverage for some of these perils, you will have to purchase add-ons or separate insurance policies.

How much does an HO-5 policy cost?

Because an HO-5 offers more coverage than an HO-3, it typically costs more than a standard homeowners policy. Let’s take a look at the average cost of an HO-5 policy from 2014 to 2017.

Average Annual HO-5 Home Insurance Rates (2014–2017)
YearAverage Annual HO-5 Rates
2014$1,108
2015$1,231
2016$1,242
2017$1,292
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As you can see, the average cost of an HO-5 policy has risen by almost $200 in the past few years. It is also, on average, slightly more expensive to have an HO-5 than it is to have an HO-3. While the average cost of an HO-3 policy was $1,211 in 2017, the average cost of an HO-5 was $1,292.

However, because the cost of an HO-5 is not significantly higher than that of an HO-3, it can be a cost-effective substitute for homeowners who need extra coverage.

HO-5 Policy Pros & Cons

So, do the HO-5 policy form’s benefits make it a worthwhile substitute? Let’s break down its pros and cons.

HO-5 Pros and Cons
HO-5 ProsHO-5 Cons
In addition to standard homeowners coverage, the HO-5 provides open-perils personal property coverage.The HO-5 is more expensive than standard homeowners insurance.
The HO-5 provides extended coverage limits.The HO-5 excludes perils like floods, earthquakes, and maintenance issues. Policyholders must purchase add-ons and separate policies to cover these damages.
Get Your Rates Quote Now

The HO-5 policy’s greatest benefit is the extent of its coverage. However, it has similar exclusions to the HO-3 and can be more expensive.

HO-8 Policies

Next, let’s break down the HO-8 policy, which is a unique policy form for single-family homes.

What is an HO-8 policy?

An HO-8 policy is designed for older homes. It can also be used to insure historical landmarks, such as those on the National Register of Historic Places and buildings with unique architecture. If your home is over 40 years old, it’s likely that aspects of the home are expensive to replace. This means the replacement cost of your home may be more expensive than its current market value.

An HO-8 is an affordable way to get actual cash value coverage for your older home. If you have an HO-8, your insurer will provide actual cash coverage for a dwelling or personal property damaged by these 10 perils:

  • Fire and smoke
  • Explosions
  • Lightning
  • Hail and windstorms
  • Theft
  • Vandalism and malicious mischief
  • Riots and civil commotion
  • Damage from vehicles
  • Damage from aircraft
  • Volcanic eruption

An HO-8 also provides liability insurance and additional living expenses coverage.

What is not covered by an HO-8 policy?

Unlike the HO-3 and HO-5 policies, an HO-8 does not provide open-peril coverage. An HO-8 bears more of a resemblance to the HO-1, insuring the policyholder against 10 named perils. It does not protect your dwelling or property from additional perils like falling objects or snow damage. It also doesn’t cover:

  • Maintenance issues
  • War or nuclear hazard damage
  • Government seizure
  • Earthquake or water damage

To get additional coverage for some of these perils, you’ll have to purchase add-ons or separate insurance policies.

How much does an HO-8 policy cost?

An HO-8 is a cost-effective alternative for older homes. Let’s take a look at the cost of an HO-8 in recent years.

Average Annual HO-8 Home Insurance Rates (2014–2017)
YearAverage Annual HO-8 Rates
2014$975
2015$986
2016$959
2017$989
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The average cost of an HO-8 has remained quite static over the past couple of years. Because of its rigidity, an HO-8 is also cheaper than a standard homeowners policy. This is great news for homeowners who need affordable and dependable coverage for their older homes.

HO-8 Policy Pros & Cons

While an HO-8 is not suitable for most homes, it’s a great fit for some.

HO-8 Pros and Cons
HO-8 ProsHO-8 Cons
The HO-8 helps older homeowners insure the rare or antique aspects of their home.The HO-8 only provides dwelling and property coverage on a named perils basis.
The HO-8 is one of the more affordable policies for single-family homes.Because of its coverage limitations, the HO-8 is not a good choice for new homes.
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The HO-8’s biggest downside is its coverage limits. However, these limits might be worth it if you’re looking for an affordable way to insure a rare or old property.

Which single-family homeowners policy should I choose?

No matter what your home looks like, you can find the right coverage through one of the above policies.

If you want to insure a vacant or seasonal home at a cheap price, speak with your insurer about purchasing an HO-1 or HO-2 policy. These policies are useful for properties that don’t require extra protections like additional living expenses coverage.

When researching HO-1 or HO-2 policies, make sure to compare their prices to the cost of an HO-3 policy. If the cost is comparable, you’ll get more bang for your buck with an HO-3.

If you’re looking for comprehensive insurance for a home you live in all year round, the best choice is an HO-3.

An HO-3 policy will give you ample protection against most perils and is the standard homeowners policy. If you don’t feel an HO-3 policy is enough, you can purchase an HO-5 policy, which provides extended coverage limits.

Lastly, an HO-8 policy may be the best fit if you live in an older home or a home with rare architecture. This policy will ensure that you are properly compensated in the event of property damage or loss.

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Insurance for Condos & Co-ops

Now that we’ve covered insurance options for single-family homes, let’s take a look at what’s available for condo and co-op residents.

HO-6 Policies

The HO-6 policy form, also known as a condominium form policy, is the primary insurance policy for condos and co-ops. The HO-6 provides condo owners the same coverage as an HO-3 standard insurance policy — with one big exception.

Condos are often managed by condo associations. These associations carry master policies that protect the outer dwelling, as well as shared common spaces like lobbies and hallways.

Because a condo’s outer structure is already insured, individual residents only need insurance for their individual units. So, an HO-6 insures the interior of an individual’s unit, not the entire property.

Like the HO-3, an HO-6 also provides these coverages:

  • Personal property coverage
  • Liability coverage
  • Medical payments to others
  • Additional living expenses

With an HO-6, a condo owner is protected just as much as a single-family homeowner.

What is not covered by an HO-6 policy?

The HO-6 doesn’t cover your condo’s outer dwelling or common spaces like lobbies and hallways. These structures are typically insured by your condo association’s master policy.

Like the HO-3, an HO-6 also doesn’t cover:

  • Maintenance issues
  • War or nuclear hazard damage
  • Government seizure
  • Earthquake or water damage

However, some of these perils can be insured through add-ons or separate insurance policies.

How much does an HO-6 policy cost?

Because condo insurance only protects individual units, it’s a lot cheaper than standard homeowners insurance. In 2017, the average cost of an HO-6 policy was less than half that of an HO-3. Here’s a breakdown of average HO-6 premiums from 2014 to 2017.

Average Annual HO-6 Home Insurance Rates (2014–2017)
YearAverage Annual HO-6 Rates
2014$461
2015$478
2016$471
2017$488
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As you can see, HO-6 premiums have remained stable over the past few years.

Bear in mind, however, that the cost of a condo association’s master policy is often split between condo residents. This will add an additional expense to your insurance premiums.

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Insurance for Renters

It’s a common misconception that homeowners insurance is only for homeowners. In truth, it’s highly recommended that renters also purchase homeowners insurance. The primary policy for renters is called an HO-4. Let’s go over its main elements.

HO-4 Policies

The HO-4 policy, also known as a tenant’s form policy, insures a renter while they are living in their landlord’s dwelling. It’s designed for policyholders whose dwellings are already covered by their landlord’s insurance. It protects renters’ personal property from these 16 perils:

  • Fire and smoke
  • Explosions
  • Lightning
  • Hail and windstorms
  • Theft
  • Vandalism and malicious mischief
  • Riots and civil commotion
  • Damage from vehicles
  • Damage from aircraft
  • Volcanic eruption
  • Falling objects
  • Ice, snow, or sleet damage
  • Freezing
  • Water or steam overflow
  • Sudden and accidental damage to household systems
  • Electrical damage

It also provides renters with liability insurance and medical payments to others.

If you’re a renter, keep in mind that your landlord may legally require you to obtain renters insurance.

What is not covered by an HO-4 policy?

An HO-4 policy does not provide dwelling coverage, as it is assumed the renter’s dwelling is insured by their landlord.

An HO-4 also does not cover damage caused by a peril not listed on the policy.

Lastly, an HO-4 does not provide renters with additional living expenses coverage. If a renter must vacate their property temporarily, their insurer will not pay for their cost of living during that time.

How much does an HO-4 policy cost?

Because an HO-4 is designed to protect a renter’s personal property and not their dwelling, it’s a fraction of the cost of standard homeowners insurance. Here are the average premiums for renters insurance from 2014 to 2017.

Average Annual HO-4 Home Insurance Rates (2014–2017)
YearAverage Annual HO-4 Rates
2014$190
2015$188
2016$185
2017$180
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The cost of an HO-4 has gone down slightly over the past couple of years and, overall, it’s a relatively inexpensive way to protect your belongings while you’re renting a home.

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Insurance for Mobile & Manufactured Homes

Lastly, let’s go over insurance options for mobile and manufactured homes. Because these homes are built so differently, they don’t fall under regular homeowners coverage and require their own policy form: The HO-7.

HO-7 Policies

The HO-7, also known as a mobile home form policy, is designed for mobile and manufactured homes. It provides mobile and manufactured homes with the same coverage provided by an HO-3 policy.

With an HO-7, the dwelling of your mobile or manufactured home is covered on an open-perils basis.

Personal property, however, is only protected from 16 named perils. HO-7 policyholders also receive liability insurance, medical payments to others, and additional living expenses coverage.

What is not covered by an HO-7 policy?

The HO-7 does not cover any damage to personal property caused by a peril not listed on the policy. It also does not insure against:

  • Maintenance issues
  • War or nuclear hazard damage
  • Government seizure
  • Earthquake or water damage

However, some of these perils can be insured through add-ons or separate insurance policies.

How are HO-7 policies different from RV insurance?

RVs and mobile homes are properties you can both live in and transport. An RV, however, is designed for more extensive travel. As a result, it is categorized as a vehicle and not a home.

RV insurance protects the RV owner from vehicle-related incidents like collision damage, whereas mobile home insurance insures the property as if it is a stationary residence.

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Additional Insurance Types

We’ve now covered eight major insurance policy forms: The HO-1, HO-2, HO-3, HO-4, HO-5, HO-6, HO-7, and HO-8. These policies are built for single-family homes, condo owners, renters, and mobile homeowners.

There are, however, additional types of insurance. These additional types are designed for special cases like seasonal or vacant homes. They’re also meant to be supplemental: You can use any of these coverage options to beef up your primary policy. Let’s explore these additional insurance types.

Landlord Insurance

Landlord insurance is a great option for homeowners who are renting out their property. It protects the components of a home that belong to the landlord and is typically comprised of property insurance and landlord liability protection.

A landlord’s property insurance is comprised of three different elements:

  • Dwelling insurance – Dwelling insurance protects the outer structure of the landlord’s home.
  • Other structures insurance – Other structures insurance protects adjoining or separate structures like garages, decks, and gazebos.
  • Personal property – While landlord insurance does not protect the renter’s personal property, it does protect any personal property the landlord has provided to furnish the rental.

This insurance type also provides landlords with liability protection. Liability protection compensates landlords for any legal or medical bills incurred if someone is injured on the rented property. If a tenant is injured on the property, liability protection prevents the landlord from bearing the financial burden.

All in all, landlord insurance is a great option for homeowners who are renting out their property. If you are a landlord, make sure to explain what is and isn’t covered by your insurance to your renters, and encourage your renters to purchase renters insurance so that they too are covered.

Seasonal Insurance

As we mentioned earlier, some homeowners use named perils policies like the HO-1 and HO-2 to protect seasonal homes. Named perils policies can be a cost-effective way to insure a home that you don’t live in all year round.

However, the limitations of these policies may mean they’re not suited to the parameters of your seasonal home, especially if it has unique architecture or is located in a disaster-prone area.

That’s where seasonal insurance comes in. Seasonal insurance is a great way to get comprehensive coverage designed for the unique features of your seasonal property. It gives you much of the benefits of an HO-3 but can be customized to protect rarer assets like lakefront structures.

Dwelling Fire Policies

A dwelling fire policy is the most barebones form of homeowners insurance. It’s an insurance policy that protects only your dwelling.

Because its coverage is so limited, some insurance companies don’t offer dwelling fire coverage anymore. In 2013, the NAIC found that 2.2 percent of the nation’s homes were insured by dwelling fire policies. In addition, many mortgage lenders won’t approve your mortgage if your only form of insurance is a dwelling fire policy.

However, a dwelling fire policy can sometimes be useful for vacant or seasonal homes. They are also sometimes used in place of landlord insurance.

Let’s break down the three types of dwelling fire policies.

DP-1: Basic Form

A DP-1, or Basic Form Policy, is the most limited type of dwelling fire policy. It’s a named perils policy and insures your dwelling against damages caused by:

  • Fire
  • Lightning
  • Internal explosions

The DP-1 is also an actual cash value policy. That means that policyholders receive a check for the actual cash value of their damaged structure — which may not match its replacement cost.

DP-1 policyholders can purchase add-ons and endorsements that protect their dwelling from additional perils like vandalism, hail, and smoke.

DP-2: Broad Form

A DP-2, or Broad Form Policy, gives policyholders a little more wiggle room. However, it’s also a named perils policy. It extends dwelling coverage to perils like:

  • Vandalism
  • Hail or windstorms
  • Smoke
  • Snow damage
  • Falling objects
  • Burglary
  • Riots and civil commotion
  • Aircraft or vehicles
  • Volcanic eruptions
  • Glass breakage
  • Accidental discharge or overflow of water or steam
  • Pipe freezing
  • Electrical damage
  • Collapse
  • Structures tearing apart

A DP-2 also compensates policyholders based on replacement cost and not actual cash value. If your dwelling is damaged and you have DP-2 coverage, you’ll receive a check for the replacement cost of your dwelling up to your coverage limit.

DP-3: Special Form

The third type of dwelling fire policy is called a DP-3, or Special Form Policy. Unlike the DP-1 and DP-2, it is an open-perils policy, meaning your dwelling is protected from all perils except those that are excluded in the policy. These exclusions typically include:

  • Flood damage
  • Earthquake damage
  • Damage due to lack of maintenance

A DP-3 also provides personal property protection, though personal property is protected on a named perils basis. Like the DP-2, it’s a replacement cost policy.

Flood & Earthquake Insurance

Most homeowners insurance policies do not provide flood and earthquake coverage, but if you live in a flood or earthquake zone, this type of insurance is vital.

Many insurance companies offer flood and earthquake insurance as separate policies, so inquire with your insurer about purchasing this protection as an add-on.

The federal government also offers flood insurance through the National Flood Insurance Program. The NFIP provides coverage of up to $250,000 for the structure of the home and $100,000 for personal possessions.

If you’re curious about the NFIP’s benefits, you can watch this video by FEMA to learn more:

As you can see, the NFIP is a helpful resource for homeowners at risk of flood.

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How to Purchase a Homeowners Insurance Policy

Now that we’ve broken down the different types of insurance, we’ll help you figure out which one might best suit your needs. Then we’ll walk you through the process of purchasing homeowners insurance.

Determining Your Coverage

Once you know what each policy form does, it’s easy to choose the best policy for your home.

  1. First, outline which aspects of your property you’d like protected from damage. If you only want to protect your dwelling, your best bet may be an HO-1, HO-2, or dwelling fire policy. If you also want personal property, liability, and other structures coverage, consider a more comprehensive policy like the HO-3.
  2. Next, determine the value and rarity of the structures you want to insure. If your structures are especially valuable or rare, stick to a policy that provides replacement cost coverage. This will better ensure their replacement in the event of damage. If your home is 40+ years old, you may benefit from an HO-8 policy.
  3. Then, choose your ideal coverage limits. Decide between open-perils coverage and named-perils coverage; or, consider policies like the HO-3, which provide a combination of both. Remember that a policy’s coverage limit is the cap on how much you’ll be compensated in the event of damage. If you want a plan with a higher cap, opt for an HO-5 policy or purchase endorsements that extend your coverage limit.
  4. Lastly, make note of any unique protections your house will require. Do you live in a flood zone? Do you store expensive musical instruments in your home? Do you have a large garden? Choose an insurer that offers add-ons that meet these needs.

If you’re a renter, landlord, condo owner, or mobile home owner, the above steps can still be used to customize your policy type.

For more information, check out this quick explainer video.

These steps are all you need to get started. Once you’ve completed them, you can easily purchase coverage.

Buying Coverage

So, how do you buy homeowners insurance? What are the best and worst homeowners insurance companies?

If you’re buying homeowners insurance for the first time, develop a good understanding of your budget. A policy’s price can really impact your choice of coverage.

Premiums vary greatly depending on your location, property, and insurer, so make sure to obtain and compare quotes from multiple insurers in your area before you settle on a policy.

If you already carry auto or life insurance, consult with your insurer about adding homeowners insurance to your policy. If your insurer offers auto, life, and home bundles, you may get homeowners insurance at a discounted price.

If you already have homeowners insurance and would like to change or expand your policy, make sure to consult with your insurer about the best time to change your policy. You may get a better deal if you switch during your current policy’s renewal period.

Top 10 Insurance Companies

If you’d like to compare quotes but aren’t sure where to begin, this list of the country’s top 10 insurance companies is a great place to start.

Top 10 Homeowners Insurance Companies by Market Share
CompaniesAverage Annual Rates (For $500,000 Home in Pasadena)A.M. Best RatingMarket Share Percentage
State Farm$972A++18.50%
Allstate$1,047A++8.36%
Liberty Mutual$1,076A6.74%
USAA$1,154A++6.24%
Farmers Insurance$1,869A5.86%
Travelers$795A++3.81%
American Family InsuranceN/AA3.32%
Nationwide$961A+3.22%
Chubb Ltd Group$2,031A++2.87%
Erie Insurance GroupN/AA+1.70%
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While these sample rates give us a window into the top 10 companies’ average premiums, keep in mind that each company’s rates may look very different in your community. Remember that the cheapest home insurance companies aren’t always the best ones.

Amica home insurance is very highly rated but may be more costly than Allstate home insurance. You’ll need to find a balance between rates and customer service. And, of course, location matters. The best homeowners insurance in California won’t be the same as the best choice in New York. When you’re trying to figure out which auto and home insurance is the best, shopping around is your best bet on both counts.

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The Bottom Line

Above all, your insurance policy should be just as carefully selected as your home. Whether you’re opting for a standard or more customized policy, make sure you’ve considered each of these factors:

  • Policy type and coverage options (HO-1, HO-2, HO-3, HO-4, HO-5, HO-6, HO-7, HO-8)
  • Open versus named perils
  • Actual cash value versus replacement cost
  • Coverage limits
  • Add-ons, endorsements, and riders
  • Average premiums

Once you’ve done so, you’ll be well on your way to keeping your home, belongings, and self safe from peril. It’s also a good idea to review your isnurance annually. The answer to which home insurance is best for 2019 may well change in 2020.

Now that you know all about the different types of homeowners insurance, we’d like to hear from you: Which insurance type will you be using to protect your home?

You can get quotes for your preferred home insurance type by entering your ZIP code into the quote box below.

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Frequently Asked Questions: Which home insurance policy is best?

Still need to learn more about homeowners insurance policies? Here are a few frequently asked questions.

#1 – Is homeowners insurance required?

Unlike car insurance, homeowners insurance is not required by law. If you have a mortgage, however, your mortgage lender may require you to carry an insurance policy. If you choose not to carry a policy, your lender can either deny your application or charge you for insurance that protects only their assets.

#2 – Is my dog covered by my homeowners insurance policy?

If you have liability coverage, your insurer will probably cover any injuries or incidents caused by your dog. However, some dogs with aggressive tendencies, like Pit Bulls, Rottweilers, and German Shepherds, are not covered by insurance companies because they are considered high-risk.

Whether or not your dog is insured depends on its breed, your insurer’s policies, and your location. The best way to find out if your dog is covered is to consult with your insurance company.

#3 – Will my insurance policy cover mold?

Yes, mold is sometimes listed as a named peril or included under an open-perils policy. However, your insurance company may not cover mold damage if the mold has grown over time. This is because the mold growth is then considered damage due to neglect, and neglect is a peril rarely covered by insurance companies.

Also, your insurance company may not cover mold growth from water, flood, or humidity damages if those perils are excluded on your policy.

#4 – What is a good homeowners insurance rate?

The best rates on homeowners insurance depend on a lot of different factors. It’s difficult to compare two different homes in terms of rates, but looking at the average cost of home insurance in your area can help. Bundling can help you get a good rate, but remember that The best home and auto insurance bundles in 2019 might be different in 2020. So shop both policies around annually.

#5 – How can I find home insurance companies near me?

Most of the major home insurance companies offer coverage nationwide. If you’re looking for a local agent, try the agent search on the company website. You can also contact your state insurance department for information on which companies operate in your area.

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