by Joe June 10, 2019

Buyer's Guide to Homeowners Insurance

Shopping for a place to live is serious business.  For most, it’s the biggest investment they will ever make.  Most financial advisors will tell you to spend around 25% of your income on a place to live -- that’s a lot of money!  And with all that money being pumped into a home, it should be protected in case of loss. While people hardly enjoy getting insurance, it’s a necessary component to ensuring your most costly asset and possessions are covered.  Below we will show you the 8 policies that offer protection for your place of residence.

HO-1 | Minimal Form

This is a basic plan designed to provide limited coverage.  This policy will protect you from 10 specific perils:

  • Fire or Smoke
  • Lightning
  • Hail and Windstorms
  • Explosion
  • Riots and Civil Commotion
  • Aircraft
  • Vehicles
  • Vandalism
  • Theft
  • Volcanic Eruption

Depending on your situation, you might not even be able to pick this type of policy.  Some mortgage companies don’t consider this sufficient insurance for your home and will require you to get a more comprehensive policy.  Certain states have even followed suit and deny this basic coverage.

Even if you are given the option of selecting an HO-1 policy, there are a few coverages you might need that aren’t traditionally covered:

  • Personality Liability
  • Falling Objects
  • Weight of Ice, Snow, or Sleet
  • Freezing of Household Systems
  • Accidental Discharge of Water and Steam
  • Sudden & Accidental Tearing Apart, Cracking, Burning, or Bulging of Pipes
  • Sudden & Accidental Damage from Artificially Generated Electrical Current

Who Should Buy? 

If you are feeling cheap and there isn’t much risk for perils not included, this could be an option to save a couple bucks!  And keep in mind, it only covers damage to the house. If personal belongings are damaged, you’re out of luck. So for most people this probably isn’t the right choice.  There’s a good reason mortgage companies and States are banning this policy.

HO-2 | Basic Form

This broad policy is a little more generous than the minimal policy above.  It covers these additional perils:

  • Falling Objects
  • Weight of Ice, Snow, or Sleet
  • Freezing of Household Systems
  • Accidental Discharge of Water and Steam
  • Sudden & Accidental Tearing Apart, Cracking, Burning, or Bulging of Pipes
  • Sudden & Accidental Damage from Artificially Generated Electrical Current

This policy also gives you protection for your personal belongings (and sometimes personal liability too!).  So if there’s a fire in your house, it will cover damage done to possessions which can be a huge help.

But you shouldn’t assume that this policy will cover all perils.  It still leaves out a slew of less common perils.  And while the perils covered constitute 90% of claims, this means that 10% of people under this policy wouldn’t see a dime.

Who Should Buy?

The basic policy is a great solution for those looking to get general coverage for common perils, and who don’t mind taking on the risk of leaving out less common ones.  It’s also the ideal choice compared to the simple policy if you have a lot of expensive possessions. The simple policy will cover your house if it's burned but will provide you nothing to compensate for the oven, refrigerator, TV, computer, sofa, beds, etc. Those costs add up!  Paying a little more with the basic policy to get all these belongings covered would go a long way in the event of loss.

HO-3 | Special Form

This policy protects owners from a much wider breadth of coverage.  While the simple and basic policies only cover “named-perils” (those specifically mentioned), the special policy is considered an “open-peril” (it covers all perils except those specifically excluded). 

Along with the additional coverage, the special policy covers personal liability.  Personal liability protects you from being sued by someone who was injured due to your negligence (whether that be a cousin slipping down the stairs or a contractor that took your advice on how to get onto the roof and fell down in the process). 

While the special policy covers a lot of angles, it doesn’t have the best protection of personal belongings.  For the structure of the house, it’s an open-peril. However, personal belongings are only covered on a named-peril basis.  Some perils might cover damage to your possessions, while others might not.

Who Should Buy?

From the description, it should be apparent that this policy requires much more reading than the others.  With each quote, one has see which perils are excluded and which perils offer coverage for personal belongings.  While it could be a great choice, it will require diligence for the homeowner to find a special policy that fits their needs.

HO-4 | Tenant Form

This policy is commonly known as “Renters Insurance” and is designed specifically for those renting an apartment, house, etc.  It provides coverage for:

  • Personal Belongings (not building structure, which is the responsibility per the landlord)
  • Living Expenses when Rented Place is Being Fixed from A Covered Peril
  • Personal Liability

Who Should Buy?

A renter!  While a landlord might require you to purchase renters insurance as a part of the lease agreement, it is still a good choice for those with expensive belongings.  If you are cheap and don’t have costly possessions, skimping on this could be a way to save some dollars.

HO-5 | Comprehensive Form

The comprehensive policy provides broader coverage than the broad policy (who would have thought?).  While the HO-3 policy covers personal property on a named-peril basis, this policy covers personal property on an open-peril basis.  Unless it’s specifically excluded, possessions are covered for all perils. Additionally, personal liability is included.

Who Should Buy?

While offering more coverage than the broad policy, it will likewise require reading to understand exclusions.  Regardless of exclusions, this will offer the most comprehensive coverage for both perils and possessions. If you want maximum coverage for your home and belongings, this is the policy to choose.

HO-6 | Condo Form

This policy is commonly known as “Condo Insurance” and is designed specifically for those who own a condo.  It provides coverage for:

  • Personal Belongings
  • Living Expenses Condo is Being Fixed from A Covered Peril
  • Personal Liability
  • Internal Structure of the Condo (walls, floors, and ceiling)

Condo insurance resembles renters insurance with one addition -- it covers the internal structure of the condo.  However, you can get a policy without this feature to save money.

Who Should Buy?

The answer is obvious, but the type of policy isn’t as clear.  Before selecting a policy, you should check to see what your HOA already covers.  If they provide coverage for the internal structure of your condo, you probably shouldn’t buy your own condo policy that also covers it.  Also, your HOA might have a poor policy and not include coverage for your roof or for an external garage. In this case, it might be wise to get a better policy that offers even more coverage than standard condo insurance.

HO-7 | Mobile Home Form

This policy was created to accommodate those living in a mobile home.  And the coverage afforded by such a policy vary widely. A mobile home policy can be customized to look like an HO-1 or HO-3 and everything in between.

Who Should Buy?

Since there’s no standard to go by, purchasing a mobile home policy will require lots of quotes and comparisons in order to make the right decision.  It might be beneficial to write a list of perils you want covered before reaching out for quotes to lay a foundation for which policy best suits your needs.

HO-8 | Older Home Form

This policy is for homes that are 40 years or older.  It provides coverage for the same 10 perils listed on the HO-1 policy.   One of the main differences between other policies and this one is the payout structure for a claim.  An older home is an actual cash value policy, not a replacement cost policy. With replacement cost, you are awarded the full price of replacing damage to your property.  If you bought a roof 10 years ago for $10,000 and a hailstorm damaged it, you are reimbursed $10,000. Under an actual cash value policy, insurance only pays what the roof is worth on the day of its damage.  Because of daily wear and tear from age, that $10,000 roof might only be worth $5,000 when the hailstorm came around. In an HO-8, you would only receive $5,000.

Who Should Buy?

Unless you are saving a lot of money with an HO-8 or find a policy that is not an actual cash value, I have a hard time believing this is a good choice.  There could be something I’m missing, but it doesn’t seem like a great plan.