What Is Covered by Homeowners Insurance?

Your home is one of your most important and valuable assets, so you’ll certainly want to protect it. One of the best ways to do this is through homeowners insurance. While this isn’t required by law, many mortgage lenders have a vested interest in homeowners insurance for your house. Plus, if anything should happen to your house, you’ll have the ability to replace or repair your home. 

But what does home insurance cover? What are the different types? Today, we’re digging into the nitty gritty of this essential insurance and what is and isn’t covered.

Homeowners Insurance Coverage

What does home insurance cover? Quite simply, insurance provides a financial safety net if anything should happen to your home. There are several different types of insurance designed to protect different kinds of homes. Before understanding the different types of insurance, it’s essential to understand how they’re set up.

Named Peril vs. Open Peril

Insurance coverage is explained through named perils and open perils. A peril is an incident that causes damage to your house.

A named peril policy covers all specifically named perils, but doesn’t cover anything that isn’t named. An open peril policy covers everything except what is listed as an exclusion.

Cash Value Policy vs. Replacement Policy

Generally, you’ll have a choice between two types of policies — cash value or replacement. Cash value policies reimburse you for the amount of your loss, minus depreciation.

Replacement policies pay for the actual cost to replace your home and possessions or to make repairs at the current price depending on the specific limits of your policy. Replacement policies are generally better because they account for increases in labor or material costs, inflation, changes to building codes, improvements made to your home and zoning requirements.

Types of Homeowners Insurance

There are eight different types of homeowners insurance, each with a unique set of incidents they’ll cover.

HO-1

This is a cheaper policy that offers basic coverage and is pretty limited because it doesn’t include liability coverage or personal property. This is a named peril policy, and coverage is generally limited to your house’s structure and other structures on your property, such as a garage, shed or fence.

An HO-1 policy covers a short list of perils, which at first glance may seem like an ideal list of incidents to cover. However, keep in mind that this is a short list and other policies cover much more. The perils covered by HO-1 policies include:

• Damage from aircraft or vehicles
• Explosions
• Hail and windstorms
• Fire and lightning
• Smoke
• Riots 
• Vandalism
• Theft
• Volcanic eruptions

HO-2

An HO-2 policy is broader than an HO-1 policy and covers everything in the lower policy plus snow and ice damage, frozen plumbing or air conditioning, falling objects, accidental damage from electrical current, bulges or cracks and accidental overflow of water.

HO-3

This is the most common policy homeowners enroll in. It covers your house, belongings, liability, medical payments and additional living expenses. An HO-3 policy is an open peril policy that covers everything except for specific exclusions listed in your policy.

The most common exclusions listed in an HO-3 include earthquakes, flooding, government action, neglect, intentional loss, nuclear hazard, war and power surges that originate from your property.

HO-4

This is a policy specifically for those renting an apartment or house. It covers the same perils as an HO-3 policy, but it doesn’t cover damage to the rental property itself.

HO-5

This is the highest level of coverage. An HO-5 policy is a premium policy that covers all risks to your home’s structure and the outside of your house as well as all of your personal property and everything in your home unless the peril falls within the list of exclusionary incidents listed in your policy.

HO-6

This policy is specifically for those who live in a condo. It covers renovations to the condo after you bought it, personal belongings, walls, floors, ceilings, additional living expenses, medical payments and liability.

HO-7

This policy is similar to an HO-3, except it is specifically for mobile or manufactured homes such as double-wides, single-wides, RVs and trailers. It’s an open-perils policy that covers all incidents except for those specifically listed as exclusions.

HO-8

An HO-8 policy is for houses that were built more than 40 years ago and wouldn’t otherwise qualify for coverage under other standard homeowners insurance policies. This is because many insurance companies consider older homes to be at a higher risk because they’re constructed with outdated electrical work and the building materials are no longer up to code. As such, this type of policy only covers the 10 specific perils that are covered in an HO-1 policy, and your home and personal belongings are only covered at their actual cash value.

Peace of Mind for Your Most Valuable Asset

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