Homeowner's Policies Compared
There are 8 primary types of insurance policies sold to policyholders to protect their home.
See below for details on each policy.
RCV or ACV Policy?
RCV Replacement Cost Value - The actual cost of replacing the materials on your property today, without applying Depreciation.
ACV - Actual Cash Value - What the materials on your property are worth right now. Calculated by subtracting Depreciation from Replacement Cost Value
HO-1 Policy
An HO-1 is a named peril policy and is the most basic of property insurance forms available. Named peril policies cover damages resulting from specific perils. For HO-1 policies, this typically includes:
Fire and smoke damage
Lightning
Windstorm and hail
Explosions
Theft
Vandalism
Riots and civil commotion
Aircraft damage
Vehicles damage (unless caused by the insured)
Volcanic eruption
HO-1 policies cover your property at ACV (Actual Cash Value), meaning they only pay for the damaged property based on what it is worth now, rather than paying the actual cost remove and replace the damaged materials, and they do not offer persnal property or liablity coverage. As such, these forms are limited to the point that they are not offered by most home insurance companies, but they can be a good fit in some scenarios.
Policyholders with an HO-1 policy should account for the limited coverages in their finances and ensure they have an emergency fund available to cover the difference between their insurer's payout and the cost to repair your property.
HO-2 Policy
Like an HO-1, an HO-2 policy is a named peril policy covered at actual cash value. This means the insurer owes for damages caused by only specific perils, and will only pay actual cash value for the repairs to your property. HO-2 policies have a broader range of covereage than an HO-1, but are still limited policies and are not a good fit for most homeowners.
Fire and smoke damage
Lightning
Windstorm and hail
Explosions
Theft
Vandalism
Riots and civil commotion
Aircraft damage
Vehicles damage (unless caused by the insured)
Volcanic eruption
Falling objects
Weight of ice, snow, or sleet
Accidental discharge or overflow of water or steam
Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, air conditioning system, or fire protective sprinkler system, or an appliance for heating water
Freezing of a plumbing, heating, air conditioning, or household appliance
Sudden and accidental damage from artificially generated electrical current
Policyholders with an HO-2 policy should account for the limited coverages in their finances and ensure they have an emergency fund available to cover the difference between their insurer's payout and the cost to repair your property.
HO-3 policy
HO-3 policies are the most common type of homeowner's policies and are most likely to offer comprehensive coverage for your property. Claims are paid at replacement cost value, or the actual cost of replacing your damaged property. HO-3s are open-peril policies, meaning all causes of loss are covered with the exception of specific covered perils.
Typically, specific exclusions include:
Earth Movement: This typically includes earthquakes, landslides, and sinkholes. Separate coverage or a rider may be required for these perils.Floods: Damage caused by floods is typically not covered by standard homeowners insurance. Separate flood insurance is usually required.
Sewer Backup: Damage caused by a sewer backup is often excluded from standard policies but can sometimes be added as an endorsement.
War and Nuclear Hazard: Damage caused by war, nuclear accidents, and terrorism are generally excluded.
Neglect and Maintenance: Damage resulting from neglecting to properly maintain the property, such as mold, rust, or rot, is typically not covered.
Intentional Acts: Damage caused intentionally by the homeowner or someone else is not covered.
Business Activities: Damage related to business activities conducted on the property may be excluded.
Certain Dog Breeds: Liability for certain dog breeds considered high-risk may be excluded.
HO-4 Policy
HO-4 Policies are also called renter's insurance. Typically these policies include contents, additional living expenses, and potentially liability coverage in case someone is injured while on the rented property. They do not cover damage to the structure of the property, as that is typically covered under landlord's insurance policies.
HO-5 Policy
HO-5 policies are very similar to HO-3 in that they are open peril policies, meaning all causes of loss are covered outside of certain named exclusions, and you are indemnified based on replacement cost value, or the actual cost of replacing your damaged property. The distinction between HO-3 and HO-5 policies is that HO-5 policies are also open-peril policies for your contents.
Typically, named exclusions include:
Earth Movement: This typically includes earthquakes, landslides, and sinkholes. Separate coverage or a rider may be required for these perils.
Floods: Damage caused by floods is typically not covered by standard homeowners insurance. Separate flood insurance is usually required.
Sewer Backup: Damage caused by a sewer backup is often excluded from standard policies but can sometimes be added as an endorsement.
War and Nuclear Hazard: Damage caused by war, nuclear accidents, and terrorism are generally excluded.
Neglect and Maintenance: Damage resulting from neglecting to properly maintain the property, such as mold, rust, or rot, is typically not covered.
Intentional Acts: Damage caused intentionally by the homeowner or someone else is not covered.
Business Activities: Damage related to business activities conducted on the property may be excluded.
Certain Dog Breeds: Liability for certain dog breeds considered high-risk may be excluded.
HO-6 Policy
An HO-6 policy is intended for the residents of condominiums or co-ops and covers the interior of the property, including any upgrades to the interior made by the resident. This is distinct from the owner's policy, which typically will only cover common areas such as clubhouses and the exterior of the buildings. Coverage typically extends to -
Personal Property: This includes furniture, clothing, electronics, and other personal belongings within the unit. Coverage is usually provided against perils such as fire, theft, vandalism, and certain types of water damage.
Interior Unit Coverage: This includes coverage for the interior walls, ceilings, floors, and fixtures within the unit. It also covers improvements and upgrades made to the unit, such as new flooring or kitchen cabinets.
Loss Assessment Coverage: This provides coverage for the unit owner's share of certain assessments charged by the condominium or co-op association for losses that are covered under the association's master policy but exceed its coverage limits.
Personal Liability: This provides protection if someone is injured in your unit or if you accidentally damage someone else's property.
HO-6 policyholders should be sure to regularly assess their coverage needs to ensure that their policy provides adequate coverage to their property. HO-6 policies typically have significantly lower coverage limits than standard homeowner's policies as the exterior of the property is not covered. At times, this can lead to policy limits being reached prior to the completion of interior repairs.
HO-7 Policy
HO-7 policies are specifically designed for mobile and manufactured homes. HO-7 policies provide coverage for the mobile home itself, personal property inside the home, liability protection, and additional living expenses if the home becomes uninhabitable due to a covered loss.
Perils Covered: While both HO-3 and HO-7 policies cover similar perils such as fire, theft, and vandalism, the specific risks covered and the extent of coverage may vary. For example, mobile homes may have specific risks related to transportation or structural vulnerabilities that are covered differently in an HO-7 policy compared to an HO-3 policy.
Value and Replacement Cost: The value of a mobile home and the cost to replace it can differ significantly from a traditional home. HO-7 policies are tailored to provide coverage that reflects the value and replacement cost of mobile homes.
Policy Form: HO-3 policies are typically based on a standard form developed by the Insurance Services Office (ISO), while HO-7 policies may vary more in terms of their specific form and coverage details, as they are more specialized for mobile homes.
Coverage for Transportation: Mobile homes can be moved from one location to another, which may require specific coverage for transportation and installation. HO-7 policies may include coverage for these aspects, which would not be relevant for traditional homes.
It should be noted that HO-7 policies can vary much more significantly in their language than more standardized forms and you should ensure you are familiar with your policy. That said, the primary differences between an HO-7 and HO-3 are going to be seen in the pricing for replacement of materials in mobile homes, which are held to different construction standards and are often lighter, less expensive materials than those used in a traditional dwelling.
HO-8 Policy
HO-8 policies are a unique "modified coverage form" typically applied to older homes. They usually cover losses on a named peril basis, with covered perils usually being fire, lightning, windstorm, hail, smoke, vandalism, and theft. Losses are paid out at actual cash value, meaning the value of the damaged property as of today, rather than the actual cost to replace the damaged property.
HO-8 policies can be a good option for older homes that do not meet the underwriting requirements of standard homeowners policies, or for homeowners who are looking for a more affordable insurance option for their older home. Their coverage is not comprehensive, however, and the policy limits typically will not cover the full value of the dwelling.