What Are the Different Types of Homeowners Insurance?
Homeowners, landlords, condo owners, renters, mobile homeowners, there are many types of homeowners insurance. When it comes to protecting your home, you want the right kind of coverage. Here is a quick overview of the main options for homeowners insurance.
HO3 - Single-Family
The HO3 is the most popular homeowners insurance policy. It's what most people reference when saying home insurance. The HO3 is an open perils policy -- it covers everything unless the cause of damage is listed explicitly in the policy form as excluded. It usually covers attached structures, belongings, and personal liability as well. They tend to be very affordable, with the average cost of an HO3 annual premium at $1,235 in 2021.
It doesn't cover every type of damage, however. Some exclusions aren't covered at all by the insurance company and add-ons that can provide coverage for an additional premium.
Some HO3s have the option to purchase a discounted vacation home add-on if you have a second home.
Special Add-ons to your Policy
As mentioned, the HO3 policy is mostly inclusive. If the plan doesn't outright offer coverage for some perils, then you can purchase these additional add-on policies (also known as Policy Riders or Endorsements). The price of these and their coverage limits vary depending on your insurance provider. A few of these add-ons are:
HO4 - Renters Insurance
As a renter, you'll need a different policy from homeowners insurance. An HO4 will offer coverage for your belongings as well as some personal liability coverage. An HO4 does not cover the building structure itself. Instead, the owner of the house or building would have the policy to cover the property.
HO6 - Condo Insurance
The HO6 is similar to the HO3 but designed specifically for condo owners. You'll have the typical coverage for various perils as the HO3, but it will also include the walls, ceilings, and floors of the unit. A different policy known as a Condo Association Master Policy would cover the building structure.
It's important to note that condo insurance can be complicated. The complication arises because multiple different insurance policies are protecting different pieces of the building and its contents. And if a negligent 3rd party (another condo owner, for instance) caused damage to your home, then their insurance policy would also come into play.
Knowing where the HOA policy's coverage stops and where your coverage should start is critical. If your condo needs to be rebuilt entirely from the ground up, what will you get back:
- studs in - you get your condo back unfinished, with the studs and no drywall
- walls in - walls are up, but you need to put up finishings (flooring, cabinets, countertops, etc.)
- original specification - does not include upgrades you did after buying the unit, but back to original condition. If you added some beautiful granite countertops, get those covered on your HO6.
- all in - livable (full restoration)
The difference in coverage you may need for "studs in" vs. "all in" can be over $100,000 in coverage. Double-check with your HOA before buying a policy.
DP3 - Landlord Rental Policy
This policy covers houses from single to multi-family that function as rental properties (excluding apartment complexes -- commercial real estate policy). The DP3 is the policy for anyone who rents out property, covering the building's structure and rental income from the property. However, it does not cover the renter's belongings.
If you own a duplex, triplex, or quadplex and live in one of the units while renting out the others, then you will sometimes need a DP3 as the HO3 policy may not cover the area not inhabited by the owner. Coverage depends on the insurance company you choose.
DP1 - Vacant Property Under Renovation
The DP1 is your most basic homeowners insurance policy. It provides the bare minimum coverage for a vacant property. It's also a named perils policy -- only offering coverage for a small number of events. Common named perils for this policy are fire & lightning, smoke, explosion, and a few others. If damage happens to the property outside of the named perils, it would not be covered.
One important note, DP1 policies tend to be Actual Cash Value (ACV) policies. Actual cash value means that if you have a claim on your house under this policy, you will not get a full house rebuilt. Often with an ACV policy, you get a check for the agreed ACV coverage amount on your policy declaration page in a total loss scenario.
Mobile Home Insurance
Mobile homes need their insurance to cover the differences between them and traditional houses. These policies are very similar to HO3 plans but tend to be more expensive when compared to the cost for the coverage provided since mobile homes are at a higher risk of being damaged.
Along with the traditional perils mobile home insurance covers, it can also cover relocation expenses and replacement of damaged personal items. And if your mobile home gets damaged during a move, the insurance usually covers repairs.
I hope that helps you in navigating the confusing world of insurance. I am doing my best to make it easy.
At your service,