The eight types of homeowners insurance
Whether you rent or own a house, condo, or mobile home, homeowners or renters insurance is a good idea. It can help protect you from the costs of accidental damage to your home or possessions, and it can mitigate any liability you may face if someone is accidentally injured in or near your home.
As of October 2022, homeowners insurance cost an annual average $1,126 in Washington state. That’s $658 less than the national average. However, every plan is different, and individual costs and benefits can vary depending on the insurance company, the type of policy, your deductibles and coverage limits, and specific factors relating to your home. That’s why it’s wise to compare all the details of potential policies before deciding which plan is best for you.
The eight types of homeowners insurance
There are eight types of homeowners insurance policies, including one for those who rent. You’ll frequently see the policy types abbreviated with “HO,” for “homeowners,” followed by a number.
If you own a single-family home, your insurance policy will be one of these five: HO-1, HO-2, HO-3, HO-5, or HO-8. You’ll find information on these policies below.
If you rent, HO-4 renters insurance policies are for you. If you own a condominium, you’ll want a HO-6 condo insurance policy. Finally, if you own a mobile or manufactured home, look for HO-7 mobile home insurance policies.
Single-family home insurance
There are five types of single-family home insurance options varying in the amount of coverage they provide and the circumstances in which they will pay for loss and damage.
Single-family home insurance
This policy covers only your home structure under very specific circumstances called “named perils.” With this type of plan, homeowners are reimbursed only when damage or loss is caused by something included on this list, which usually consists of about ten circumstances. If damage or loss occurs as a result of an event not on the list, your insurance company isn’t required to provide payment. In addition, the reimbursement amount is typically related to your home’s cash value, not the cost of replacing what was damaged. Furthermore, possessions are not covered.
HO-1 policies are rare, as many mortgage lenders will not approve them.
Like HO-1 policies, HO-2 policies are named-perils plans, covering expenses only when the damage or loss occurs as a result of a situation that is specifically named in your plan. However, there are two big differences separating this policy from an HO-1. The first is that an HO-2 typically covers possessions in addition to your home structure. An HO-2 also usually includes more named perils.
Though this plan usually covers both home and possessions at cash value, it is more comprehensive than the basic plan.
The HO-3 is the most common homeowners insurance policy. It’s a combination of an open-perils policy and a named-perils policy. Your possessions are typically covered under named-perils guidelines, which means you’ll be reimbursed if the damage occurs due to a cause specifically listed in your plan.
However, your home, the actual building or dwelling structure, is typically covered under an open-perils plan, sometimes called an “all-risks policy.”
“Open perils” or “all risks” means the insurance will cover the costs of damage or loss under any circumstances except their named exclusions. So, really, these plans could be viewed as sort of “all risks except for the exceptions” plans. But as long as the cause of damage or loss isn’t expressly excluded in your plan, your insurance company should provide payment. These plans are more comprehensive and provide coverage in more situations than the previous two plans.
Sometimes called an open-perils or all-risks policy, the HO-5 plan typically covers your home and possessions at replacement costs, as long as damage was not caused by one of the listed exclusions. With a comprehensive policy, you are likely to receive more compensation for your losses, and your home and possessions are insured against a wider range of circumstances.
Comprehensive policies may also provide additional insurance opportunities on specific items such as jewelry, high-end electronics, and other valuables that may be assessed beyond the typical coverage limit. And if you live in a low-crime area with a low risk of natural disaster, an HO-5 policy may not cost much more than an HO-3 policy.
The HO-8 is typically for homes built more than 40 years ago. It’s a policy that makes sense when the home is a registered landmark or an inherited family home that is not up to current building codes, or when its cash value is less than replacement or repair costs. The older house policy may be a good choice to use as coverage until you make the repairs needed to be eligible for an HO-3 policy. It’s also a good policy for anyone who wishes to keep their home as it was originally built.
Similar to the basic HO-1, this insurance provides coverage at cash value only when damage is caused by one of the named perils.
Let WSECU help you find the plan that’s right for you.
Perils, exclusions and add-ons
Every insurance policy is unique. However, when looking across HO types, you’ll find some similarities. There are about ten named perils that frequently appear in the most basic plans, and about 16 named perils that you might see in mid-level plans. The same is true for the exclusions listed in the comprehensive policies.
Named perils: when you are reimbursed
A named perils policy means your insurance company will only reimburse you for damage that occurs as a result of one their listed situations. Named perils vary for each insurance policy, but the following are some of the more common perils named in basic insurance policies:
- Fire and lightning damage
- Storm, wind, or hail damage
- Smoke damage
- Damage caused by a vehicle
- Damage caused by an aircraft
- Riots and civil unrest
- Falling objects
Mid-level and standard policies typically include more named perils than the basic plans. These are some of the additions you may find if you step up to a standard plan:
- Damage due to weight of snow or ice
- Sudden and accidental discharge of water
- Appliance problems
- Power surges
- Volcanic eruption
Exclusions are the situations in which loss or damage is not covered by the insurance base plan. You’ll find these in comprehensive “open perils” or “all risks” plans, which means the insurance company covers the costs of damage and loss unless the cause is listed in the exclusions.
Like named perils, exclusions can vary across policies. The following list is a sample of some of the more common exclusions:
- Ordinance or law change
- Power failure
- Theft while under construction
- Mold, fungus, wet rot
- Foundation settling
- Birds, pests, and rodents
- Nuclear hazard
To be eligible to receive compensation for damages that result from one of the listed exclusions, additional add-on insurance must be purchased before the damage occurs.
Add-ons, endorsements and insurance riders
For insurance needs beyond your regular coverage, you may wish to purchase additional add-ons or endorsements, also called insurance riders or floaters, or you may choose to purchase an umbrella policy. These additions are meant to give you extra coverage or insure for a particular exclusion, item, or liability. If you live along a fault line or on a flood plain, you may choose to add earthquake or flood insurance. If you own collectibles, fine art, or fine jewelry that is appraised at a value higher than your coverage allows, you may wish to insure those particular items through specific additions to your policy. If you have a particular liability, such as owning a dog while renting, you may be able to purchase a liability rider to decrease the homeowner’s and your own financial risks.
Liabilities and other factors that affect costs
Your HO type is only part of the equation that determines the actual cost of your plan. There are several other factors that go into determining what your plan will cost:
- Coverage limits. The more money your insurance company might have to pay, the higher your monthly premium will be.
- Deductibles. Higher deductibles that make you responsible for more of the initial expenses will lower your monthly insurance rate. Lower deductibles will raise it.
- Construction materials. Concrete and brick houses are less flammable than wood houses. The more flammable your home, the more your insurance is likely to cost.
- Age of home. Older homes made of older materials may cost more.
- Renovations. Keeping your home up-to-date so it is safer and more energy efficient could lower your rates.
- Claims history. Homeowners and renters who have filed insurance claims in the past three to five years are likely pay more for their insurance than policy holders who haven’t.
- Credit history. Historically, good credit has lowered rates. However, due to the pandemic, Washington state law now prohibits insurance companies from using credit scores to determine rates. This law is subject to change, and other states may have different laws.
- Liabilities. Homes that impose higher risks for injury lead to higher insurance premiums. Swimming pools, trampolines and dogs are among the main culprits for increased insurance costs.
A note about dogs
With the rising costs of medical treatment and litigation, the 2021 average dog bite claim was $49,025 according to Insurance Information Institute. Because dog bite claims are expensive, dogs can be a big factor in your insurance costs. One way you might choose to mitigate costs is through the Canine Good Citizenship Test. To be eligible for the test, you and your dog must go through the American Kennel Club’s certification program. Passing the test is testament to your dog’s general good manners and non-aggressive attitude.
However, the test alone may not be enough for some insurance companies. Some companies simply limit liability or deny coverage for certain types of dogs, such as Dobermans, Rottweilers, chow chows, pit bulls and more.
In short, if you have a dog or are planning to get a dog, research your insurance company’s policy on dogs as well as your lease and landlord’s policy to ensure you have a good fit.