What does homeowner’s insurance cover?

As though buying a house wasn’t pricey enough, there’s also the task of purchasing homeowners insurance. And alas, much like auto insurance, home insurance isn’t an option for homeowners — it’s a necessity.
Yes, you can legally buy a home without homeowner’s insurance, but banks and mortgage companies typically need proof of homeowners insurance coverage to proceed with a loan or financing. It’s standard for lenders to require borrowers to have coverage for the full or fair value of the property. Why are they so strict? It makes sense when you consider that they need it to safeguard their investment. After all, you may be paying a fortune in mortgage payments in the long run, but the lender is the one fronting the cash.
By having homeowner’s insurance, the home buyer is essentially guaranteeing the lender that in the event of damage to the property, there are financial protections in place. Said financial protections work in the favor of the homeowner, too (though of course, they’re the ones paying for the coverage, so it’s hardly a win-win). Should something unfortunate happen (like a storm that leaves a shattered window or a burglary that results in your home computer being stolen) your insurance company will step in with financial relief.
Sounds simple enough, right? Ah, if only! In truth, the details of homeowners coverage are quite complicated. Like pretty much every other insurance policy out there, coverage in homeowners insurance policies is loaded with fine print, caveats, and loopholes.

What types of home insurance policies are there?

First, consider that there are eight different types of homeowners insurance policies on the market — H-O1 through H-O8. Your coverage depends on the type of policy you purchase. And in some cases, the policy you purchase will depend on the type of home.
Here’s a look at each type of homeowners policies, and how they differ from one another.

HO-1 home insurance: Basic protection

HO-1 Insurance is the most basic protection for property damage. It covers your dwelling and your belongings in the event of damage caused by “covered” or “named peril”. What peril, you ask? Well, that depends on your policy, but it usually speaks to events like snowstorms or vandalism. But read this part carefully because if it’s not explicitly stated as a covered peril in your policy, your insurance won’t cover it.
A standard HO-1 policy covers the following 10 named perils (but again, make sure to thoroughly read policies you’re considering!): -Fire or lightning -Riot or civil commotion -Smoke -Windstorm or hail -Damage from aircraft -Vandalism -Explosion -Damage from vehicles (Usually only if you/the insured aren’t the ones who caused the damage) -Theft (though only up to $1,000, typically) -Volcanic Eruption (hey, you never know!)

HO-2 home insurance: Bonus protection

An HO-2 insurance policy typically only differs from an HO-1 policy by offering a few more named/covered perils. A standard HO-2 insurance policy covers the same basic things (dwellings and belongs) and 10 perils named in an HO-1 policy, but touts these additional named perils: -Accidental discharge or overflow of water or steam within the home -Tearing apart, burning, cracking from some household systems -Freezing of pipes and heating and air conditioning systems -Sudden and accidental damage from certain electrical currents -A falling object -Weight from ice, snow, or sleet
So, if you live in an avalanche zone, you should be covered, right?. Oh wait — it doesn’t explicitly state “avalanche”. See? Tricky stuff! When in doubt, be sure to ask your insurance provider. As with the HO-1, if it isn’t a named peril in HO-2, you’re on our own.

HO-3 home insurance: Plus protection

An HO-3 insurance policy is an open-peril policy, meaning it covers all perils except for whatever it lists as uncovered perils. So, if you’re in California like me, your HO-3 insurance policy probably lists earthquakes as a peril it does not cover because earthquakes are pretty common out here. If you’re in New Orleans, it likely opts out of coverage for floods for the same reason.
But wait, there’s a caveat: these policies are typically open-peril when it comes to your dwelling but not when it comes to your belongings, in which case. For your possessions, it’s back to the 16 named-perils coverage of an HO-2 policy, which, in case you need a refresher, are as follows:
-Fire or lightning -Hail or windstorms -Explosions -Riots or civil commotion -Damage from aircrafts -Damage from vehicles -Smoke -Vandalism -Theft -Falling objects -Weight of ice, snow, or sleet -Accidental discharge of water or steam -Sudden and accidental tearing apart, cracking, burning, or bulging of certain household systems -Freezing of household systems -Sudden and accidental damage from artificially generated electrical current -Volcanic eruptions (!)
HO-3 insurance policies might also pay for rent should your home be unlivable during a covered loss, too.
Perhaps the biggest draw to HO-3 policies (and perhaps what makes them the most popular type of homeowners insurance policies), is the personal liability coverage. If you or a family member cause damage or injury to another person, it can cover those expenses — along with legal bills if the other party sues.

HO-4 home insurance: Renters' protection

If you’re a prospective homeowner, you can skip right past the HO-4 policy option, because this one is for renters only.
HO-4 policies, aka, renters insurance, cover all the same perils for renters as HO-2 policies do for owners. These policies include personal property coverage along with liability coverage, but not the physical structure of the home (which, tbh, as a renter, you might not be super concerned about anyway). Some HO-4 policies include loss of use coverage, too.

HO-5 home insurance: Premium protection

Like the H-O3, an H-O5 policy is an open-peril policy for your home. But an H-O5 policy is considered a "premium policy." What does that mean? In this case, it means that, unlike the H-O3 coverage, the H-O5 open-peril policy applies to not only your home but to your personal belongings, too — unless said perils are specifically exempted from the policy.
Since these are fancier plans (as in, they’re more expensive than an H-O4, hence the word “premium”), many H-O5 policies tout coverage for high-value personal property like jewelry.

HO-6 home insurance: Condo protection

Unless you’re buying a condominium, feel free to pass right past this option, which is specifically for condo owners. An HO-6 home insurance policy covers things not already covered by your condo association policy, such as your personal belongings.
Unlike other homeowners insurance policies, HO-6 usually only covers things inside your unit, but it depends. It’s important to ask prospective providers if the policy covers in-unit damages only.

HO-7 home insurance: Mobile home protection

Live in a mobile home or a manufactured home? Cool — then this one's for you. If you don’t live in a mobile home or manufactured home, then please keep scrolling.
An HO-7 home insurance policy protects your mobile or manufactured home against any perils not specifically named in your policy. That said, this is not total open-peril coverage (is it ever? The answer, btw, is nope!). The open-peril policy part only applies to the structure of your home and any detached structures. For personal property, this plan operates on a named-peril basis. It’s similar to an H-O3 in that it sports liability coverage and possible loss of use coverage, too.
HO-7 policies usually only protect the home when it’s stationary — so if you’re on the road, you’ll likely need an additional policy.

HO-8 home insurance: Historic home protection

The HO-8 homeowners' insurance policy applies to older homes — typically those over 40 years old. Why do these types of homes have their own policy? There are a few factors that come into play: They may have been built according to different codes than modern homes; they may be registered landmarks or architectural gems; they might be built with rarer/harder-to-replace materials, or they might just be higher-risk because they’re legit falling it up. To sum it up: older homes simply tend to have more quirks than new homes, so when they sustain damage, repairs might go a little differently (ahem, more expensively) than normal.
H-O8 policies are traditionally a lot like H-O1 policies in that they only cover those 10 basic perils. A standard H-O8 homeowners policy usually also offers coverage for personal liability, third-party medical expenses, and personal property.

What’s the best homeowners insurance policy?

The most common type of homeowners insurance is the H-O3 policy. As noted, the H-O3 is an open-peril plan (except for whatever perils it explicitly states that it does not cover). It also included liability coverage. But the most popular isn’t necessarily the best, and if you’re looking at sheer coverage alone, the H-O5 offers the most coverage — though usually for the highest price.
There are different homeowners insurance policies for different types of homes, and ultimately, no homeowners insurance policy covers everything — which is why there are so many supplemental policies available. If your H-O3 doesn’t cover floods, say, you can get flood insurance. The same goes with other perils like earthquakes and sewer backups. If there’s a danger that isn’t covered in your policy, there’s probably an insurance plan out there to cover it.

Finding homeowners insurance

Standard homeowners insurance is big business and besides examine insurers for the types of coverage they provide, you'll want to find our coverage limits. The amount you will pay for insurance is based upon the cost it would take to replace the entire dwelling as well as replacement costs of what is inside (minus depreciation, in some cases).
How much you pay monthly also depends on your deductible – how much you need to pay out of pocket before insurance kicks in. To keep insurance costs down, a higher deductible is recommended but can you handle, say, a $2,500 deductible to cover the damage?
Ideally, you'll want a policy that covers medical bills for your family or anyone hurt on your property, dwelling coverage, and additional living expenses should you have to stay at a hotel during repairs.

FAQs about homeowners insurance

How much should homeowner’s insurance cost a month?
Your homeowner’s insurance is going to depend on a lot of factors such as where you live, how much your home is worth, and even your profession or education. A rule of thumb is that homeowners insurance should cost about $35 a month for every $100,000 in home value. So, if your home is worth $400,000 your insurance premium would be about $140 a month. This is, of course, a very general estimate.
What is the best deductible for home insurance?
You’ll want to set a deductible that you can comfortably pay if damage should occur. Financial experts recommend about $1,000. You should stick to something in this range even if it’s tempting to increase your deductible to decrease your monthly premiums.
Is home insurance mandatory in the United States?
Your mortgage lender is likely to require home insurance as a condition of your mortgage. Homeowners insurance isn’t required by law, so if you don’t have a mortgage you could technically get away without it.

The bottom line

When it comes to homeowners insurance, you'll want to review several home insurance companies for details and quotes. Once you select a provider, you may want to speak to an insurance agent directly to be sure you are enrolled in all that you need at the most affordable price for you. Insurance benefits your mortgage company and you and is a must for any homeowner.

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