On a basic level, homeowners insurance covers damages that occur under certain given conditions to specific areas or items within or around the house. Since that definition is pretty vague, most people will walk away from it understandably confused and wanting clarification.
In fact, there are different types of home insurance. Each one covers different parts of the home, types of damages, and belongings. Since homeowners insurance is a package policy, there are multiple items and conditions covered under a single policy, but you have to know what’s covered and what’s not. Here’s a crash course in homeowners insurance. It walks you through all you need to know about coverage, policy types, benefits you receive, and the fine print you need to look out for.
Types of Home Insurance & What They Cover
Believe it or not, there are no less than 8 different types of homeowners insurance, categorized as HO1-HO8, and each one falls into its own category of coverage and parameters. These are:
HO1 is the most basic form of homeowners insurance. It covers any structural damage incurred to your home from things like fire, explosions, hail storms, lightning, theft, vandalism, vehicular or aircraft damage, riots, and volcanic eruptions. These barebones policies aren’t inclusive enough for most people since they don’t cover things like liability or floods, so homeowners generally skip this option for a more inclusive plan.
This one covers everything from HO1 plus more damages like falling objects, snow, sleet, or ice, household systems being frozen over, pipes, and accidental damage caused by a sudden surge of electricity. This policy will frequently include belongings and liability, making it a more popular option.
Probably the most frequently used form of homeowners insurance, HO3 policies are even more inclusive than the previous 2. It includes everything from those 2 categories, but unlike HO2 policies, an HO3 policy is not exclusive to the damages listed. In other words, if something happens outside the specified parameters of the policy, you will still be covered. In fact, HO3 policies list exclusion instances, and everything else is automatically covered.
HO4 policies, aka renters insurance, cover renters, insuring belongings and liability without covering the actual property or building structure.
HO5 is another open-peril policy, so you will be covered in all events that aren’t excluded specifically in your policy. Some damages that are covered include earthquakes, floods, water damage, infestations, pets, mold, fungus, war, rust, corrosion, and more. The difference between an HO5 and an HO3 policy is that belongings are covered more widely with an HO5 policy, and you can set the coverage amount for liability. For this reason, HO5 policies are usually more expensive too.
HO6 policies protect the belongings and liability of condo owners specifically. It can also cover the walls, ceiling, and floors.
This is the same idea as HO6, only for mobile homes.
This policy is meant to cover issues that come up with older homes, but it is basically the same idea as HO3 for older homes.
So What’s Covered? Policies Explained in English
Of course, even after that lengthy explanation, you still probably don’t know what is covered by your insurance policy or the policy you are considering purchasing. That’s because insurance providers seldom refer to their policies with the official HO names. Here’s a more approachable list of plans and what’s covered.
While different states, companies, and plans can vary slightly, the most traditional type of homeowners insurance will include 4 types of coverage:
Structural damage to your home
This will cover any expenses to repair or rebuild your home or part of your home in the event that one of the covered incidents occurs. Incidents are listed on your policy, but they generally include fire, lightning, hail, hurricane, and other natural disasters. Floods and earthquakes are not covered under these policies traditionally. It’s also worth checking your policy to see if external fixtures not attached to your home are covered (like a gazebo or a tool shed) because often they are.
Damage to your personal belongings
This part of the policy will pay for fixing or replacing personal belongings that were damaged or destroyed because of one of the covered incidents. This can include clothing, furniture, and other typical items. The policy won’t cover expensive items, as there is a separate type of policy for these belongings. Interestingly enough, most policies will cover your belongings no matter where they are. So, if your sweater is stolen while traveling in Prague, you can get that covered.
Bodily injury, aka liability
Liability pays for 2 things: bodily injury that was incurred by you or another party on your property, or bodily injury or property damage that are caused by a policy holder or family member.
Additional living expenses
Finally, most insurance policies will cover the costs of additional living expenses during the time that your home remains uninhabitable due to one of the incidents covered by the policy.
The basic home insurance policy will cover 16 damage-causing acts, or perils as they are termed in the industry.
Fire or lightning
Windstorm or hail
Riots or civil commotion
Damage caused by aircrafts
Damage caused by vehicles
Vandalism or malicious mischief
Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioning or automatic fire-protective system
Freezing of a plumbing, heating, air conditioning or automatic, fire-protective sprinkler system, or of a household appliance
Sudden and accidental damage from artificially generated electrical current (does not include loss to a tube, transistor or similar electronic component)
Weight of ice, snow, or sleet
Accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning, or automatic fire-protective sprinkler system, or from a household appliances.
What’s Not Covered: Read Carefully!
Now, for the really important part, what’s not covered. In general, policy providers will give you a list of incidents that are not covered under your home insurance policy. But it is always worth asking again just to be sure. Understand which type of policy you are getting to understand the exclusions that come along with it, and if you don’t understand, don’t be afraid to ask.
This is not in any way a comprehensive list, but most often the following items will not be covered by your home insurance policy:
Natural wear and tear over time
Intentional damage or destruction of property
Rodents, insects, animal, or wildlife damage
A Little Word on Riders
That’s the basic gist of your homeowners insurance policy, but it’s not the full extent of things. You can also get additional benefits or extensions on your policy. These are called riders, and they’re basically add-ons to supplement your current policy. Since most insurance policies come with limits on how much they’ll pay out in the event of an incident, many homeowners wish to increase or extend their rights included in their coverage by purchasing additional riders.
Riders can cover items that aren't covered in the original policy, or they can extend the amount paid out beyond the original limit. Often, people will purchase riders for expensive pieces of art or jewelry, antiques, collectibles, or expensive equipment.
Getting the Best Home Insurance for You
Now that you understand all there is to know about homeowners insurance, you can make a more educated decision about which policy and provider are right for you. Determine how much you should expect to pay and learn a few tricks on how to keep your insurance costs down before settling on the best plan for you.