Understanding the Different Types of Homeowner's Insurance

The first step in purchasing the insurance that is best for your family is to understand the terms that are used to describe the coverage your policy will provide. Home owners who are shopping for insurance may be surprised to learn that there are several different types of standard homeowner's insurance forms or policies. These forms are classified by a number system that covers certain types of structures and property, although the liability coverage for each of the forms is the same.

There are several other terms that will be used in your homeowner's insurance policy that you should become familiar with to be able to understand your coverage. Insurance companies manage risk and define risk in three different ways:

1. Damage or loss cause by fire or wind is called a peril.
2. When the cause of loss is specified in your policy it's called a named peril.
3. The standard policy add-ons are called extended coverage perils. These are usually in addition to the standard basic coverage.

HO-1: The Basic Coverage Policy

This policy provides the minimum basic insurance coverage for the structure and personal property of the insured. This includes protection from fire, vandalism, lightning strikes and the extended coverage perils of:

1. Explosion or smoke
2. Civil unrest or riot
3. Glass breakage
4. Windstorm and hail
5. Damage by vehicle or aircraft

HO-2: The Broad Coverage Policy

This type of policy includes the benefits of the HO-1 policy but provides coverage for additional perils such as:

1. Damage to appliances, water heaters and plumbing systems
2. Falling objects, weight of snow, ice, sleet or volcanic eruptions

HO-3 Special Coverage Policy

This policy provides the most extensive coverage of all the forms. For the structure itself, it provides protection for all risks of direct loss, with the exception of flood and war. Property coverage is the same as in the Broad Coverage (HO-2) policy.

Each of these three basic homeowner's insurance policies has their advantages and disadvantages; for instance if you live in an area where the climate is warm most of the time, you may not need the coverage provided in the HO-2 policy. Your choice of which homeowner's insurance policy must be based on your needs and your ability to pay your premiums consistently. Many homeowners begin with the basic insurance policy and then as their financial situation improves they enhance their coverage to provide more comprehensive protection.