Homeowner's Policies Compared

An HO-1 is a named peril policy and is the most basic of property insurance forms available. Named peril policies cover damages resulting from specific perils. For HO-1 policies, this typically includes:  

• Fire and smoke damage

• Lightning

• Windstorm and hail

• Explosions

• Theft

• Vandalism

• Riots and civil commotion

• Aircraft damage

• Vehicles damage (unless caused by the insured)

• Volcanic eruption

HO-1 policies cover your property at ACV (Actual Cash Value), meaning they only pay for the damaged property based on what it is worth now, rather than paying the actual cost remove and replace the damaged materials, and they do not offer persnal property or liablity coverage. As such, these forms are limited to the point that they are not offered by most home insurance companies, but they can be a good fit in some scenarios. 

Policyholders with an HO-1 policy should account for the limited coverages in their finances and ensure they have an emergency fund available to cover the difference between their insurer's payout and the cost to repair your property. 

• HO-3 policies are the most common type of homeowner's policies and are most likely to offer comprehensive coverage for your property. Claims are paid at replacement cost value, or the actual cost of replacing your damaged property. HO-3s are open-peril policies, meaning all causes of loss are covered with the exception of specific covered perils.
  
  Typically, specific exclusions include:
  Earth Movement: This typically includes earthquakes, landslides, and sinkholes. Separate coverage or a rider may be required for these perils.

• Floods: Damage caused by floods is typically not covered by standard homeowners insurance. Separate flood insurance is usually required.

• Sewer Backup: Damage caused by a sewer backup is often excluded from standard policies but can sometimes be added as an endorsement.

• War and Nuclear Hazard: Damage caused by war, nuclear accidents, and terrorism are generally excluded.

• Neglect and Maintenance: Damage resulting from neglecting to properly maintain the property, such as mold, rust, or rot, is typically not covered.

• Intentional Acts: Damage caused intentionally by the homeowner or someone else is not covered.

• Business Activities: Damage related to business activities conducted on the property may be excluded.

• Certain Dog Breeds: Liability for certain dog breeds considered high-risk may be excluded.

HO-5 policies are very similar to HO-3 in that they are open peril policies, meaning all causes of loss are covered outside of certain named exclusions, and you are indemnified based on replacement cost value, or the actual cost of replacing your damaged property. The distinction between HO-3 and HO-5 policies is that HO-5 policies are also open-peril policies for your contents.

Typically, named exclusions include:

• Earth Movement: This typically includes earthquakes, landslides, and sinkholes. Separate coverage or a rider may be required for these perils.

• Floods: Damage caused by floods is typically not covered by standard homeowners insurance. Separate flood insurance is usually required.

• Sewer Backup: Damage caused by a sewer backup is often excluded from standard policies but can sometimes be added as an endorsement.

• War and Nuclear Hazard: Damage caused by war, nuclear accidents, and terrorism are generally excluded.

• Neglect and Maintenance: Damage resulting from neglecting to properly maintain the property, such as mold, rust, or rot, is typically not covered.

• Intentional Acts: Damage caused intentionally by the homeowner or someone else is not covered.

• Business Activities: Damage related to business activities conducted on the property may be excluded.

• Certain Dog Breeds: Liability for certain dog breeds considered high-risk may be excluded.

HO-7 policies are specifically designed for mobile and manufactured homes. HO-7 policies provide coverage for the mobile home itself, personal property inside the home, liability protection, and additional living expenses if the home becomes uninhabitable due to a covered loss. 

• Perils Covered: While both HO-3 and HO-7 policies cover similar perils such as fire, theft, and vandalism, the specific risks covered and the extent of coverage may vary. For example, mobile homes may have specific risks related to transportation or structural vulnerabilities that are covered differently in an HO-7 policy compared to an HO-3 policy.

• Value and Replacement Cost: The value of a mobile home and the cost to replace it can differ significantly from a traditional home. HO-7 policies are tailored to provide coverage that reflects the value and replacement cost of mobile homes.

• Policy Form: HO-3 policies are typically based on a standard form developed by the Insurance Services Office (ISO), while HO-7 policies may vary more in terms of their specific form and coverage details, as they are more specialized for mobile homes.

• Coverage for Transportation: Mobile homes can be moved from one location to another, which may require specific coverage for transportation and installation. HO-7 policies may include coverage for these aspects, which would not be relevant for traditional homes. 

It should be noted that HO-7 policies can vary much more significantly in their language than more standardized forms and you should ensure you are familiar with your policy. That said, the primary differences between an HO-7 and HO-3 are going to be seen in the pricing for replacement of materials in mobile homes, which are held to different construction standards and are often lighter, less expensive materials than those used in a traditional dwelling.