What Are the 8 Types of Homeowners Insurance?
They're HO-1 through HO-8, each covering different homes and perils, from standard single-family policies to condo and mobile home forms.
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Which one you actually need
For most people closing on a house, the choice is already narrow. A single-family home gets an HO-3, which covers the house against any cause of damage except what the policy specifically excludes, and covers belongings against a shorter, named list of perils. A condo needs an HO-6, since the building itself is covered by the association's policy and yours fills the gap inside your unit. A mobile or manufactured home takes an HO-7, built around the risks of that construction. Older or unusual homes sometimes use an HO-8, which pays to repair damage rather than fully rebuild, because rebuilding would cost more than the home is worth. Your lender's requirement letter usually tells you which form it expects. If it doesn't, the property type decides it for you.
Two HO-3 policies on the same house can land on very different prices once you factor in the dwelling coverage amount, the deductible, and what each insurer includes for things like water damage or liability limits. Lenders only require proof of coverage by closing, not any particular price, so there's room to check that the quote you're about to accept isn't higher than it needs to be.
What the other forms cover, and why they won't come up at closing
HO-1 is a bare-bones form that covers a short list of named perils, like fire or windstorm, and nothing else. Almost no insurer sells it anymore, and no lender asks for it. You can set it aside entirely.
HO-2 is a step up from the HO-1, covering a broader named list of perils for both the house and belongings. It's still a named list though, not the open, any-cause-unless-excluded coverage an HO-3 gives you. Some insurers use HO-2 as a budget option, but for a single-family home a lender expects an HO-3, and that's what you'll almost always end up with regardless of what gets mentioned during shopping.
HO-4 is renters insurance. It covers belongings and liability for someone who doesn't own the structure they live in. That won't apply once you're buying a house, though it's worth knowing the name if you're coming from a rental and canceling that old policy.
HO-5 is the broadest homeowners form. It covers both the house and belongings against any cause of damage except what's excluded, rather than the shorter named list an HO-3 uses for belongings. It costs more, and most insurers only offer it on newer or higher-value homes. If your house qualifies, it might come up as an upgrade option worth comparing against the standard HO-3, but it's not something a lender will require. Knowing these forms mostly helps you recognize when a quote offers something other than the standard HO-3, so you can ask why, and whether the difference in coverage is worth the difference in price.
What dwelling coverage, the deductible, and escrow actually mean on your quote
Dwelling coverage is the dollar amount your policy pays to rebuild the house if it's a total loss. It's not the price you paid for the house and it's not what the house would sell for. Land value and location don't factor into rebuilding costs the way they factor into a sale price, so this number usually looks different from the purchase price on your closing documents. Insurers calculate it from the home's square footage, construction, and local labor and materials costs. If a quote sets dwelling coverage too low, you could end up short of what it actually takes to rebuild after a fire or major storm, so it's worth checking that figure against what the insurer's worksheet or your agent says the home would cost to reconstruct, not what it's worth on the market.
The deductible is what you pay out of pocket before the policy pays anything on a claim. Most policies let you choose a flat dollar amount, commonly somewhere between $500 and $2,000, though some insurers set a percentage of the dwelling coverage instead, often 1 to 2 percent. On a $300,000 dwelling limit, a 1 percent deductible works out to $3,000 you'd owe before coverage kicks in. A higher deductible usually lowers what you pay for the policy, and a lower one raises it. Some states also require a separate, often higher deductible specifically for wind or hurricane damage. Your declarations page will spell out exactly which deductible applies to which type of claim.
Escrow is a separate matter from the policy itself, but it's why the lender cares about proof of coverage before closing. Many mortgages roll the annual insurance premium and property taxes into the monthly payment, holding that money in an escrow account and paying the insurer directly when the bill comes due. If your loan works this way, the lender will want the policy's annual cost upfront so it can calculate the right monthly amount. That's separate from the binder, which is the short-term proof of coverage the lender needs by closing day. The binder confirms a policy will be in force. Escrow is just the mechanism for paying it going forward.
None of this changes which form you need. It affects what you pay for the HO-3 or HO-6 you've already landed on, and it's worth confirming the dwelling coverage and deductible figures before signing, since those two numbers do more to move the price than almost anything else on the quote.
Before you sign anything
Check the dwelling coverage figure against what it would actually cost to rebuild the house, not its sale price, and confirm the deductible you're agreeing to before the binder goes to your lender.
