- There are two categories of homeowners coverage: named peril and open peril.
- There are eight policy types that fall under named peril or open peril based on the dwelling type.
- Special form, HO-3, is the most standard homeowners insurance policy and includes a combination of peril and open peril coverage.
- Because homeowners insurance is not mandated by the state, check with your mortgage lender and agent to make sure you get the one best for your home type.
- Policygenius can help you compare homeowner's insurance policies to find the right coverage for you, at the right price »
Homeowners insurance offers protection for homeowners' belongings and the home itself. Unlike car insurance, homeowners insurance is not required by state law. However, if you have a mortgage, your lender will require homeowners insurance to protect the investment.
There are several types of homeowners insurance based on the dwelling type: condo, home, mobile home, or new construction. The most common homeowners insurance policy is known as special form HO-3, which has more expansive coverage than other types.
What is homeowners insurance?
Homeowners insurance protects the dwelling, your belongings, and offers liability coverage for injuries that happen on your property. If the mailman slips and falls on your sidewalk, the dog bites a guest, a tree falls on your roof, or the neighbor's kid injures himself doing a cannonball in your swimming pool, homeowners insurance can protect you.
Peril vs open peril homeowners policies
There are several types of homeowners policies. However, they all fall within two categories: named peril policy or open peril policy. A "peril policy" covers you for listed events, like a fire, storm, or theft, whereas an "open peril" policy covers just about anything that might happen, unless your policy specifically notes that it's not covered.
Insurance company Lemonade provides the following example of an open peril: If an apartment flood ruined your computer, and your policy doesn't specifically say flooding isn't covered, your insurance company will have to approve your claim, by default.
Here are a few more instances of events that might be considered named peril and open peril:
| Named peril | Open peril |
|
|
Source: Data from The Zebra and Lemonade
There are 8 types of homeowners insurance policies
There are eight types of homeowners policies based on the type of home you have. If you have a mortgage, your lender may have a preference for the type of coverage necessary to secure the home loan. Therefore, it is best to talk to your agent and lender to make sure you have proper coverage. Additionally, some condominium associations will have rules in the by-laws about homeowners insurance coverage minimums.
| Policy | Type | Dwelling coverage | Liability coverage | Belongings coverage | Peril policy type |
| HO-1 | Basic* | Yes | No | No | Peril |
| HO-2 | Broad* | Yes | No | Yes | Peril |
| HO-3 | Special | Yes | Yes | Yes | Open/Peril** |
| HO-4 | Renters | No | Yes | Yes | Peril |
| HO-5 | Comprehensive*** | Yes | Yes | Yes | Open |
| HO-6 | Condo **** | Yes | Yes | Yes | Peril |
| HO-7 | Mobile Homes | Yes | Yes | Yes | Open/Peril** |
| HO-8 | Older Homes | Yes | Yes | Yes | Peril |
Data from Hippo Insurance
*Most lenders don't consider this sufficient coverage.
**The structure is "open peril" while belongings are "peril."
***Typically for brand-new homes only.
****Check with your homeowners association (HOA) first.
HO-3 is the most common type of homeowners insurance
Special form (HO-3) is the most common type of homeowners insurance because it covers the house, your belongings, and liability coverage, according to Hippo, which writes that special form doesn't cover "earthquakes, floods, government seizures, mudslides, ordinance updates, sewer backups and sinkholes." Those will require add-on coverage using a rider policy.
For HO-3 policies "it's very common to see open perils coverage for your house and named perils coverage for the stuff you own," writes Lemonade.
| HO-3 Special form homeowners insurance | |
| Dwelling (structure) | Yes |
| Personal liability | Yes |
| Personal belongings | Yes |
| Loss of Use (additional living expenses) | Yes |
| Equipment breakdown | Yes |
| Electrical outage | Yes |
| Service lines | Yes |
| Cyber liability | * |
| High-end electronics and special jewelry | * |
| Flood | ** |
| Earthquake | * |
| Water damage | *** |
| Sewer backup | * |
| Home office | * |
*Available as add-on coverage if not part of policy.
**Required if you are in a flood zone, but most homeowners experience some flood .
***Depends on the type of coverage you selected.
How much does homeowners insurance cost?
According to the Homeowners Insurance Report by the National Association of Insurance Commissioners (NAIC), the average annual premium in the United States in 2017 was $1,211.
Homes located in weather-zones or disaster prone areas — flood zones, hurricanes, tornadoes, wildfires, mudslides, hail, and earthquakes — will have increased premiums because these types of events are not included in basic coverage and will need to be add-on riders.
Note that the cheapest price is probably not the way to go if that means a company isn't responsive when you file a claim. Focus on customer service, complaints, and the reputation of the insurance provider.
Here's how much homeowners insurance costs on average by home value in the United States, according to the NAIC:
| Estimated home value | Average premiums for an HO-3 policy |
| $49,999 and under | $633 |
| $50,000 to $74,999 | $745 |
| $75,000 to $99,999 | $814 |
| $100,000 to $124,999 | $870 |
| $125,000 to $149,999 | $918 |
| $150,000 to $174,999 | $960 |
| $175,000 to $199,999 | $997 |
| $200,000 to $299,999 | $1,092 |
| $300,000 to $399,999 | $1,252 |
| $400,000 to $499,999 | $1,467 |
| $500,000 and above | $2,149 |
Data from the NAIC
How to find homeowners insurance
If you currently have homeowners insurance, review your policy coverage yearly. If your homeowners insurance company hasn't provided the level of service you expected, maybe it is time for you to select a new provider.
Remember that a cheap price doesn't mean good customer service. The average cost for homeowners insurance will vary based on the state where you live and whether you are urban or rural. Focus on customer satisfaction rankings, like those from J.D. Power, and comparison shop. This is especially important for those living in disaster-prone areas, when good service can make all the difference.