Alphabet soup: 6 home insurance policies and what they cover

If you are shopping for home insurance or renters insurance, you may be mystified by the buffet of alphabet soup being served up by insurance companies.

Let Insurance.com help you find affordable home insurance now.

Memorizing the differences between an HO-2 and HO-3 insurance policy may not be necessary, but understanding their terms and the perils they cover can help you ask the right questions of an insurance agent when you gather home insurance quotes.

"If you are shopping for a home insurance policy, don't go with the cheapest price. You really need to understand what's covered and for how much and be prepared for expenses you will have to cover yourself," says Sandra Spann, a spokesperson for American Family Insurance in Madison, Wis.

While most insurance companies use the same acronyms to describe their policies, they may differ in what those policies include, Spann says  

"Not only do policies vary by company, but they also vary from state to state because insurance companies must follow state guidelines," says Spann. "Some states have specific requirements for what types of disasters can or cannot be excluded from a policy."

According to the Insurance Information Institute (III), some of the disasters commonly excluded from home insurance policies include floods, earthquakes, war, nuclear accidents, landslides, mudslides and sinkholes.

16 home insurance perils

When shopping for home insurance quotes, check with individual insurance companies to confirm the coverage provided by their policies. However, most companies follow similar standards of protection for homeowners. According to III, the following perils are commonly covered:

1. Fire or lightning
2. Windstorm or hail
3. Explosion
4. Riot or civil commotion
5. Damage caused by aircraft
6. Damage caused by vehicles
7. Smoke
8. Vandalism or malicious mischief
9. Theft
10. Volcanic eruption
11. Falling object
12. Weight of ice, snow or sleet
13. 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 appliance.
14. Sudden and accidental tearing, cracking, burning, or bulging of a steam or hot water heating system, an air conditioning or automatic fire-protective system.
15. Freezing of a plumbing, heating, air conditioning or automatic, fire-protective sprinkler system, or of a household appliance.
16. Sudden and accidental damage from artificially generated electrical current (does not include loss to a tube, transistor or similar electronic component)

Types of home insurance policies

Ty Horn, director of property product management for USAA in San Antonio, acknowledges that "there are definitely a lot of letters and numbers associated with insurance policies."

He says the best way to understand your options before you buy insurance is to ask for a little help.

"The best way for a consumer to get the right policy, one that meets their individual needs, is to talk with a licensed insurance agent," Horn says.

Still, it can't hurt you to learn a little bit more about the home insurance "alphabet soup" and what it means.

Spann says: "When choosing an insurance policy, you need to weigh the pros and cons of each policy and decide how much risk you are willing to assume yourself."

Before you buy insurance, check out the following general guideline of various home insurance policies:

HO-1: A limited insurance policy that is rarely available, although American Family Insurance offers a basic HO-1 policy that covers the first 10 perils.

HO-2: A home insurance policy that typically covers all 16 perils, but is a basic policy with lower premiums and lower coverage levels.

HO-3: The most popular level of homeowners insurance according to III. It covers all disasters except those that are specifically excluded.

Ty Horn, director of property product management for USAA in San Antonio, says most insurance companies offer an HO-3 policy with the option of buying extra coverage.

Such "extras" might include upgrading to replacement cost coverage on property contents instead of depreciated cost coverage. Or, you may opt for additional coverage for structures such as a fence or a swimming pool.

HO-4: A renters insurance policy that covers your belongings against all 16 perils.

"Renters are often the least financially able to replace their personal property, so this insurance coverage is particularly important," Horn says.

Most HO-4 policies also provide liability insurance in case someone is injured on your property.

"Renters should check to make sure they have both personal property and liability coverage," Horn says.

HO-6: A condominium or co-op insurance policy similar to renters insurance. It covers the personal property of condo owners against all 16 perils and typically also includes liability insurance.

"Condo insurance depends on the master insurance of the condo association, so condo owners need to work with an insurance agent to determine what level of additional insurance they need for their unit," says Horn.

Horn says condo associations have three different types of master insurance plans. The type of plan your association purchases will impact your HO-6 needs.  

HO-8:  An insurance policy designed for older homes.

"An HO-8 policy typically covers a home in which the replacement value may greatly exceed the market value of the home," says Horn.

According to III, older homes are sometimes not eligible for replacement cost insurance, so the reimbursement for damages to possessions or the property would be based on the replacement cost minus depreciation.