All home insurance policies are not the same, and the variety of contracts and coverages you could sign up for can be convoluted, and in the event of a claim, you could be surprised with unexpected consequences. Your typical single family home can be insured under three different contracts, here is what you need to know.
Each policy contains the same main coverages. Dwelling coverage covers the cost to rebuild the physical structure; this is the primary coverage on each policy. Personal property coverage pays out for your belongings inside the home, typically anything not physically attached to the structure. Liability coverage is what protects the homeowner in the event they are sued for damaged caused to property or bodily injury due to the homeowners' negligence. However, each type of policy treats this coverage very differently.
An HO4 contract insures your home on a "named peril" basis. This means that everything in your contract is covered as it is specifically listed, any cause of loss outside of the perils that are listed in your contract would not be covered.
An open peril policy covers any loss that is not caused by something specifically excluded from your coverage. Unless it is listed in the contract as "excluded," it will be a covered claim. As opposed to the HO3 contract, many off the wall claims would be covered under this contract style. Often this manifests itself in the form of damage to sewer drains and water lines.
An open peril contract does require your home to be insured to value (a requirement your mortgage company would have if you do not own your home outright). If your home is already insured to value, then the difference in premium between an HO3 and an HO5 contract would be minimal.
An HO6 policy is specifically for condos and townhomes. They require this specific contract because typically the homeowners association is responsible for the dwelling itself (the roof, the walls, the foundation, etc.). This leaves everything from the walls in to be covered by the owner of the condo. This includes flooring, cabinets, appliances and all variety of other fixtures. As the insurance company is not responsible for rebuilding the entire condo in the event of a covered loss, an HO6 policy often requires far less coverage than an HO3 or HO5 might, making the premium often far less.
A dwelling fire policy is designed for a single family home that is not occupied by the legal owner of the property. This policy is designed to rebuild the home in the event of a loss but lacks some of the coverages the policy would need if it were occupied by the owner. More specifically, personal property coverage is not usually included in these policies. This is because the owner of the property does not have anything inside the home they would need to be replaced in the event of the loss. If you are renting out your single family home, this is the only contract style available to you.
If you do not own the home that you reside in, an HO4 is what you are looking for. This does not have coverage for the structure itself, however, does cover your liability and personal property in the event of a loss. These policies are typically very inexpensive and are typically required by your landlord or property management. If you are renting your property out to others, you should carry a DP3 and require your tenants to carry an HO4.
Hopefully, this guide helps to clear the air regarding the different styles of homeowners insurance, and what you should be looking for while you are searching for different policies. Often when quoting insurance, an agent can get you a better price by changing your HO5 to an HO3, and even though your policy will show all the same coverages and limits, they are doing you a disservice. Always ask if it is an HO3 or HO5.