It’s interesting that many homeowners we’ve talked to were previously unaware of the different types of homeowner’s protection available and how one policy differs from another. In an effort to provide some clear-cut guidance we’ve put together a comprehensive explanation of the two most common types of homeowner’s coverage. You can find it here in a chart entitled HO-3 vs HE-7/21 Comparison.
Don’t be confused by the numbers. If you own a conventional house, as opposed to a mobile home, condo, apartment, houseboat or other type of alternative dwelling, your two best options for homeowners insurance are HO-3 or HE-7/21. These policies were (and are) developed by ISO, the Insurance Services Office, and are part of a collection including:
- HO-1, rarely used because of its narrow coverage
- HO-2, or Homeowners 2, Broad Form
- HO-3, or Homeowners 3, Special Form
- HO-4, or Contents Broad Form (renter’s insurance)
- HO-6, for condo owners
HO-3 policies are the ones most commonly sold because the coverage they provide are the minimum required by most mortgage companies. Most mortgage lenders require mortgage holders to purchase and maintain a minimum amount of insurance in order to protect the company’s security interests and the HO-3 is the most affordable means for meeting this requirement (without dropping down to a “Fire” or Dwelling Policy).
HO-3 vs HE-7/21
The HE-7/21 homeowner’s insurance policy is a significant upgrade to the provisions of the HO-3 coverage and not something offered by most large national insurance carriers. It is mostly offered by Independent Insurance Agents, and is something that sets them apart from the competition.
As seen in the accompanying chart, HE-7/21 offers coverage either not available in the HO-3 policy or, if available, at an extra charge. Both policies are what’s known as “open perils” coverage on the dwelling and structures on the property, meaning that any direct damage is covered unless specifically excluded in the policy terms. Coverage for contents (personal property), while open perils (all risk) for the HE-7/21 is only for “named perils” under the HO-3 policy. This means types of contents damage covered must be specifically stated in the policy terms.
Obvious differences between the HO-3 vs HE-7/21 can be seen in the first two items in the comparison chart. The HE-7/21 includes full replacement coverage for both structures and contents. This is optional with the HO-3 coverage, for an extra charge, and with a percentage cap in place.