4.1 Homeowners Forms HO-2 through HO-8 and Eligibility

The ISO Homeowners Program

The modern homeowners (HO) policy is a package built on ISO's Homeowners 2011 (and later 2022) program, which standardized the form numbers you see on the exam. Every HO policy combines Section I (property) and Section II (liability) into one contract, replacing the patchwork of monoline fire, theft, and liability policies that preceded it. The national portion tests the form numbers, the perils basis (named vs. open), and the eligibility rules cold.

The six forms that carry exam weight are HO-2, HO-3, HO-5, HO-4, HO-6, and HO-8. Older HO-1 (basic, named-peril dwelling) has been withdrawn in nearly every state and is rarely sold, but examiners may list it as a distractor. Know that HO-3 is the workhorse of the personal-lines market, covering more than three-quarters of owner-occupied homes.

The Six Tested Forms

The single most important distinction is the perils basis applied to the dwelling (Coverage A) versus personal property (Coverage C). 'Open perils' (also called 'all-risk' or 'special form') covers any cause of loss except those specifically excluded. 'Named perils' (also called 'broad form') covers only the perils explicitly listed.

Memorize the HO-3 split: dwelling = open perils, contents = named perils. HO-5 upgrades contents to open perils as well. This single fact is asked on nearly every state exam.

Eligibility and Occupancy Rules

Eligibility is tied to owner-occupancy and dwelling type. Owner-forms (HO-2, HO-3, HO-5, HO-8) require the named insured to occupy the dwelling, which may be a 1-to-4 family residence; if the insured rents out additional units, an endorsement is needed. The dwelling cannot be used primarily for business (incidental business is endorsed separately).

• HO-4 (renters): insures a tenant's personal property and liability; the landlord insures the building separately.
• HO-6 (condo): the unit owner insures personal property, improvements/betterments, and loss assessment; the condo association's master policy insures the structure.
• HO-8 (modified): designed for older homes where market value is far below replacement cost (e.g., a 1900s row house). Loss settlement is on a modified/functional replacement basis (repair with common modern materials) rather than full replacement cost.

A mobile home is NOT eligible for a standard HO form; it uses the Mobilehome (MH) program endorsement. A seasonal/secondary dwelling may be eligible but is typically written named-perils only.

Coinsurance and the 80% Rule

Homeowners forms enforce an 80% insurance-to-value requirement on the dwelling. To collect replacement cost on a partial loss, the insured must carry Coverage A equal to at least 80% of the dwelling's full replacement cost at the time of loss. If they carry less, the loss is settled by the coinsurance/loss-settlement penalty formula:

Recovery = (Amount Carried / Amount Required) x Loss, less deductible.

Worked example: A home has a replacement cost of $400,000. The 80% requirement is $320,000. The owner insured for only $240,000 and suffers a $60,000 partial loss with a $1,000 deductible.

• Penalty fraction = $240,000 / $320,000 = 0.75
• 0.75 x $60,000 = $45,000
• Less $1,000 deductible = $44,000 paid (the insured absorbs $16,000 of penalty plus the deductible).

Note: a total loss is paid up to the policy limit regardless of the 80% test; coinsurance penalties apply only to partial losses.

Why an Owner Lands in HO-3 vs. HO-5 vs. HO-8

The exam often gives a profile and asks which form fits. The HO-3 is the workhorse for a typical owner-occupant: open peril on the structure, named peril on contents. The HO-5 is the premium choice for high-value homes where the owner wants open-peril on contents too, so a spilled-paint or accidental-breakage loss to personal property is presumed covered. The HO-2 is a budget broad-form named-peril policy on both structure and contents.

The HO-8 exists for older or historic homes whose replacement cost far exceeds market value; it settles losses on a modified (functional/repair-cost) basis and pares the perils back to a basic group, preventing the moral hazard of insuring a $90,000-market home for a $400,000 rebuild. The HO-4 (renters/tenants) and HO-6 (condo unit-owners) cover personal property and the unit-owner's improvements but not the building structure, which the landlord or association insures. Matching the occupant to the form is a near-certain item.

Inflation Guard and the Special Personal Property Endorsement

Two endorsements round out the homeowners forms section. The Inflation Guard endorsement automatically increases Coverage A (and proportionally B, C, and D) by a stated annual percentage to keep the limit tracking rising rebuilding costs, reducing the chance the insured slips below the 80% replacement-cost threshold. The Special Personal Property (HO 00 15 / HO 05) coverage upgrades named-peril contents to open-peril treatment, which is exactly what distinguishes the HO-5 from the HO-3 in practice.