What an HO-3 Insurance Policy Covers
An HO-3 is the most common type of home insurance policy. While it may cost more, HO-3 is widely available and provides more comprehensive coverage than other policies.
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Most people need home insurance to cover potential damages to their home or personal property. Many types of home insurance policies exist, but the special form, or HO-3, is the most common.
HO-3 policies provide more comprehensive protection by covering a broader range of perils. Mortgage lenders require homeowners insurance since coverage can also include the cost of materials and labor to rebuild your home in the event of a total loss.
An HO-3 policy doesn’t cover every peril, so it’s important to know what’s typically included in a policy and how it compares to other homeowners insurance options.
What HO-3 insurance covers
HO-3 insurance provides dwelling and personal property coverage for several perils, such as fire, windstorms, and vandalism.1 This insurance also covers other structures that are part of your residence but aren’t physically attached to your home, as well as liability coverage for the homeowner.
Liability coverage will help if someone sues you for bodily injury or property damage. If you’re unable to live in your home due to a covered incident, HO-3 also provides loss of use coverage to help you pay for temporary housing.
Your coverage limits can vary depending on the cost and location of your home and how much coverage you need. Once unexpected damage to your home or personal property strikes, you’ll need to file a claim with your home insurance company and pay your deductible. Upon approval of your claim, the insurer will cover the damage up to your coverage limit.
HO-3 insurance cost
HO-3 insurance costs around $2,532 per year for a policy with $300,000 in dwelling coverage, according to Insurify data. But premiums vary depending on many factors, such as geographic area, construction costs, and the degree of exposure to certain catastrophic events.2
Why do you need HO-3 coverage?
At least one in 20 insured homeowners files a claim each year, so HO-3 insurance could be helpful to have when you need coverage for damage due to a severe storm or a fire.3
“Insurance should be used to protect against possible catastrophic loss,” says Evan Walker, a plaintiff attorney at Evan Walker Law who regularly handles first- and third-party insurance claims. “If you don’t have insurance and your home is significantly damaged or you’re seriously exposed to liability, you’re possibly faced with a catastrophic loss.”
Storms, natural disasters, and theft can happen at any time, so it’s important to have enough coverage in place to protect one of your biggest assets — your home.
If your home is damaged by a fire or needs to be completely rebuilt, HO-3 insurance will pay to repair or rebuild it based on the cost to repair your home.4 You may also need HO-3 coverage if you live in an area where severe thunderstorms or windstorms are common.
Perils that HO-3 insurance covers
HO-3 insurance covers a variety of perils that can cause direct physical losses to your home and other structures, including:
Your HO-3 policy may also cover personal property on a named-perils basis, which means the covered perils will be spelled out in the policy.
HO-3 insurance exclusions
HO-3 insurance doesn’t cover damage from a flood or water seepage. Insurers view seepage as a maintenance issue, but you can obtain flood insurance if you live in an area where flooding is common.
You can also obtain flood insurance from an insurance agent through the National Flood Insurance Program (NFIP). HO-3 policies also don’t cover earthquakes, but you can buy this coverage separately.
Under this type of insurance, you also may not receive additional coverage after a covered event if local laws require you to repair, remodel, or rebuild your home in accordance with certain codes. For example, if your home is destroyed by a peril and your city laws require a certain construction method or protocol that adds to the repair cost, this insurance may not cover the added costs.
To avoid this, you can purchase an ordinance or law endorsement on your policy to ensure the costs associated with the new building codes will be covered.
How to choose an HO-3 insurance policy
Choosing an HO-3 insurance policy is a simple process. Just follow these steps:
Consider your home insurance needs. If you have a mortgage, you’ll want to see if your lender requires an HO-3 policy or if another type of homeowners insurance policy would meet your needs. Consider factors like your budget, the location of your home, whether you have detached structures on your property, and perils that could affect the property.
Determine how much coverage you need. You may want more dwelling or personal property coverage depending on your situation. Also, think about how much personal liability and additional living expenses coverage you’ll need.
Shop around. Compare HO-3 insurance rates from a few different companies to ensure you get the best deal. The cost of home insurance varies by insurance company, the type of construction, and the amount of coverage.
Other types of homeowners insurance policies
Depending on your situation, you may be interested in another type of homeowners insurance policy. Here are some of the alternatives and how they differ from an HO-3.6
HO-3 vs. HO-1
HO-1 insurance is a limited homeowners insurance policy that only covers you against 10 perils, while an HO-3 policy covers your home on an open perils basis and your belongings against all 16 main perils. HO-1 insurance typically offers bare-bones coverage and is not available in most states anymore.
HO-3 vs. HO-2
HO-2 is a broad form of homeowners insurance that covers all 16 perils, but it’s a basic policy. HO-3 insurance is considered a special form policy because it protects your home from all perils except those specifically listed as exclusions.
An HO-2 may be a better choice if you don’t want more personal liability protection or feel comfortable with coverage for the basic 16 perils.
HO-3 vs. HO-4
HO-4 insurance protects your personal possessions against all 16 perils. But it doesn’t cover damage to the structure of the actual rental unit itself, and your landlord will need to purchase separate insurance for this.
This policy may also cover additional living expenses.
HO-3 vs. HO-5
An HO-5 is the most comprehensive type of home insurance. It covers personal property and structural damage, and you’ll have access to higher coverage limits. HO-5 insurance covers all perils that aren’t specifically excluded on your policy.
These policies are more expensive but worth considering if you have a higher-value home.
HO-3 vs. HO-6
An HO-6 is for people who own condos or co-ops. It protects structural damage and personal property against all 16 main perils.
HO-3 vs. HO-7
HO-7 policies typically cover the same perils as HO-3 policies, but they’re specifically for mobile and manufactured homes. HO-7 policies include dwelling, other structures, personal liability, and loss of use coverage. But they’re typically more expensive than HO-3 policies because insurers consider mobile and manufactured homes a higher risk to insure since they’re more susceptible to damage from fire and wind.
HO-3 vs. HO-8
An HO-8 insurance policy covers older and historic homes — specifically those that are more than 40 years old. It’s common for HO-8 policies to cover only basic perils rather than all the listed perils an HO-3 policy covers.
HO-3 insurance FAQs
If you’re trying to decide whether an HO-3 insurance policy is right for you, check out the additional information below.
What does HO-3 stand for?
HO-3 stands for a special form homeowners insurance policy. Eight main types of home insurance policies are available, and all have the “HO” designation in their names. This is an insurance industry term.
Who needs HO-3 coverage?
You need HO-3 coverage if you own a home and are looking for comprehensive coverage for a range of perils. If you have a mortgage on your home, your lender will probably require you to purchase an HO-3 insurance policy.
What is an open perils policy?
An open perils policy means you’re covered against a peril unless your policy specifically excludes it. Meanwhile, a named peril policy means you’re only covered for the perils that are specifically named on the policy.
Is HO-3 an all-risk policy?
Partly, yes. HO-3 insurance policies cover your home on an open perils basis, meaning a broad range of perils, and list a few exclusions that won’t be covered. But an HO-3 policy covers your personal belongings against only the standard 16 named perils.
What does HO-3 insurance typically exclude?
HO-3 insurance doesn’t cover flood damage, water seepage, war, neglect, or earthquakes. Other things that an HO-3 policy won’t cover include normal wear and tear, mold, damage caused by pests, or nuclear hazards.
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