An HO-3 is a type of home insurance policy that covers your home and other structures on your property on an open-perils basis and insures your personal property on a named-perils basis. It also provides additional living expenses and liability coverage.
HO-3 policies explained
An HO-3 policy is the one of the most common types of home insurance. The coverage is written on an open perils basis for your home and other structures, which means it can cover any risks except for those specifically excluded in the policy. However, it typically offers named perils coverage for your personal property, meaning it only covers damage to belongings caused by the events listed in your policy.
These policies are usually intended for the single-family homes, multifamily homes, and townhouses. The property owner must live in the home and usually not rent any part of it.
HO-3 policies: Coverage details
The first thing to know is home insurance is written on a variety of forms. These forms standardize coverage from insurance company to insurance company. Which form your agent or insurer uses for your home depends largely on how much coverage you need.
HO-3 is typically used for owner-occupied homes because it offers reliable, affordable coverage for common risks.
What does an HO-3 home insurance policy cover?
HO-3 policies typically pay for:
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Damage to the home (Coverage A).
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Damage to other structures on your property, like fences or detached garages (Coverage B).
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Damage to or theft of personal belongings, like clothes and furniture (Coverage C).
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Additional living expenses when a covered claim keeps you from living at home (Coverage D).
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Legal expenses when you or a household member is sued over someone's injuries or property damage (Coverage E or personal liability).
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Medical payments when guests are injured at your home (Coverage F).
What perils does an HO-3 policy not cover?
For your home and other structures, HO-3 is an open,perils policy. That means your insurance company can pay for damage to your home unless it’s caused by an event listed in the policy as an exclusion.
Some common HO-3 policy exclusions are:
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Earth movement, such as an earthquake, sinkhole, and mudflow.
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Water damage from flood, sewer backup, or water seeping in through the foundation.
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Seizure or demolition by a government agency or public authority.
But coverage for the contents of your house is different. HO-3 policies insure your personal property on a named perils basis, meaning your insurer only pays for damage caused by events listed in the policy. Those named perils are usually the same 16 listed on an HO2 policy:
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Fire or lightning
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Hail or windstorms
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Explosions
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Riots or civil commotion
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Damage from aircrafts
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Damage from vehicles
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Smoke
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Malicious mischief or vandalism
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Volcanic eruptions
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Falling objects
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Weight of ice, snow, or sleet
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Accidental discharge of water or steam
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Sudden and accidental tearing apart, cracking, burning, or bulging of certain household systems
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Freezing of household systems
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Sudden and accidental damage from artificially generated electrical current
You can get open-perils coverage for your personal belongings by adding an endorsement to your policy.
You could also schedule your valuable items. Scheduled property is an insurance term that means your items are individually listed in the policy along with the amount of coverage each gets. When property is scheduled, an HO-3 policy insures it on an open-perils basis.
What are the benefits of an HO-3 policy?
One of the big benefits of an HO-3 policy is that it offers replacement cost coverage for your home and other structures. Some HO-3 policies default to insuring personal belongings for their replacement cost; others require you to add that on.
Instead of only paying out the depreciated value of your home or other structures like an actual cash value policy, replacement cost coverage pays what it really costs to replace or rebuild with items of like kind and quality.
Put another way: you'll actually have the funds you need to buy replacements and rebuild your home after a loss.
How to get an HO-3 insurance policy
Getting an HO-3 insurance policy is generally pretty easy. It’s the most common type of coverage, so insurers’ applications usually default to it.
The first step, however, is to do a little research. Shop around and get at least three quotes to compare. Once you’ve picked your policy, you can pay your premium and your new insurer will send you an insurance binder.
