HO-3 Insurance: Definition, Cost, Coverages

  • HO-3 insurance offers open peril coverage for your dwelling, but only covers named perils for your personal property.
  • HO-3 insurance also offers liability and additional living expenses coverage.
  • HO-3 insurance is more comprehensive than an HO-1 or HO-2 but offers less protection than an HO-5 policy.

Homeowners insurance protects your personal belongings and the structure and dwelling of your home. unlike


car insurance

homeowners aren’t legally required to have


homeowners insurance

. However, if you’re applying for a mortgage, your lender will often require coverage for your home.

There are several types of homeowners insurance based on the dwelling type: condo, home, mobile home, or new construction. The most common homeowners insurance policy is special form HO-3, which is more expansive than HO-1 or HO-2 coverage.

What is HO-3 insurance?

HO-3 insurance is the standard homeowners insurance policy. Most homebuyers will purchase this policy to protect their home. “An HO-3 policy provides coverage for the house, other structures, personal property, and legal liabilities from all perils, other than those which have been specifically excluded,” says Gus Garcia, director of personal lines contracts at Farmers insurance.

HO-3 offers comprehensive homeowners insurance, while HO-1 and HO-2 coverage offer limited protection from damages in your policy (named peril). HO-3 covers damages to your dwelling even those these perils aren’t explicitly listed in your policy, with some exclusions (open peril).

What does HO-3 insurance cover?

HO-3 protects you, and your home. It also covers any additional expenses you may incur if your home is inhabitable. However, while HO-3 covers an expansive list of damages, exclusions will apply.

HO-3 insurance will not cover several perils. These excluded perils will require additional coverage through a rider policy. Earthquakes, floods, government seizures, mudslides, ordinance updates, sewer backups, and sinkholes are perils that will not be covered by homeowners insurance, according to Hippo Insurance.

What perils does HO–3 insurance cover?

A peril is any risk that results in a loss of your home or belongings such as wind, fire,


hail

, and theft, according to Garcia. There are two types of perils: named perils and open perils.

Named perils are damages listed in your policy. An HO-3 policy has 16 named perils. A few perils listed are fire, theft, and windstorm.

Open perils “typically provide customers coverage for their home and personal belongings from most perils, unless the peril is specifically listed as excluded,” according to Garcia. In other words, your insurance policy will cover every peril except the listed exclusions in your policy.

Here are some of the named and open perils covered by an HO-3 policy.

Source: Lemonade and The Zebra; coverage may vary based on where you get your insurance from.

Dwelling coverage

Dwelling coverage (Coverage A) is a section of your homeowners insurance policy that pays to repair or rebuild your home. Dwelling coverage is the only section of your HO-3 policy covering open perils.

Other structures (Coverage B) pay to repair or replace structures other than your primary home. For instance, if a tree falls on your detached garage or fence, your HO-3 policy may reimburse you for repairs.

The amount you should have on your dwelling coverage depends on the cost of repairing or rebuilding your home. Factors that impact your replacement costs are the age of your home, your location, the construction of your home, and a host of other factors. The two most significant factors that affect the replacement cost of your property are the square footage of your home and the local construction costs, according to the Insurance Information Institute (III).

Personal property coverage

Personal property (Coverage C) offers coverage for the contents of your home if lost, damaged, or stolen. For instance, if someone breaks into your home and steals your TV, personal property coverage will pay to replace the item. Your policy will generally set your personal property coverage at 50% to 70% of the coverage you have on your dwelling, according to III.

It’s important to note that most insurers will only cover the actual cash value of your stolen or damaged property. Actual cash value (ACV) coverage is the amount your insurer will reimburse for you to replace the damaged item minus depreciation. You can purchase an additional replacement cost coverage endorsement to have your damaged item replaced at a similar value.

High-valued possessions like jewelry, furs, art, and collectibles can be covered. But since there is a limit on Coverage C, you need to purchase a special personal property endorsement to cover the item at its appraised value.

Loss of use

Loss of use (Coverage D) reimburses you for increased living expenses if your home becomes inhabitable. For instance, say you typically spend $200 a month on food; However, you can’t cook and have to eat out more because you’re staying at a hotel. If your bill is now $400, your provider will reimburse you for the additional $200 expense.

Loss of use will only apply if your home sustained damage due to a covered peril. Generally, your policy will set your loss of use limits to 20% of your home’s insured value. For instance, if your coverage amount is $250,000, your loss of use coverage amount will be $50,000.

You have the option of increasing your coverage by purchasing additional loss of use insurance.

Liability

If someone sues you for damages or injuries, liability (Coverage E) insurance will pay your court fees and legal expenses. Medical expense coverage (Coverage F) pays for medical bills if someone is injured on your property, especially if the victim is not insured.

Liability limits generally start at $100,000 but consider purchasing more protection with your insurance provider. Experts at the III recommend having at least $300,000 to $500,000 of liability coverage.

Under certain circumstances, you may need more insurance. For instance, if you have a pool, providers view you as a liability because someone can slip and fall in it. Providers also view dog owners as a liability, so you might want to consider umbrella insurance, especially if your dog falls under an aggressive breed. Umbrella insurance will offer liability coverage in million-dollar increments to protect your investments if you take on more liability due to your circumstances.

HO-3 vs. HO-6 insurance

While an HO-3 policy covers the standard home, an HO-6 insures condos. Both HO-3 and HO-6 policies offer personal property, liability, and additional living expense coverage. The main difference is how your building’s dwelling is covered.

Your landlord’s master policy will typically insure the building’s structure and foundation in addition to common areas, such as the gym or the lobby. HO-6 insurance covers your unit and your unit contents, specifically referred to as “walls-in” coverage.

Both policies have similar listed exclusions, such as protection against floods and earthquakes.

What is the difference between HO-3 and HO-5 insurance?

HO-3 and HO-5 are homeowners insurance policies that cover the standard home. HO-3 and HO-5 offer open peril coverage for your dwelling and other structures. Both also offer personal liability and loss of use coverage. However, HO-5 is more robust as it offers open peril coverage for your dwelling and personal property.

Ho-5 coverage is also often more expensive because coverage for the replacement cost value of your personal property instead of the actual cash value.

How much does HO-3 insurance cost?

The average annual premium for homeowners insurance in the US in 2019 was $1,272, according to the most recent data from the III. But this figure will vary based on property details, credit history, claims history, marital status, location, etc.

It is essential to consider the quality of the insurance you’re getting, and the amount of coverage on your policy — both may even be more important than the cost.

“For most people, a home will be the single biggest investment they will make in their life. Therefore, it’s important to frame the insurance purchase decision in this light,” says Garcia.

“Purchasing a cheaper policy may seem like a good deal, but without truly understanding the policy, you may find that “deal” lacking when you need it the most.”

Get started on your search by comparing the best homeowners insurance companies of 2022.