What is an HO-3 policy in homeowners insurance?

An HO-3 is a type of homeowners 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 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 covers damage resulting from any risks except those specifically excluded by the policy. However, it typically offers named-perils coverage for your personal property, meaning it only covers damage to belongings caused by events specifically listed in your policy.

HO-3 insurance policies are usually intended for single-family homes, multifamily homes, and townhouses. The property owner must reside in the dwelling as their primary residence. 

HO-3 policies: Coverage details

“HO-3” refers to Homeowners Owner-Occupied Form 3. It’s one of several home insurance policy forms. These forms standardize coverage across insurance companies. The form that best suits your situation depends on the types and amount of coverage you need. When in doubt, a licensed agent can help you determine which policy to get.

The HO-3 policy is the most common choice for people who own and live in their houses because it offers reliable and affordable protection against typical problems. Think of the HO-3 as a complete insurance package. It brings together most of the essential coverage you need in one place, protecting the structure of your home (including the walls and roof), covering your personal belongings (such as furniture and clothes), and providing liability protection if someone is injured on your property. 

What does an HO-3 home insurance policy cover?

HO-3 insurance includes several standard coverages. Here’s a breakdown of the parts of a typical HO-3 policy:

• Dwelling coverage (Coverage A): For interior and exterior damage to the home

• Other structures coverage (Coverage B): For damage to other structures on your property, like fences or detached garages

• Personal property coverage (Coverage C): For damage to or theft of personal belongings, like clothes and furniture

• Additional living expenses coverage (Coverage D): For situations when your home is damaged and unlivable, this helps cover hotel stays, dining out, and more while the home is being repaired (also called loss of use)

• Personal liability coverage (Coverage E): For legal expenses if you or a household member is responsible for someone else's injuries or property damage, plus lawsuits and legal expenses if you are sued and lost wages if the injured party cannot work

• Medical payments coverage (Coverage F): For medical payments when guests are injured at your home

What perils does an HO-3 policy not cover?

HO-3 policies cover damage to your home and other structures on your property that is caused by any risk that is not specifically excluded. This is called open-perils or all-risk coverage. 

Some common HO-3 policy exclusions are:

• Earth movement, such as earthquakes, sinkholes, and mudslides

• Water damage from floods, sewer backups, or water seeping in through the foundation

• 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 damage is typically only covered if it is caused by a risk listed in your policy. 

Named perils in an HO-3 policy typically include:

• Fire 

• Lightning

• Hail and windstorms

• Explosions

• Riots and civil commotion

• Damage from aircraft

• Damage from vehicles

• Smoke

• Malicious mischief and vandalism

• Theft

• Volcanic eruptions

• Falling objects

• Weight of ice, snow, or sleet

• Accidental discharge of water or steam

• Sudden and accidental tearing apart, cracking, burning, or bulging of certain household systems

• Freezing of household systems

• Sudden and accidental damage from artificially generated electrical current

For broader coverage, you can often pay extra for open-perils coverage for your personal belongings by adding an endorsement to your policy.

Certain types of property — such as jewelry, fine art, cameras, and golf equipment — are only covered up to a specified dollar amount, known as a sublimit. For jewelry, the sublimit might be $2,500. If this isn’t enough coverage, you can “schedule” your valuable items. Scheduled personal 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 benefits of an HO-3 policy is that it offers replacement cost coverage for your home and other structures. In the event of covered damage, replacement cost coverage pays for repairs and replacements of like kind and quality. 

Put another way: you'll have the funds you need to buy replacements and rebuild your home after a loss.

Depending on your policy specifics, your personal belongings may not be insured the same way. Often, HO-3 policies insure personal property on an actual cash value basis, meaning depreciation of the items is factored into your payout in the event of claimable damage.

For example, imagine your five-year-old TV is destroyed by a fire. If your policy uses actual cash value for personal property, the insurer calculates the current market value of the TV, subtracts the depreciation for five years of use, and pays you that amount. However, this may not be enough to purchase a brand-new TV of similar quality and features.

For better protection, you might be able to pay extra for replacement cost coverage for your personal belongings.

How to get an HO-3 insurance policy

You can get an HO-3 policy by contacting an insurance company by phone or beginning a quote online. Before selecting a company, it can be helpful to do a little research. Coverage specifics (what’s automatically included and what costs extra) can vary from company to company. Plus, companies calculate risk slightly differently, so the quotes you receive will vary.

Research insurance company reviews and ratings

To find the best company for you, research the pros and cons of several insurers. Check customer reviews and third-party ratings from agencies like AM Best, J.D. Power, TrustPilot, and more. 

Look into their customer service — can you contact them 24/7? What digital tools are available? If you prefer to manage your policy online or via an app, ensure that option is available.  

Get a few quotes to compare

After you’ve narrowed down a few companies you like, get a quote from at least three. Make sure the policy details (coverage types and policy limits) are the same for each quote for a fair price comparison. 

Choose a company and purchase the policy

Once you've shopped around and decided on the best insurer, the final step is to purchase your HO-3 policy. The insurer will typically guide you through the application process. Be prepared to provide accurate information about your home's characteristics and safety features. After your application is accepted, you will make a payment (or it will be paid through your escrow account), and the policy will become active on the agreed-upon start date.