HO-3 Home Insurance Policy Explained

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You’re the proud owner of a new home and once the celebrations are done with, you’re probably thinking of the technicalities that accompany such an event. If so, a home insurance policy is definitely on the list of top 5 priorities that you need to attend to! However, just as variety is the spice of life, it would seem that it is the spice of insurance as well! Out of HO-2, HO-3, HO-5, HO-6, and HO-8, which one is the right one for you? Which one do you really need?

Fear not. Before your swimming head gets the better of you, we’ll help you make sense of the most commonly purchased home insurance policy: HO-3! This policy is the minimum coverage that you, as a homeowner, require and, in all probability, the only one you’ll ever need.

What Is the HO-3 Policy?

As we said, the HO-3 home insurance policy is the most commonly purchased home insurance policy because the policy encompasses all the coverage that most homeowners need. Also known as the “Special Form Homeowner’s Policy”, it provides excellent coverage for your house as well as your personal property. The HO-3 policy is a hybrid policy, which means that it is a combination of two different policies: the “open perils” policy and the “named perils” policy, and yes, we are going to explain these two terms to you!

An “open perils” policy provides full coverage for your home and personal property whatever the cause or danger may be, unless your policy specifically names and excludes it. Therefore, the policy doesn’t list what perils it’s got you covered for; it does the opposite and lists the perils that you aren’t covered for. So if a particular peril isn’t on the list, it’s definitely covered. A “named perils” policy, on the other hand, only provides coverage for reasons that policy specifies.

In the case of a HO-3 policy, your house or dwelling is provided an “open perils” coverage while your personal property (contents of the house) is covered on a “named perils” basis.

So now that we’ve understood the basic concept behind an HO-3 policy, let’s take a look at the excluded and included perils for your house and personal property, respectively.

What Perils Are Excluded for My House?

The following perils are excluded when it comes to coverage for your house or dwelling:

  • Power failure
  • Nuclear hazard
  • Intentional damage or loss
  • Water damage
  • Actions by the government
  • Law or ordinance
  • Theft (in the case of a house that is still under construction but is insured)
  • Vandalism to a house that has been vacant for more than 60 days
  • Fungus, rot or mold
  • Mechanical breakdown
  • Wear and tear or deterioration
  • Neglect
  • Animals that are owned by the insured party
  • Damage by vermin, rodents, insects, or birds
  • Expansion, bulging, shrinkage or settling of the house
  • Seepage of pollutants or their discharge or dispersal
  • Effects of smog, corrosion and rust
  • Effects of smoke from agricultural smudging and industrial operations
  • War
  • Movements of the Earth
  • Neglect of property
  • Collapse of the property

It should be noted that coverage for earthquakes, water damage (unless sudden or accidental damage in which case it is already included in your policy), and collapse can be added to your policy (also known as “endorsement”).

What Perils Are Included for My Personal Property?

The following causes or perils are provided coverage for, with regard to your personal property, in an HO-3 policy:

  • Smoke
  • Vehicles
  • Theft
  • Fire or lightning
  • Explosions
  • Riots or commotions caused by civilians
  • Hail or windstorm
  • Aircrafts
  • Volcanic eruptions
  • The effects of heavy snow, ice or sleet
  • Freezing
  • Sudden and accidental cracking, burning, bulging or tearing apart
  • Vandalism
  • Discharge or overflow of an accidental nature of water (from a stream or otherwise)
  • Sudden or accidental damage from electric currents that are artificially generated

Who Is the HO-3 Suitable For?

The HO-3 policy is best suited for owner-occupied homes and 1-to-4 dwelling units (such as apartment complexes).

A Parting Note

Though the HO-3 is the most commonly purchased policy, it falls short on two counts: water damage and an “open perils” coverage only on personal property. The policy doesn’t cover water damage relating to slow leaks, foundation or water backup, and requires an endorsement on the policy. There are similar policies such as the HO-5 and HOB policies that provide better coverage. Also, the HO-3 is more expensive than the HO-2 policy; however, this makes sense as the HO-3 provides more coverage than the HO-2 policy, which is a “named perils” policy though it provides coverage for your house and personal property, like the HO-3 policy.

However, once you look past the additional endorsement, the HO-3 is as good as any other policy to cover all your basic insurance needs. Just ensure that you know what those basic needs are and plan well for your coverage!