HO-3 is the most popular home insurance policy in the United States as it makes up about 80% of all homeowners policies. What makes it especially appealing is that HO-3 protects your main dwelling and other structures on your property on an open-peril basis. This means that it protects your house and detached structures again “all risks” except for the cases specifically outlined in the policy.
In this article, we will break down all the coverages included in standard HO-3 policies from A to F. We will also take a look at what is excluded from this policy and what additional endorsements you can purchase to further protect your home and belongings.
- HO-3 is a comprehensive policy. It offers “open perils” protection for your house and detached structures like garages, sheds, fences. It includes various perils outside your typical dwelling coverage.
- Since coverage is so broad, HO-3 is the most popular type of coverage for owner-occupied single-family homes.
- You’re covered from many risks, but you carry the burden of proving what caused the damage in detail.
What is HO-3 insurance?
Also called the “Special Form”, an HO-3 coverage for your home and personal property is a little different than other types of coverage. It is a hybrid policy combining features of both open-perils HO-5 and named-perils HO-2 at the same time. This is because HO-3 covers your belongings (personal property) for 16 named perils, and your home and other structures are covered on an open-peril basis against “all risks” except for the perils that are specifically excluded.
There are 8 different kinds of homeowner’s insurance policies designed to give you a specific level of protection. They each outline special perils, conditions, and circumstances so you get the most out of your homeowner’s insurance. Let’s look at the different coverage options so we can see just how inclusive HO-3 is.
Also Read: Named perils vs open perils
Dwelling coverage A
Coverage A provides protection for your home and attached structures only. HO-3’s dwelling coverage protects homeowners from all perils except for the exclusions specified in the policy documents.
Lightning may set a part of your home on fire. If this happens, your insurance will pay up to the amount listed on your policy to have that part of your home repaired. Lightning is just one example. HO-3’s dwelling coverage will cover virtually any peril except for the ones excluded in the policy.
Dwelling coverage limits vary from company to company, but it typically equals the actual cost value to replace your home. If your company’s limit doesn’t meet your needs, you can include some other endorsements on your policy for extra protection. We’ll take a look at some of those later.
Other structures coverage B
This coverage takes your coverage a little further. Also known as the “Other Structures” coverage, this part takes care of the unattached structures of your property. This includes your:
If a covered peril damages any of your other structures, your insurance will take care of it. Since almost all perils are covered, you just need to be aware of the exclusions.
One common exception is any structure that is used for business purposes. So, your pool house in the backyard used as a BNB will require business insurance to be covered for damages.
Coverage limits for other structures are usually only 10% of your dwelling limit. That said, always calculate the cost of your separate structures when coming up with a solid coverage B coverage limit.
Personal property coverage C
Coverage C protects your personal property. HO-3 covers personal property and belongings against 16 named perils:
- Fire and lightning
- Smoke
- Windstorms and hail
- Explosions
- Vandalism
- Damage from a vehicle that you don’t own
- Damage from an aircraft that you don’t own
- Theft
- Falling objects (like fallen trees)
- Weight of ice, snow, or sleet
- Accidental discharge or overflow of water
- Riots or civil unrest
- Freezing of household systems
- Pipe freezing
- Volcanic eruption
- Power surges
Extremely valuable property, like jewels or fine art, might be given separate limits from the rest of your property. Everything else is covered by up to 50% of your dwelling coverage.
So, any of your personal items (clothes, dishes, furniture, etc.) are covered by up to half of what your home itself is covered for. This excludes vehicles, trailers, and accessories.
Loss of use or additional living expenses coverage D
This type of coverage takes care of the costs of your dwelling being uninhabitable. It’s also called the “Loss of Use” or “Additional Living Expense” coverage because it helps pay for expenses of daily living in case of a total loss.
If your home was destroyed indefinitely by a fire, Coverage D will help pay for reasonable accommodations. This includes costs of temporary housing, transportation, food, and other living expenses.
As always, Coverage D only applies if the loss is because of a covered peril on your policy. Insurers usually limit this to 30% of your dwelling coverage.
Personal liability coverage E
You may be familiar with Coverage E as it pertains to personal liability. If you drive a car, you might already know how this works, since liability is part of a legal car insurance policy.
Coverage E helps protect you from paying for damages that you are responsible for fixing. So, if your tree falls on a neighbor’s house due to your negligence, your Coverage E will step in. It usually helps cover expenses like damages, medical bills, legal fees, or lost wages.
It’s important to carry enough liability coverage to take care of costly responsibilities. Many insurance companies require you to have a minimum of $100,000 in liability coverage.
Medical payments to others coverage F
Finally, coverage F encompasses your medical expenses. Coverage E takes care of more expensive medical bills. Coverage F focuses on smaller, less intense medical procedures like X-Rays, ambulance rides, or ER bills.
Coverage E can pay for pricey events like lawsuits, property damage, and lost wages. Coverage F has smaller limits (sometimes up to only $5,000) to solely take care of medical procedures only.
What perils HO-3 policies cover
Compared to other policies, HO-3 protects you from a vast range of risks. For instance, HO-1 outlines at least 10 specific perils that your property is safe from. HO-2 covers those 10 risks, plus 6 more.
Unlike an HO-2, however, an HO-3 protects your home from all 16 named perils and then some. Under an HO-3 policy, your home and structures are protected from “open perils.” This describes coverage for any sudden, uncontrollable disaster. This, of course, unless the peril is otherwise excluded from your policy. More on what those exclusions are in just a moment.
Damage to your personal belongings still falls under the “named perils” category. As such, your personal property described in Coverage C is still only protected by those 16 risks on your policy.
HO-3 encompasses all the coverage types listed above. As a result, HO-3 is the most popular among homeowner’s insurance policies. It usually includes all the details outlined in coverages A through F.
This means your dwelling, other structures, and personal property are all covered by HO-3. Plus, you’re protected from the costs of a total loss, personal liabilities, and medical expenses.
In addition to covering these facets, your HO-3 policy will include replacement cost coverage for your property. Usually, your HO-3 will outline an Actual Cash Value (ACV) of your belongings. This means the cost of replacing your property and belongings is determined by subtracting depreciating factors.
What HO-3 policies exclude
While HO-3 policies are very inclusive, they don’t cover all the bases. There are still some perils that are excluded from your standard insurance policy. These are:
- Earthquakes and movements of the Earth
- Flooding
- Power failure
- Nuclear hazard
- Intentional damage or loss
- Water backup
- Actions by the government
- Law or ordinance
- Theft (in the case of a house that is still under construction but insured)
- Vandalism to a house that has been vacant for more than 60 days
- Fungus, rot or mold
- Mechanical breakdown
- Effects of smog, corrosion and rust
- 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 smoke from agricultural smudging and industrial operations
- War
Differences between HO-3, HO-2, HO-5 and HO-6
We understand so many acronyms and letters can make you want to pull your hair out. Let’s break down some of the facets of similar policies like HO-3.
HO-3 vs. HO-2
HO-2 offers a few more perils than the basic HO-1 policy. It essentially sets the stage for an HO-3 policy.
HO-2 also consists of Coverages A-F, but it’s still just a named perils policy. This means your property is only protected by the specific perils listed. Under HO-2, you have to prove that damage was caused by one of these perils.
HO-3 considers both open and named perils, meaning it’s up to you to prove that your dwelling was damaged by an event not already listed. This can sometimes be burdensome for homeowners.
HO-3 vs. HO-5
HO-3 and HO-5 policies are likely the most similar. They both offer comprehensive limits over a broad range of perils. The difference is, HO-3 usually calculates the value of your home and belongings based on an ACV. HO-5 uses replacement cost value instead.
Replacement cost value differs from ACV in that the value of your belongings is not diminished by their age or condition. Under an HO-5, your insurer will pay you for your damaged or stolen items regardless of whether they were several years old or brand new.
Plus, HO-5 is an entirely open-peril type of policy. This means you’d be left trying to prove that damage to your dwelling and personal property was caused by an event not already listed on your policy.
This is why most HO-5 policies are best for newer, higher-value homes. HO-3 is the golden standard for your typical single-family home.
HO-3 vs. HO-6
HO-6 policies are similar to HO-3 policies. They both cover extensive damage to your belongings. The difference is the HO-6 is specifically tailored to the circumstances surrounding a condo.
An HO-6 usually only includes Coverages C, D, and E. That means this policy only pays for the costs associated with the interior of your condo. This doesn’t include other structures as listed in Coverage B, like hallways, parking lots, and tennis courts.
Endorsements and additional coverages
When traditional coverage just doesn’t do the trick, policy endorsements are available for you to augment your policy details. Some perils are not covered under any policy, which leaves you finding the next best area of protection.
Earthquakes and floods, for example, are common perils not listed on a standard homeowner’s insurance policy. Nevertheless, there are areas of the US that are prone to earthquakes and flash floods. This is when it makes sense to tack on a few add-ons to your policy.
Flood Insurance
In some high-risk areas, flood insurance is required by law for homeowners. Floods damage millions of homes every year, yet it’s not considered a covered peril on standard insurance policies.
Flood insurance will cover your home and belongings from damage and loss in the event of a flood. Average coverage limits can go up to $250,000. Detached structures may require their own standalone policy, though.
Earthquake/Earth Movement Insurance
“Earth Movement” is an event outlined in insurance policies as an exclusion to covered perils. This term is used to describe any shifting, moving, sinking, or expanding of the soil.
Earthquakes, sinkholes, landslides, and lava flows are all examples of earth movement. These are some of the covered perils in an earth movement endorsement. Earth movement insurance deductibles can be as low as 10% of your dwelling coverage limit.
Extended Replacement Cost
When your standard replacement cost isn’t high enough, extended replacement cost is available as an extra layer of security. Extended replacement cost is literally an extension to your dwelling coverage.
Many companies will give you an extra percentage of your Coverage A limit to handle any overflow to the cost of replacing your property. For instance, your $200,000 policy would be extended to $220,000 in the event of a disaster.
Guaranteed Replacement Cost
This extension is a little more inclusive than the extended replacement cost. Not many companies offer this type of coverage due to how expensive it can get for them.
Guaranteed replacement cost is an endorsement that will pay to replace your property regardless of your dwelling coverage limits. Suffice it to say, all of your belongings can be replaced with this add-on in case of a total loss.
Conclusion
HO-3 insurance provides comprehensive coverage for homeowners, making it the most popular policy out there. HO-3 provides coverage for a wide range of perils and losses that are not typically protected in other policies.
Homeowners need to be aware of what types of damage and losses are covered by their HO-3 policy. This helps instill greater peace of mind in the event of an unforeseen incident.
By understanding what is excluded from the policy, homeowners can take steps to protect themselves from further losses. When you know what your policy excludes, you can take steps to add some endorsements to your policy for the extra protection you deserve.
