What is an HO-3 homeowners policy?

What is an HO-3 insurance policy?

HO-3 homeowners insurance is the most common type of homeowners insurance policy designed for owner-occupied single-family homes. You get a package of coverages in one policy, including protection for your home, detached structures, belongings, liability and loss of use. It is the policy type most homeowners see when shopping for coverage.

“HO-3 is insurance jargon, but it's a basic homeowner's policy,” says John Oakden, personal lines advisor at The Mahoney Group.

Insurance companies use the HO designation to differentiate the different types of homeowners insurance policies.

What does an HO-3 policy cover?

An HO-3 policy covers your house, detached structures, personal property, personal liability, medical payments to others and additional living expenses. That means your policy can help repair your home, replace damaged belongings, cover legal costs if you are responsible for injuries or damage to others and pay temporary living costs after a covered claim.

HO-3 insurance covers the following, per Oakden:

The dwelling itself, such as the walls and roof of your home
Additional structures on your property, such as a detached garage
Personal property, such as your furniture, linens, electronics; and even your dishes and clothes fall under HO-3 personal property coverage
Loss of use when you can’t live at home; for example, if you have to stay in a hotel while your home is being repaired under a covered claim
Personal liability, which covers you if you’re at fault for injuries or damages and are sued
Medical payments, which covers medical bills for someone injured on your property regardless of fault

“To add a wrinkle to it, there's an HO-5. And that's considered kind of an enhanced homeowners product,” says Oakden. “When you get an HO-5, that's covering a home for guaranteed replacements,” whereas an HO-3 “basic homeowner's policy will provide coverage up to the amount on the policy.”

For example, if a fire damages your home, causing you to file a claim, an HO-3 policy will only cover rebuilding your home up to the amount listed on the policy. In contrast, an HO-5 has“guaranteed replacement cost means the insurance company is going to pay to rebuild the home back to what it was,” Oakden says.

There are other differences between an HO-3 and an HO-5, such as coverage for personal property; an HO-3 only covers personal property at actual cash value while an HO-5 offers replacement cost coverage.

In most cases, you can get these coverages on an HO-3 policy via an endorsement.

There can be nuances that affect exactly what’s covered and how, so you should look into your homeowners insurance policy options closely rather than solely basing your decision on the HO code.

What are named and open perils?

Open perils policies cover anything not specifically excluded, while named perils policies specify what’s covered, and anything not named is not covered; perils are the causes of damage the policy will cover.

Most HO-3 homeowners policies provide coverage for dwellings on an open peril basis, says Oakden, with exclusions for things like floods and earthquakes. However, named perils coverage is standard for personal property. If the peril is not listed, you might not be covered, so it’s important to clarify if your coverage works on a named or open peril basis for each type of coverage on a policy, including dwelling coverage, personal property and personal liability.

“It depends on where you live in the country, it depends on the company, and it depends on the product,” says Oakden.

HO-3 policy exclusions

An HO-3 policy excludes some major perils, including flood and earthquake damage. You need separate policies or endorsements for excluded risks if you want that protection. A flood refers to outside water entering your home from an overland source, not water damage from a burst pipe, which is covered.

In some cases, you can add coverage for exclusions via what’s known as an endorsement. The specifics depend on the insurer, but you may be able to pay extra to get that protection.

How to get an HO-3 policy

You can get an HO-3 policy by comparing quotes online or working with an independent insurance agent. Look beyond price and check the coverage limits, deductibles, exclusions and endorsements. The right policy should match your home’s rebuild cost, your belongings and the level of liability protection you need.

Not only should you look at prices, but you want to ensure you find the coverage that fits your needs.

“The biggest thing people need to come to terms with for insurance is what's important to you and what do you value?” says Oakden. While everyone wants to save money, he says, cutting costs isn’t always the best approach.

“Most people don't assume that they're ever going to need an insurance policy. But it's designed to show up on your absolute worst day to be able to help get you past the bad times,” he says.

FAQ: HO-3 homeowners insurance

Does an HO-3 policy cover flooding?

An HO-3 policy does not cover flooding from overland sources. You will need to buy separate flood insurance. Note, however, that water damage from issues like a pipe bursting inside your home is covered and not considered a flood.

What’s the difference between HO-2 and HO-3?

An HO-2 policy is more limited because it covers your home and belongings only for named perils. An HO-3 policy provides broader open-perils coverage for your house, meaning damage is covered unless specifically excluded. That makes HO-3 stronger protection for most single-family homeowners.