What Is An HO-3 Homeowners Insurance Policy?

What Is An HO-3 Homeowners Insurance Policy?

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An HO-3 insurance policy is a form of home insurance that protects policyholders against property damage, legal liabilities and other expenses associated with unexpected disasters befalling your home.

Most insurers' standard homeowners insurance offering is some variant of an HO-3 policy, also called an open perils policy, as it covers homes for all dangers except those specifically excluded in its text. But shoppers should always research a policy before purchasing it to ensure they fully understand the scope of its coverage.

HO-3 insurance policy definition

Also called a homeowners policy special form, an HO-3 policy is the most common type of home insurance form on the market. What separates an HO-3 from policies with more limited coverage — such as HO-1 and HO-2 policies — is that your dwelling is covered against all perils, unless they are specifically listed as exclusions. This type of coverage is referred to as open perils coverage, with a peril defined as any risk or cause of loss to your home.

Damage to your personal property, on the other hand, is only covered on a named perils basis with an HO-3. This means that the cause of damage has to be explicitly stated in the HO-3 form to ensure coverage by your insurer.

Most HO-3 policies offer six primary coverage types.

HO-3 coverage features

Coverage
Typical limit
DwellingRebuild cost of home
Other structures10% of dwelling limit
Personal property50% of dwelling limit
Loss of use10% of dwelling limit
Personal liabilityYour choice
Medical paymentsYour choice

HO-3 policies are typically based on homeowners insurance policy forms written by the Insurance Services Office (ISO), a company that provides data and advisory services to the insurance industry. However, the fact that a policy is based on the standard ISO HO-3 is no guarantee that it adheres exactly to those standards, nor do different insurers offer the exact same coverage in their individual HO-3 policies.

Shoppers should always make sure to discuss a prospective policy with their insurance agent so they have a full understanding of the scope of its coverage.

What types of events do HO-3 homeowners insurance policies cover?

HO-3 policies cover a variety of events and serve as an invaluable financial safeguard against many disasters. The foundation of an HO-3 policy is its coverage of property damage, but it also serves as protection against legal liability, the costs of living outside your home after an emergency and injuries.

HO-3 policies cover dwelling damage

The primary purpose of HO-3 special form homeowners insurance is to cover your dwelling. Being covered means that damage to the dwelling — the structure of your home — is reimbursed by your insurance company up to policy limits. HO-3 policies cover a variety of common perils that could afflict your home, and any perils it excludes from coverage must be explicitly noted in the policy.

Below are some of the most common home insurance perils. HO-3 policies almost always cover these, and many more.

The most common insurance perils by claims frequency...

  • Wind and hail
  • Water damage and freezing
  • Theft
  • Fire and lightning

HO-3 insurance policy exclusions may vary from insurer to insurer, but a certain set of perils is almost always omitted from standard HO-3 special forms. The most notable of these are flood and earthquake damage, but exclusions can go beyond these dangers. Homeowners should always read their HO-3 form to understand which events aren’t covered.

Perils typically excluded from HO-3 homeowners insurance dwelling coverage...

  • Government seizure, demolition or requirement to rebuild to match building codes
  • Earth movements, including earthquakes, sinkholes and landslides
  • Power failure (if the source of failure is off-residence)
  • Homeowner neglect
  • War and nuclear hazards

Dwelling coverage also extends to other structures on your property, typically covering damage up to 10% of overall limits. This means that, to a certain extent, you'll also be covered for structures outside your home but on your property, like fences and freestanding garages.

HO-3 policies cover personal property damage

Although HO-3 policies cover your dwelling on an open perils basis, its personal property coverage is typically provided on a named perils basis. This means that your personal belongings — clothes, furniture, appliances and more — are only covered by dangers specifically cited in your HO-3 policy.

A standard HO-3 policy usually names many or all of the common perils cited above. Effectively, your personal belongings are also covered for the most common types of dangers affecting a home. But named perils coverage is, by nature, not as exhaustive as open perils coverage. You should make sure to read all the named dangers before purchasing a policy to ensure you're fully covered.

Homeowners should also note that some types of personal belongings — specifically high-value items — are only covered by HO-3 insurance policies up to specified sub-limits. Items that are assigned sub-limits are only covered for damage or theft at a lower limit than your overall limit.

For example, an HO-3 policy may have an overall personal property coverage limit of $50,000, but a $1,500 sub-limit for theft of jewelry. This means that if $5,000 worth of jewelry is stolen from your home, your insurer will only reimburse you for $1,500, minus your deductible, despite the fact that your overall coverage limit of $50,000 is more than enough to cover the value of the event. Homeowners looking for increased coverage for special items can often increase their sub-limits for an additional cost through an endorsement.

HO-3 policies cover liability expenses and costs of living elsewhere

HO-3 homeowners insurance covers you for a variety of other expenses related to your home beyond your physical property. Common coverages include personal liability, loss of use and medical payments.

The most important of these remaining features is personal liability coverage. This covers you for expenses related to bodily injury or property damage for which you are legally liable, including defense in court by a counsel of the insurer's choice. A standard HO-3 policy includes $100,000 in liability coverage, though homeowners can usually increase this number by hundreds of thousands of dollars — at a limited cost — if they choose to do so.

Loss of use coverage, also called additional living expenses coverage, reimburses you for expenses above and beyond your normal expenses if your home is made uninhabitable by a covered peril. For example, loss of use would cover the costs of you staying in a hotel or Airbnb. Coverage is usually limited to a certain period of time or dollar amount; the latter usually set at 10% of your overall dwelling limit. Some insurers may allow policyholders to adjust the limit if you desire more coverage.

Finally, an HO-3 policy covers a limited amount of medical payments. This reimburses you for medical bills if people are hurt on your property or hurt by your pets. This coverage is unrelated to legal liability and provides limited reimbursement for basic medical expenses. Medical payments coverage limits are chosen by the policyholder and are generally no more than a few thousand dollars.

What are HO-1, HO-2, HO-4, HO-5 and HO-6 policies?

Although the special form HO-3 is the most common type of homeowners insurance policy, it's not the only kind available. Shoppers may find insurers offering other types of forms, including HO-1 and HO-2 forms, which provide homeowners with more modest levels of coverage, or HO-5 forms, which have more generous coverage.

Consumers may also find that similar policy forms have slight variations in names and coverage, an example being the HO-B, an alternate version of an HO-3 policy. Finally, HO-4 and HO-6 policies are targeted at renters and condo owners, respectively, providing different types of coverage fitting the needs of those customers.

HO-3 vs. HO-1 or HO-A policies

An HO-1, also called the basic form, is a named perils policy for both your dwelling and personal property. As the most stripped-down homeowners insurance policy, HO-1 forms cover fewer perils than an HO-2 or HO-3 policy.

Perils typically named in an HO-1 policy

  • Fire
  • Smoke
  • Windstorm
  • Hail
  • Lightning
  • Explosion
  • Vehicles
  • Civil unrest or riot
  • Theft
  • Vandalism or malicious mischief

Compared to an HO-3 policy, the most notable perils excluded from HO-1 coverage are damage from falling objects, including trees; damage from the weight of ice, slow or sleet; and non-flood water damage.

Given its sparse coverage, HO-1 policies are no longer available in most states. Texas homeowners might see this type of policy referred to as HO-A insurance, but its definition remains the same.

HO-3 vs. HO-2 policies

An HO-2 policy, also called the broad form, offers homeowners more coverage than an HO-1 but less coverage than an HO-3. Like the HO-1 basic form, an HO-2 is a named perils policy, so your dwelling is only covered for the types of damages specifically named in the policy form.

However, as its form name suggests, a typical HO-2 expands the number of perils named to provide a broader range of coverage than an HO-1.

Perils typically named in an HO-2 policy

  • Fire
  • Smoke
  • Windstorm
  • Hail
  • Lightning
  • Explosion
  • Vehicles
  • Civil unrest or riot
  • Theft
  • Vandalism or malicious mischief
  • Trees and other falling objects
  • Weight of ice, snow and sleet
  • Water damage resulting from freezing, rupturing or sudden and accidental overflow of plumbing, heating, air conditioning, fire sprinkler system or household appliance

As a named perils policy, HO-2 is not guaranteed to cover any individual peril, and this list is simply illustrative of which perils may be included in its coverage. Comparing an HO-2 versus an HO-3, an HO-2 will only cover you if a peril is explicitly named in the policy, whereas an HO-3 will cover you for everything not specifically excluded.

The limitations in coverage posed by a named perils policy have the potential to expose homeowners to some common risks. For example, if you believe your home is particularly vulnerable to the risk of falling trees, and an insurance company offers you an HO-2 that does not name falling objects as a peril, an HO-2 policy will be insufficient for your needs. In this instance, it would be better to request an HO-2 policy that names appropriate risks, or an HO-3 policy that does not exclude the peril of concern.

HO-3 vs. HO-B policies

Homeowners, particularly those in Texas, may be offered an HO-B policy when shopping for insurance. An HO-B policy is very similar to an HO-3 form in that it provides open perils coverage for your dwelling and named perils for your personal property. However, HO-B policies are targeted at homeowners near coastal areas, and generally provide broader coverage against perils related to water damage.

HO-3 vs. HO-4, HO-5 and HO-6 policies

Other policy forms provide insurance that caters to specific types of homeowners or residents. An HO-5 policy is the broadest type of homeowners insurance policy, offering more generous coverage than even an HO-3. One of the key distinguishing features of an HO-5 policy versus an HO-3 is that open perils coverage is extended to personal property, providing you with extensive protection for both your belongings and your dwelling.

HO-4 policies, also called renters insurance policies, are for tenants. When you rent an apartment, your landlord is responsible for perils that damage the structure of the building.

Finally, HO-6 policies are for condo owners. HO-6 coverage reflects the fact that condo owners do not always bear responsibility for the cost of unexpected damages to communal areas of their building or to their built-in property — such as fixtures or appliances — within the condo.

Comparing HO-3 versus HO-6 (condo insurance) policies, an HO-6 provides personal property, liability and loss of use coverage while excluding the unnecessary dwelling coverage included in an HO-3.

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