HO-3 Insurance Policy: What Is It and What Does It Cover?

Most people need home insurance to cover any potential damages to their home or personal property. Many types of home insurance policies exist, but the special form, or HO-3, is the most common.

HO-3 policies provide more comprehensive protection by covering a broader range of perils. Mortgage lenders require homeowners insurance since coverage can also include the cost of materials and labor to rebuild your home in the event of a total loss.

An HO-3 policy doesn’t cover every peril, so it’s important to know what’s typically included in a policy and how it compares to other homeowners insurance options.

What is HO-3 insurance?

Many homeowners choose HO-3 insurance because it provides dwelling and personal property coverage for several perils, such as fire, windstorms, and vandalism.^[1] This insurance also covers other structures that are part of your residence but aren’t physically attached to your home, as well as liability coverage for the homeowner.

Liability coverage will help if a bodily injury or property damage claim or lawsuit is brought against you. If you’re unable to live in your home due to a covered incident, HO-3 also provides loss-of-use coverage to help you pay for temporary housing.

Your coverage limits can vary depending on the cost and location of your home and how much coverage you need. Once unexpected damage to your home or personal property strikes, you’ll need to file a claim with your home insurance company and pay your deductible. Upon approval of your claim, the insurer will cover the damage up to your coverage limit.

HO-3 insurance costs around $871 per year on average, but premiums vary depending on factors that affect the cost of homeowners insurance, such as geographic area, construction costs, and the degree of exposure to certain catastrophic events.^[2]

Why do you need HO-3 coverage?

At least one in 20 insured homeowners files a claim each year, so HO-3 insurance could be helpful to have when you need coverage for damage due to a severe storm or a fire.^[3]

“Insurance should be used to protect against possible catastrophic loss,” says Evan Walker, a plaintiff attorney at Evan Walker Law who regularly handles first- and third-party insurance claims. “If you don’t have insurance and your home is significantly damaged or you’re seriously exposed to liability, you’re possibly faced with a catastrophic loss.”

Storms, natural disasters, and theft can happen at any time, so it’s important to have enough coverage in place to protect one of your biggest assets — your home.

If your home is damaged by a fire or needs to be completely rebuilt, HO-3 insurance will pay to repair or rebuild it based on the cost to repair your home.^[4] You may also need HO-3 coverage if you live in an area where severe thunderstorms or windstorms are common.

What perils does HO-3 cover?

HO-3 insurance covers a variety of perils that can cause direct physical losses to your home and other structures, including:

• Fire: Fire could completely destroy the structure of a home, but HO-3 insurance covers the cost to repair the damage.

• Lightning: This extends to lightning damage to the trees, shrubs, and plants outside of your home as well as your lawn.

• Tornadoes: Tornado damage to your home is covered, and you’ll also have additional living expense coverage (ALE) if your home is left uninhabitable during repairs.

• Windstorms: HO-3 insurance provides windstorm coverage up to certain limits depending on where you live. Homeowners with property near the Atlantic or Gulf Coast may have some restrictions.

• Falling objects: If a tree falls during a storm and damages your home, HO-3 insurance would cover this.

• Smoke: Smoke damage due to a fire in your home or in your area is also covered.^[5]

• Hail: Some areas prone to hailstorms may have a separate deductible for hail damage.

• Vandalism: HO-3 insurance covers vandalism, such as graffiti, spray paint, or even broken windows.

• Theft: Theft is another approved peril that is outside of your control. This means if someone breaks into your home and steals jewelry or other precious items, insurance will cover the cost to replace these items up to a predetermined amount.

Your HO-3 policy may also cover personal property on a named-perils basis, which means the covered perils will be spelled out in the policy.

What doesn’t an HO-3 policy cover?

HO-3 insurance doesn’t cover damage from a flood or water seepage. Seepage is viewed as a maintenance issue, but you can obtain flood insurance if you live in an area where flooding is common.

You can also obtain flood insurance from an insurance agent through a program run by the Federal Insurance and Mitigation Administration. Earthquakes are also not covered under an HO-3, but you can buy this coverage separately.

Under this type of insurance, you also may not receive additional coverage after a covered event if local laws require you to repair, remodel, or rebuild your home in accordance with certain codes. For example, if your home is destroyed by a peril and your city laws require a certain construction method or protocol that adds to the repair cost, the added costs may not be covered.

To avoid this, you can purchase an ordinance or law endorsement on your policy to ensure the costs associated with the new building codes will be covered.

Learn More: Private Flood Insurance vs. FEMA

How to choose an HO-3 insurance policy

Choosing an HO-3 insurance policy is a simple process. Just follow these steps:

• Consider your home insurance needs. If you have a mortgage, you’ll want to see if your lender requires an HO-3 policy or if another type of homeowners insurance option would meet your needs. Take into account factors like your budget, the location of your home, whether you have detached structures on your property, and perils that could impact the property.

• Determine how much coverage you require. You may want more dwelling or personal property coverage depending on your situation. Also, think about how much personal liability and additional living expenses coverage you’ll need.

• Shop around. Compare HO-3 insurance rates from a few different companies to ensure you get the best deal. The cost of home insurance varies by insurance company, the type of construction, and the amount of coverage.^[6]

“Know that some homeowners insurance companies are poorly rated by policyholders and that’s because the customer service is poor,” says Walker. “Although insurance is generally a commodity, don’t automatically go for the cheapest option.”

Other types of homeowners insurance policies

Depending on your situation, you may be interested in another type of homeowners insurance policy. Here are some of the alternatives and how they differ from an HO-3.

HO-3 vs. HO-1

HO-1 insurance is a limited homeowners insurance policy that only covers you against 10 perils, while an HO-3 policy covers your home on an open perils basis and your belongings against all 16 main perils. HO-1 insurance typically offers bare-bones coverage and is not available in most states anymore.^[7]

HO-3 vs. HO-2

HO-2 is a broad form of homeowners insurance that covers all 16 perils, but it’s a basic policy compared to HO-3. HO-3 insurance is considered a special form policy because it protects your home from all perils except those specifically listed as exclusions.^[7]

An HO-2 may be a better choice if you don’t want more personal liability protection or feel comfortable with coverage for the basic 16 perils.

HO-3 vs. HO-4

HO-4 insurance protects your personal possessions against all 16 perils. However, damage to the structure of the actual rental unit itself isn’t covered, and your landlord will need to purchase separate insurance for this.

Additional living expenses may also be covered under this policy.

HO-3 vs. HO-5

An HO-5 is the most comprehensive type of home insurance. It covers personal property and structural damage, and you’ll have access to higher coverage limits. HO-5 insurance covers all perils that aren’t specifically excluded on your policy.

These policies are more expensive but worth considering if you have a higher-value home.

HO-3 vs. HO-6

An HO-6 is for people who own condos or co-ops. It protects structural damage and personal property against all 16 main perils.

What are the most common insurance perils in the U.S.?

Some of the most common insurance perils in the U.S. are fire, lightning, wind, hail, and theft, according to the Insurance Information Institute.^[3] The III also found that about one in every 35 insured homes has a property damage claim due to wind or hail each year.

By contrast, about one in every 385 insured homes has a property damage claim due to fire or lightning each year.

HO-3 insurance FAQs

Here are answers to some frequently asked questions about HO-3 insurance.