HO-3 Home Insurance Policy: What You Need to Know

An HO-3 home insurance policy protects your home and your belongings in case of a disaster. This is the most common type of home insurance, and it’s often what people mean when they say "homeowners insurance". Since your home is likely your biggest asset, you’ll want to protect it with a comprehensive insurance policy. Also, if you have a mortgage, your lender will likely require this coverage.

HO-3 coverage is a homeowners insurance policy that covers your home and any outside structures on an open perils basis, meaning you are protected against any disasters not excluded by the policy. Your belongings, however, are covered on a named perils basis, so they are only covered if they’re damaged by events listed in the policy.

For example, if someone drives into your fence and damages it, the open perils part of the policy would cover that damage. However, if your home disappears into a sinkhole, you won’t be covered if your policy excludes sinkholes.

An HO-3 policy covers your home and any outside structures if they sustain damage due to disasters. This protection allows you to rebuild or repair your home, and it can even pay for alternative housing if your home is temporarily uninhabitable.

• Dwelling Coverage: This covers your home against disaster unless the policy expressly excludes it. This is also known as Coverage A. If you have any other structures on your property, such as detached garages or swimming pools, those are covered by Coverage B.
• Personal Property: Your possessions are also covered, but only for specific disasters outlined in the policy. There are also coverage limits on certain things, so you might want to get a rider for extra coverage if you have valuable personal property.
• Liability Coverage: If someone injures themselves on your property, liability coverage protects you if you are at fault. Dog bites are often a reason someone sues a homeowner for damages.
• Other Coverage: An HO-3 policy can pay for you to live somewhere else if your home is deemed uninhabitable. This is often called loss of use coverage.

Your home and any outside structures are covered under an open perils policy, whereas a named perils (also called closed perils) policy covers your personal possessions.

The phrase “named perils” means that anything named in the policy is covered. Common named perils include:

• Fire
• Lightning
• Explosions
• Smoke damage
• Hail
• Vehicles (someone else’s car damages your property)
• Theft
• Falling objects
• Vandalism
• Pipes freezing (unless they freeze due to neglect)
• Volcanoes
• Wind
• Riots or civil unrest

If your personal property is damaged due to any of these events, you’ll be covered. If some other event (like a flood or earthquake) damages your possessions, you would not be covered, and you’d have to pay for those damages out of pocket.

An open perils policy covers you for any damages unless an exclusion is specifically listed. Common exclusions include:

• Earthquakes
• Water damage
• Nuclear disaster
• Acts of war
• Power failure
• Neglect
• Intentional loss (something you damage on purpose)
• Governmental action (such as seizing or condemning your property)
• Defective workmanship (if your porch falls apart due to faulty workmanship, you won’t be covered)
• Sinkholes
• Wear and tear

Anything other than these specific perils is covered under the open perils part of the policy. If you live on a flood plain, your mortgage will likely require you to purchase flood insurance. If you live somewhere prone to earthquakes (like California), you’ll probably want to add earthquake insurance. Expensive belongings such as jewelry are covered, but only up to a limit, so if you have many valuables, you might need extra coverage on those items.

The average cost of an HO-3 policy varies according to many factors, including:

• State where you live
• Age of your home
• Swimming pool or hot tub
• Dog breeds (breeds considered aggressive increase costs)
• Credit history
• Claims history
• Deductible
• Liability limits
• Proximity to a fire station
• Replacement costs
• Roof condition
• Wood stoves or fireplaces

The best way to determine how much you’ll pay for an HO-3 policy is to get a quote. Many companies offer these quotes online, which makes it easy to shop around. The table below reflects the average cost of HO-3 policies based on state-specific dwelling coverage offered by insurers operating in at least 30 states. It will give you some idea of what you might pay, but getting a quote will be a much closer estimate.

Getting an HO-3 policy quote is easy. Almost every large insurance company offers them, and many local insurers provide it as well. To get a quote and find the best companies for homeowners insurance, you'll need to:

• Decide how much coverage you want, including deductibles
• Gather necessary information about your home
• Shop around and get quotes from at least three companies
• Look up consumer satisfaction scores on sites such as J.D. Power, NAIC and BBB
• Ask about discounts

When comparing homeowners insurance quotes, make sure you consider aspects like consumer satisfaction, claims process and discounts, as well as pricing. You’re only likely to think about your homeowners insurance when you’re making a claim. You want a company that makes it easy for you, not one that adds to a stressful situation.