Home insurance: What is an HO-3 policy?

Home insurance might seem like a pretty complicated thing. And it kind of is. There are a lot of fancy terms you have to know; it’s almost like speaking a different language. You might be wondering how your insurance policy works. You know that it’s called an HO-3 policy, but what exactly is that? We’re going to answer several important questions about HO-3 policies to help you understand how that very important (and very wordy) document works.

What is an HO-3 policy?

An HO-3 policy is basically a type of home insurance policy – the most common one in the United States, actually. It’s a combination of open perils coverage and named perils coverage. Your house and other structures would most likely be covered on an open perils basis while your personal property (the contents of your home) would most likely be covered on a named perils basis.

What does that mean? We’ll explain.

Open perils coverage:

Open perils coverage means that you have coverage for pretty much any sort of loss or damage EXCEPT for the listed exclusions. (Typical exclusions include flooding, earth movement, sewer backup, and so on.) The policy will list the types of losses that are not covered, and if the loss you’re facing isn’t listed as one of those exclusions, you should be good to go.

Named perils:

Named perils coverage will list the perils that your personal property is protected against instead of giving a list of exclusions. If your property is damaged by something that is not on the named perils list, you won’t be covered.

Here are some of the typical named perils for an HO-3 policy:

  • Theft
  • Fire/Lightning
  • Smoke
  • Explosion
  • Freezing
  • Vehicles
  • Falling objects
  • Volcanic eruption
  • Windstorm damage/Hail damage
  • Riots
  • Aircraft damage
  • Vandalism
  • Damage due to the weight of ice/sleet/snow
  • Sudden or accidental damage from artificial electrical current
  • Accidental discharge or overflow of water from plumbing or air-conditioning

Of course, it’s important to read through your policy carefully to make sure that you understand the coverages you have and the conditions under which it will apply. And don’t be shy about asking questions of your agent – they’re there to help you with your insurance, after all. They can provide clarification about any of the sections or coverages that leave you befuddled.

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What does an HO-3 policy cover?

There are several different sections to your HO-3 policy.

The dwelling.

This is the “home” part of your home insurance. It will protect your house against covered losses like fire, lightning, wind damage, and so on. If you have a loss, this coverage can help you put your home back to the way it was before the damage occurred.

With an HO-3 policy, your home (and other structures – more on that in a second) are most likely covered for their replacement cost. The replacement cost is the cost of completely rebuilding your home from the ground up like you’d have to do if it were destroyed by a loss like a fire. Note that replacement cost and market value of you house are not the same.

Personal property.

Your home insurance can also cover your personal belongings with personal property coverage so you can replace your treasures if they get destroyed by a covered loss. If you have any valuables, though, make sure that you have proper coverage for them – your HO-3 policy may only provide limited coverage for jewelry, artwork, collections, and so on.

HO-3 policies will typically cover personal property on an Actual Cash Value basis unless you change that to be replacement cost coverage with an endorsement (an addition or alteration to your policy.) ACV coverage will reimburse you for the value of your items at the time of the loss, meaning their depreciated value. That depreciated value may not be enough to replace your belongings at today’s prices.

However, if you get replacement cost coverage, you can replace your belongings without having to worry about depreciation – you’ll be able to replace your belongings at today’s prices.

Other structures coverage.

Other structures coverage will provide protection for structures that are on your property but that aren’t attached to your homes. For example, it could cover a detached garage, your fence, your tool shed, and your pool.

Loss of use.

Loss of use coverage, or additional living expense coverage, can help you if you face a covered loss that makes your home uninhabitable. Since you have to leave your home and live elsewhere, you could accrue quite the collection of bills and expenses – hotel bills, restaurant bills, travel expenses, and so on. Loss of use coverage can help you cover any expenses in excess of your normal living expenses if you have to leave your home following a covered loss.


Liability coverage and medical payments coverage can help you if someone gets hurt on your property and you’re responsible. Liability insurance can help you cover the expenses of a lawsuit if someone sues you for property damage or bodily injury – for example, if someone trips and falls on your driveway, breaks their arm, and decides to sue you.

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So, that’s the scoop about HO-3 insurance policies. If you’d like to get quotes for home insurance, we can help you out. We can help you get multiple home insurance quotes so you can have options for your insurance. And we like to make insurance easy and headache-free. Get started with your quotes by filling out our online quote form or giving us a call today.