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What does an HO-3 Policy Cover?

An HO-3 policy is an official designation for what is known as “standards homeowners insurance.” HO-3 policies are normally the standard homeowner’s insurance plan because they offer a good mixture of coverage and benefits. We are going to cover the specifics of HO-3 policies and talk about their features, what the cover, and whether they are a good idea.

You will find that the HO-3 policy is pretty standard with all of the top homeowner insurance companies.

 

What Is an HO-3 Policy?

 

If you have homeowner’s insurance then it likely is an HO-3 plan. HO-3 plans are considered comprehensive coverage plans and cover more than either HO-1 or HO-2 insurance plans. Unlike HO-2 or HO-1 plans, HO-3 plans offer protection to your house and also some liability and property coverage. HO-3 plans are hybrid agreements which means they are both named-peril and open-peril policies.

Named-peril policies cover only those perils that are explicitly included in the list. Open-peril policies cover anything aside from events that are explicitly excluded from the list. HO-3 policies are both named-peril and open-peril policies. Damages to your house are covered under an open-peril basis while your property is covered on a named-peril basis.

HO-3 policies are probably the most common kind of homeowner’s insurance plan and most mortgage companies require borrowers to purchase at least an HO-3 plan. This is because mortgage companies have a vested interest in making sure that the property is maintained in good condition.

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What Does an HO-3 Policy Cover?

 

An HO-3 Homeowners’ policy is a package of coverages that offers comprehensive protection against perils that can cause damage to the dwelling and personal property, and it offers protection against monetary damages for liability of the homeowner and resident relatives.

 

Dwelling damage

 

HO-3 policies are open-peril and named peril policies. Damages to your house are covered by an open-peril agreement which means that they cover everything as long as it’s not excluded in your insurance ingredient.

In general, perils to your house that are NOT covered under an HO-3 agreement include:

  • Power failure
  • Intentional damage
  • Government action
  • Vandalism of a vacant house
  • Fungus or mold
  • Wear, tear, or mechanical breakdown
  • Damage from rodents or pests
  • War
  • Earthquakes
  • Hurricanes
  • Neglect
  • Pet damage
  • Damage from pollutants

 

Again, HO-3 policies cover your home on an open-peril basis, which means if anything on this list happens to your house, then it won’t be covered. In contrast, if anything not on this list happens to your house, then it will be covered. It is a subtle difference but an extremely important one.

Earthquakes and hurricanes are two perils that most providers offer supplemental insurance. For instance, in California, homeowners insurance providers are required to offer earthquake insurance and Florida providers are required to offer extra hurricane and windstorm coverage.

 

HO-3 policies can also have replacement cost coverage or actual cash value coverage. Replacement cost coverage means that the policy will pay to replace damaged items with brand new materials at the current market price. So if an explosion destroys a $5,000 water heater then a replacement coverage policy will replace it with a new one at current market values.

Actual cash policies reimburse you for the current cash value of the lost property. So if your water heater has depreciated from $5,000 to $2,500 and is destroyed in an explosion, then you will be reimbursed with its current amount. With an actual cash policy, depreciation is accounted for the final payout. That means you could potentially be reimbursed for less than what you originally paid for.

 

Personal Property

 

HO-3 policies cover your personal property on a named-peril basis. That means that they will only cover your personal possessions for perils that are on the included list. Your personal property is given coverage for the following perils:

  • Smoke
  • Vehicles
  • Theft
  • Aircraft damage
  • Heavy snow, ice, or sleet
  • Vandalism
  • Fire or lightning
  • Hail
  • Volcanoes
  • Damage from freezing

 

HO-3 agreements cover personal property on a named-peril basis so damage to your possessions from anything on this list will be covered by your insurance policy.

Most of the time, HO-3 policies insure specific types of items up to certain sub-limits. So for example, an insurance company may only personal jewelry up to $2,500. So if $5,000 of your jewelry is stolen, then the policy will only reimburse you for $2,500, subtracting the initial deductible.

This might be despite the fact that your overall personal property coverage may be higher. Homeowners can usually add more specific personal property protections by purchasing endorsements.

 

Liability

 

HO-3 plans also come with limited liability insurance. Liability insurance will cover any damage that others may incur as a result of peril to your house. So for example, if a fire breaks out in your kitchen and spreads to your neighbor’s house, an HO-3 policy will cover any damages to their property you are liable for.

Normally there is a limit to how much your policy will cover. The exact amount differs depending on your specific policy. In general, HO-3 policies offer up to $100,000 in liability coverage, though the policyholder can choose to increase this limit if they wish.

 

Additional Living Expenses

 

HO-3 policies also carry provisions for covering additional living expenses incurred as a result of peril damage. If your home is rendered uninhabitable by some peril that is covered on the agreement, then your insurance will reimburse you for any extra living expenses such as hotel fees.

There is usually a duration or monetary limit to money paid out for additional living expenses. For example, most policies set a reimbursement limit of 10% of your normal dwelling limit. Coverage for additional living expenses is sometimes called loss of use coverage.

 

Medical costs for others

 

HO-3 policies will cover medical coverage for those injured in your home. If a person is injured in your home, your insurance policy will cover some or all of their medical expenses. Medical expenses include things like:

  • Surgical fees
  • Diagnostic fees (x-ray, MRI, etc.)
  • Lab work
  • Hospital care
  • Medication costs
Keep in mind that coverage for medical costs is a separate issue from coverage from legal costs. Most of the time, medical disbursement limits are chosen by the policyholder and most of the time max out at a few thousand dollars.

 

HO-3 vs HO-2 vs HO-1

 

HO-3 policies are more comprehensive than either HO-1 or HO-2 policies. Whereas HO-1 and HO-2 policies are entirely named-peril policies, HO-3 policies have both named-peril and open-peril components. With an HO-3 policy, your home is covered on an open-peril basis and your personal possessions are covered on a named-peril basis.

Since HO-3 policies are much more comprehensive and offer more protection, they are the go-to policy for homeowners. The problem with HO-1 policies and HO-2 policies is that they leave open pretty big gaps in your coverage. HO-1 and HO-2 policies also offer either no or very little liability and property protection.

However, even HO-3 policies are not genuinely comprehensive. Some perils are explicitly included, including some common perils like earthquakes or hurricanes. Generally, you can buy supplemental insurance to cover any notable holes in your insurance coverage.

 

Should I Get an HO-3 Policy?

 

An HO-3 policy is considered the standard homeowner’s insurance policy. It covers a wide range of perils and includes a number of good benefits like liability coverage, property coverage, and coverage for additional living expenses. Most homeowners insure their primary residence with an HO-3 policy.

If you are looking for homeowner’s insurance consider using our insurance comparison tool. You can look up different quotes and compare and contrast to find the plan that works for you.

 

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For more information about how homeowners’ insurance works and to see which type is right for you, please contact us through our website or call 800-712-8519 during normal business hours.

Frequently Asked Questions

What is an HO-3 policy?

An HO-3 policy is an official designation for what is known as “standards homeowners insurance.” HO-3 policies are normally the standard homeowner’s insurance plan because they offer a good mixture of coverage and benefits.

What does an HO-3 policy cover?

An HO-3 Homeowners’ policy is a package of coverage that offers comprehensive protection against perils that can cause damage to the dwelling and personal property, and it offers protection against monetary damages for liability of the homeowner and resident relatives.

What are some events that an HO-3 policy does NOT cover?

In general, perils to your house that are NOT covered under an HO-3 agreement include:
Power failure
Intentional damage
Government action
Vandalism of a vacant house
Fungus or mold
Wear, tear, or mechanical breakdown
Damage from rodents or pests
War
Earthquakes
Hurricanes

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