What Does HO-3 Homeowners Insurance Cover?

An HO-3 homeowner’s insurance policy is the most widely used form of home insurance coverage in the United States. It protects a homeowner’s primary residence and personal belongings from various risks. Its purpose is to provide financial safeguarding against unforeseen events that could damage property or lead to liability claims. An HO-3 policy is a standard choice for single-family homes.

Understanding Core Coverage Components

A standard HO-3 policy encompasses several distinct categories of coverage, each addressing specific aspects of potential loss.

Dwelling coverage (Coverage A) protects the physical structure of the home, including the roof, walls, foundation, and attached structures like a garage or porch. The coverage amount is typically based on the estimated cost to rebuild the home, not its market value.

Other structures coverage (Coverage B) extends protection to detached structures on the property, such as a detached garage, shed, fence, or swimming pool. The coverage limit is commonly set as a percentage of the dwelling coverage, often 10% to 20% of Coverage A.

Personal property coverage (Coverage C) safeguards the contents of the home, including furniture, clothing, and electronics. This protection often extends beyond the home’s premises, covering items even when they are temporarily elsewhere. Standard policies typically cover personal property up to a specified percentage of the dwelling coverage, such as 50%.

When filing a claim for personal property, policies usually offer two valuation methods: Actual Cash Value (ACV) or Replacement Cost Value (RCV). ACV accounts for depreciation, reflecting the item’s current depreciated worth. RCV pays the amount required to replace the damaged item with a new one of similar kind and quality, without deduction for depreciation. Standard HO-3 policies often provide ACV, but RCV can be added through an endorsement.

Loss of use coverage (Coverage D or Additional Living Expenses) provides financial assistance if the home becomes uninhabitable due to a covered loss. This coverage helps pay for increased living costs while the home is being repaired or rebuilt, such as hotel stays, temporary rental housing, and extra food expenses. The limit is typically a percentage of the dwelling coverage, often 10% to 30%, and may have time limitations.

Personal liability coverage (Coverage E) protects the homeowner from legal responsibility for injuries to others or damage to their property. This applies if an incident occurs on the insured property or, in some cases, away from it, and the homeowner or a household member is found at fault. This coverage can help with legal defense costs and settlement amounts, with typical limits ranging from $100,000 to $500,000.

Medical payments to others (Coverage F) covers medical expenses for guests injured on the insured property, regardless of fault. This coverage is generally for minor injuries and can help avoid potential liability claims. Common limits range from $1,000 to $5,000 per person.

Perils Covered and How They Apply

An HO-3 policy distinguishes how it covers the physical structure of the home versus personal belongings, utilizing “open perils” and “named perils” concepts. This distinction is central to understanding the scope of protection offered.

The dwelling and other structures (Coverage A and B) are typically covered on an “open perils” basis. This means the policy covers all causes of direct physical loss to these structures unless a specific peril is explicitly excluded. This broad coverage places the burden of proof on the insurer to demonstrate that a loss falls under an exclusion if a claim is denied. Common perils include fire, lightning, windstorm, hail, explosion, vandalism, theft, and damage from falling objects.

In contrast, personal property (Coverage C) is usually covered on a “named perils” basis. This means the policy only provides coverage for damage or loss to personal belongings if the cause is one of the specific perils listed. If a peril is not explicitly named, the damage is typically not covered. This places the burden of proof on the policyholder to show the damage was caused by a listed peril.

Named perils for personal property commonly include:
Fire or lightning
Windstorm or hail
Explosion
Riot or civil commotion
Damage from aircraft or vehicles
Smoke
Vandalism or malicious mischief
Theft
Volcanic eruption
Falling objects
Weight of ice, snow, or sleet
Accidental discharge or overflow of water or steam from plumbing or appliances
Sudden and accidental tearing apart, cracking, burning, or bulging of certain household systems
Freezing of plumbing
Sudden and accidental damage from artificially generated electrical current

The core difference between these two approaches is significant. While the home’s structure enjoys protection from almost anything (unless excluded), personal items are protected only against a defined list of events. This hybrid nature of the HO-3 policy provides robust protection for the building while offering substantial coverage for its contents.

Standard Exclusions from Coverage

Despite its broad coverage, an HO-3 policy does not cover every possible event or type of damage. Certain perils and situations are consistently excluded from standard policies.

Common exclusions include earth movement, such as damage from earthquakes, landslides, mudflows, and sinkholes. Standard HO-3 policies do not cover these events; homeowners in prone areas often need separate earthquake insurance or specialized endorsements. Water damage from floods, sewer backups, or sump pump overflows is also typically excluded. Flood coverage requires a separate policy, often through the National Flood Insurance Program (NFIP) or private insurers.

Losses resulting from ordinance or law, referring to increased costs due to updated building codes during repair or rebuilding, are generally excluded or have limited coverage. Power failure originating off the insured property, homeowner neglect, and damage from wear and tear or gradual deterioration are also standard exclusions. These are considered maintenance issues rather than sudden, accidental losses.

Further exclusions include damage from war or nuclear hazard, intentional loss caused by the insured, and governmental action like seizure or demolition of property. Losses due to home business activities are typically excluded unless added with an endorsement. Damage caused by owned animals or pests like rodents and insects is also commonly not covered.

Tailoring Your HO-3 Policy

While an HO-3 policy offers extensive baseline coverage, homeowners often have unique needs requiring additional protection. Insurers provide various endorsements, also known as riders, which can be added to customize coverage and address specific risks.

One common endorsement is Scheduled Personal Property coverage, which allows homeowners to insure high-value items like jewelry, fine art, or collectibles for their appraised value. These items often have sub-limits under standard personal property coverage. Scheduling them provides broader coverage and higher limits.

Water backup and sump overflow endorsements are frequently added to cover damage caused by water backing up through sewers or drains, or from sump pump failures. Since these types of water damage are typically excluded from a standard policy, this endorsement fills a significant gap. Many homeowners also consider an Identity Theft Protection endorsement, which helps cover expenses incurred to restore one’s identity after a theft, such as legal fees or lost wages.

Extended Replacement Cost for Dwelling is another valuable endorsement that can increase the dwelling coverage limit by an additional percentage (e.g., 20% or 25%) if rebuilding costs exceed the initial policy limit after a major loss. This provides a buffer against unexpected construction cost increases. Service Line Coverage protects against damage to underground utility lines, such as water, sewer, or electrical lines, connecting the home to public utilities. These lines are often the homeowner’s responsibility, and repairs can be costly.

For homeowners operating a small business from their residence, a Home Business Endorsement can provide coverage for business property and liability otherwise excluded under a standard HO-3 policy. These endorsements allow homeowners to adjust their insurance to better fit their personal circumstances and asset protection requirements.