What is an HO-3 insurance policy?


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Written by
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UPDATED: 2021-06-16T12:35:44.317Z
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colonial home with an HO3 insurance policy

An HO-3 insurance policy is just insurance jargon for a standard homeowners insurance policy. The HO3 policy is the most commonly purchased home insurance policy mainly because it offers the minimum coverage that mortgage lenders insist upon.

When you take out a loan to cover the purchase of your home, your lender takes on a substantial risk on your behalf. Insurance for your home is a tool for them to protect themselves against this risk. After all, if something happens and your home is damaged or destroyed, your lender has no asset to fall back upon to recover their loan in case you default on repayments.

Safeguarding your home against such risks is their priority, and hence, they insist that you insure your home before they approve the loan. The HO3 policy is the insurance coverage that mortgage lenders insist you have.

What does an HO-3 insurance policy cover?

Your HO-3 insurance covers the following:

  • The structure of your home
  • Your personal property (such as furniture and appliances)
  • Loss of use
  • Personal liability

HO-3 coverage will pay for:

-Damage to your home -Damage to other structures (such as detached garages) -Damage/theft of personal belongings (clothes, furniture, etc). -Additional living expenses in case an insurance claim prevents you from living at home -Legal expenses in case you or a household member is sued for someone's injuries/property damage -Medical payments for injured guests at your property

Open perils vs. named perils

An HO-3 insurance policy covers your home and other structures on an open-perils basis while your personal property is covered on a named-perils basis.

There are two components in the HO3 policy: the open perils component and the named perils component. The coverage that your home gets is open perils coverage. This means that the list of perils in the policy tells you what perils are not covered. Everything that is not on this list is covered by the HO-3 insurance.

For example, if the list contains earthquakes, then your insurance does not cover damages to your home caused by an earthquake. If fire is not listed on the policy and a fire damages some portion of your home, your insurance does cover the damages.

Open perils policy

Some of the common exclusions in an open perils policy include:

  • Earthquake
  • Power failure
  • Neglect
  • Water damage (from flood or sewer backup)
  • Changes in Law
  • Intentional loss
  • War
  • Government action
  • Nuclear hazard
  • Theft when under construction
  • Corrosion, smog, rust
  • Mold/ fungus
  • Deterioration and others

Named perils policy

The other component of the HO-3 policy is the named perils portion, and this applies to the personal property in the house or the contents of the home. The named perils in the list are the ones that are covered by your policy. So, if the list includes fire, then any damage caused by fire will be covered by your HO3 insurance. If the list does not include flooding, then you don’t get coverage if your personal property is damaged as a result of a flood.

The 16 perils that your personal property is covered against typically are:

  1. Lightning or fire
  2. Hail or windstorm
  3. Explosion
  4. Riot or civil commotion
  5. Damage caused by aircraft
  6. Damage caused by vehicles
  7. Smoke
  8. Vandalism or malicious mischief
  9. Theft
  10. Volcanic eruption
  11. Falling objects
  12. Weight of ice, snow, or sleet
  13. Overflow or accidental discharge of steam or water from an appliance, heating, plumbing, air conditioning, or automatic fire-protective sprinkler system.
  14. Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioning or automatic fire-protective system.
  15. Freezing of a heating, air conditioning, plumbing, or automatic, fire-protective sprinkler system, or of a household appliance.
  16. Sudden and accidental damage from an artificially generated electrical current (not including loss to a tube, transistor, or similar electronic component).

Most of the common perils are covered by an HO-3 insurance policy, and that is why this is opted for by a majority of homeowners and also why lenders insist on this type of insurance coverage. Remember that there are a few things that your HO-3 insurance does not cover comprehensively (such as water damage), so you may want to add on protection for those if you live in an area susceptible to flooding.

Does an HO-3 policy offer replacement cost coverage?

An HO-3 policy offers replacement cost coverage for your home and other structures. While some policies insure personal belongings by default, others require you to add that on. Replacement cost coverage pays the actual cost of replacement and rebuilding with new items, rather than paying out the depreciated value of your home or structures such as the actual cash value policy.

How to get an HO-3 policy

To get an HO3 policy, you’ll need to purchase homeowners insurance coverage from an insurer that sells in your area. Ideally, you want to find a company with a strong reputation and fair prices.

To see which companies other homeowners recommend, visit our rankings of the best homeowners insurance companies. You can filter by your zip code and specific needs to find the best company!


The content on this site is offered only as a public service to the web community and does not constitute solicitation or provision of legal advice. This site should not be used as a substitute for obtaining legal advice from an insurance company or an attorney licensed or authorized to practice in your jurisdiction. You should always consult a suitably qualified attorney regarding any specific legal problem or matter. The comments and opinions expressed on this site are of the individual author and may not reflect the opinions of the insurance company or any individual attorney.

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