HO-3 Homeowners Insurance: Why HO-3 Is the Most Popular Home Policy in America

Last Updated on April 15, 2022 by Andrew Lee

HO-3 homeowners insurance is the most popular home insurance plan in the US and it covers essentials such as the home structure, personal belongings, legal liability, and medical payments in the event of injury. The HO-3 is the default go-to homeowner’s policy for most insurance companies and it offers possibilities to upgrade the plan by purchasing additional coverage for other structures on your property and/or higher personal coverage. HO-3 plans may cover your living expenses in the event of a total loss. HO-3 plans are only available for “standalone” homes, and not condos and duplexes (HO-6 insurance is available for condos).

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According to the National Association Of Insurance Commissioners (NAIC), HO-3 homeowner plans are the most popular plans in the United States. More than 80% of all homeowners in the US possess an HO-3 insurance plan. HO-3 plans are the standard and can be found in all states and at virtually all insurance companies. However, not all HO-3 plans are the same. There are major differences in the coverage HO-3 plans offer for your home. HO-3 insurance can vary by total coverage, personal property coverage, and liability coverage. Certain HO-3 plans may not even include medical payments. This is why our guide will help you learn all about what’s included in an HO-3 policy and the specific policies you should research.

Who Needs HO-3 Homeowners Insurance?

Who needs HO-3 insurance? The simple answer is that all homeowners should get a home insurance plan. Homeowner’s insurance is mandatory by all financial institutions if you apply for a mortgage or a bank loan. This is because the financial institutions are taking on a major risk by financing your property. Aside from bank requirements, getting insurance for one of the biggest investments we make in a lifetime is a no-brainer.

The HO-3 policy will not only protect you against major disasters such as fires but it will also cover you for day-to-day repairs such as your pipes bursting, your furniture catching fire, or a home invasion where someone steals your possession. HO-3 insurance has you covered on all fronts. Even if you never make a claim, you’ll know that you’re protected in a worst-case scenario.

Insurance companies have refined HO-3 policies over the years to provide all-around coverage for clients. This will include everything from financial coverage for the dwelling to unexpected perils such as theft, vandalism, and falling objects. Most homeowners own the same home for 20, 30, or even 50 years. Over the course of many decades, unexpected injuries can occur on the premises of your property which is why liability insurance is included. If you ever become the subject of a lawsuit, the homeowner’s insurance will back you with liability insurance.

Most plans also cover the personal property inside the home that can be subject to costly repairs. In essence, you get multiple tiers of protection with only a single insurance plan. This is why the HO-3 plan is the go-to plan for all homeowners across America.

HO-3 Homeowners Insurance: What Does It Cover?

If you’re on the fence about purchasing an HO-3 policy, this section will break down the core protections and benefits available. As we mentioned, a basic HO-3 insurance policy has to cover the main dwelling, personal property, and liability. Advanced plans will also cover medical expenses, living expenses, and other small costs in order to secure you while your home is being repaired or rebuilt from the ground-up.

Home Repairs/Replacement Cost

HO-3 insurance covers you for all damages caused to the home’s structure, including any other structures located on the property (which can be insured for up to 100% of their value). The insurance company will inform you of the maximum coverage you’re entitled to, or you can purchase a full replacement cost plan that will guarantee your home gets rebuilt no matter the cost. Under basic HO-3 coverage, you have an “open peril” policy which means that all events are included.

Example: If your home gets struck by lightning or it burns down in a fire it will be covered under this policy. The only exception is certain “named perils” such as government seizures and earthquakes which may not be included in the coverage. The excluded named perils vary by the state. In a state like Florida, you may have to purchase a flood insurance policy because nearly 40% of claims are flood-related and this is not included under a standard HO-3 policy.

Personal Property

Personal property inside the home is also protected in most HO-3 policies. Almost all property inside the home such as your furniture, clothes, electronics, and appliances are included. However, there are limits on the coverage. Example: Most electronics may be covered for up to $1000 in value while clothes can be up to $5000. If you have special jewelry and valuables you must insure them separately (at a higher cost).

Note: There are differences in the perils that qualify for personal property claims as opposed to property damage claims. The company will list which perils apply for their personal property coverage. To make sure your personal items are fully covered, double-check the named perils/dangers for personal property.

To receive compensation for personal property, you must produce a list of every item in your household and present it to the insurance company in advance. The insurers will inquire about high-value items in your household. This is why you must be truthful in your application because personal property is covered with sub-limits.

All damages caused by theft or vandalism will be assigned their own sub-limit instead of the overall limit available for your property. This means that if you have a $10,000 Rolex watch in your closet and you have a $1000 limit on jewelry, your insurer will only reimburse $1000 and you will lose $9000 in value – despite having a much higher coverage limit on the total property. It’s possible to increase the coverage on specific items in the household at an additional cost.

Liability Insurance

Liability insurance is included for homeowners under standard HO-3 plans. Liability insurance is designed to protect you against lawsuits when someone injures themselves at your property or you cause damage to a neighboring property. This type of insurance will protect you for the repair costs and the court fees if you end up in court. It is possible to purchase liability insurance to the tune of millions of dollars and/or expand your basic coverage limits.

Medical Expenses

Medical payments are available for family, guests/visitors, and other people who are injured on your property. For instance, if there’s a house fire and you burn your hand you will receive a medical payment up to the policy limit. This policy extends to all people injured on your property. Medical payments include surgical costs, hospitalization costs, x-ray scans, and more. However, medical payments tend to be capped at amounts such as $5000 – they are not a replacement for health insurance. You need to purchase extra coverage if you want to increase the basic limits.

Pro Tip: Discounts are available for customers who bring their homes up to standard and/or purchase bundle policies from the same insurer. If you combine your HO-3 with car insurance, you will likely qualify for a discount on your monthly premiums. There are even discounts for new smart homes that install security systems and fire sprinklers.

What HO-3 Homeowners Insurance Does NOT Cover

There are certain intricacies that you have to learn about before you sign an HO-3 policy with your insurer. There are different rules and exceptions that apply for every single one of the categories we mentioned above.

Hence, you have to be aware of things that are NOT covered under a standard HO-3 homeowners policy. The fact that each item contains a different level of coverage means that you may not be prepared for all disasters, even though HO-3 plans are all-encompassing. The following is a list of the most common perils that virtually all HO-3 plans do not cover you for:

  • Government seizures. If the government seizes the property due to criminal activity, inability to pay taxes, etc, the insurance company will not pay for the replacement cost.
  • Demolitions. If the local municipality demolishes your home because it does not match the building codes, the insurance company won’t cover the replacement cost for a new home.
  • Earth movements. Most HO-3 plans do not include protection against earthquakes and other earth movements such as landslides and sinkholes. If you live in a high-risk area, consider taking out earthquake protection as an upgrade.
  • Power failures. If the source of power is located outside of the premises of the property, the insurance company won’t cover the replacement cost.
  • Neglect. If the homeowner does not reside in the property and it decays due to neglect, the insurance company won’t bear the cost of repairs.

How Much HO-3 Coverage Can You Get?

The coverage limits for repairs/replacement, personal property, liability, and medical payments vary. The following are general guidelines as to what most insurance companies offer for HO-3 plans:

  • Main dwelling: 100% of the total value of the home.
  • Side structures (sheds, garages, etc): 10% of the total value of the main dwelling.
  • Personal belongings: Up to 50% of the value of the dwelling limit.
  • Loss of use: Up to 10% of the value of the dwelling limit.
  • Liability insurance: Customized according to your needs (average: $100,000).
  • Medical coverage: Customized according to your needs (average: $5000 per person).

HO-3 Vs. Other Homeowner’s Insurance (HO-1, HO-2, HO-5, HO-6, HO-7 & HO-8)

HO-3 policies are the most common homeowner’s insurance policies, but they’re not the only kind that’s available. If you’re on the market for home insurance, you also have bare-bones homeowner’s insurance plans such as HO-1 and HO-2 policies which can provide modest levels of coverage for the home.

There is also the alternative HO-5 coverage which is the most luxurious home insurance plan available. There are plans that have near-identical policies to HO-3 such as HO-B plans – the main alternative to HO-3s. HO-4 and HO-6 policies are not alternatives to HO-3 plans because they’re aimed at tenants and condo/apartment owners. HO-7 plans are available for mobile homes and HO-8 plans are available for owners of historic homes (homes older than 40 years).

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