HO-3 insurance: definition, cost and coverage
- HO-3 insurance provides open risk coverage for your dwelling, but only covers specific risks to your personal property.
- HO-3 insurance also provides coverage for liability and additional living expenses.
- HO-3 insurance is more comprehensive than HO-1 or HO-2 insurance but provides less protection than an HO-5 policy.
Homeowners insurance protects your personal belongings, the structure of your home and its dwelling. unlike
Homeowners are not legally required to own it
. However, if you are applying for a mortgage, the lender will often ask to cover your home.
There are several types of homeowners insurance based on the type of dwelling: an apartment, a home, a mobile home, or a new building. The insurance policy most popular for homeowners is a Special Form HO-3, which is more expansive than HO-1 or HO-2 coverage.
What is HO-3 insurance?
HO-3 insurance is the standard insurance policy for homeowners. Most homebuyers will purchase this policy to protect their homes. “The HO-3 policy provides coverage for home, other structures, personal property, and legal liabilities from all risks, other than those specifically excluded,” says Gus Garcia, Personal Line Contracts Manager at Farmers Insurance.
HO-3 provides comprehensive homeowners insurance, while HO-1 and HO-2 coverages provide limited damage protection in your policy (called peril). HO-3 covers damage to your dwelling even those risks that are not explicitly listed on your policy, with some exceptions (open risk).
What does HO-3 insurance cover?
HO-3 protects you and your home. It also covers any additional expenses you may incur if your home is uninhabitable. However, while HO-3 covers an extended list of damages, exceptions will apply.
HO-3 insurance will not cover many risks. These excluded risks will require additional coverage through the passenger policy. Earthquakes, floods, government expropriations, mudslides, ordinance updates, sewage supports, and sewer pits are risks that will Not Be covered by home insurance, according to Hippo Insurance.
What risks does HO-3 insurance cover?
Danger is any danger that results in the loss of your home or belongings such as wind, fire, or
Theft, according to Garcia. There are two types of risks: named risks and open risks.
Named Risks These are the damages listed on your policy. The HO-3 policy has 16 named risks. Some of the dangers mentioned are fire, theft and windstorms.
open risk According to Garcia, “It usually provides customers with coverage for their homes and personal belongings from most risks, unless the risk is specifically listed as excluded.” In other words, your insurance policy will cover all risks except for the exclusions listed in your policy.
Below are some of the specific and open-ended risks covered by the HO-3 policy.
source: lemon juice and zebra; Coverage may vary based on where you get your insurance from.
Homeownership coverage (Coverage A) is the part of a homeowner’s insurance policy that pays to repair or rebuild your home. Housing coverage is the only section of an HO-3 policy that covers open risk.
Other structures (coverage B) pay to repair or replace structures other than your primary home. For example, if a tree falls on a separate garage or fence, an HO-3 policy may compensate you for repairs.
How much you should get for your housing coverage depends on the cost of repairing or rebuilding your home. The factors that affect replacement costs are the age of your home, your location, the construction of your home, and a host of other factors. The two most important factors that affect your property replacement cost are the square feet of your home and local building costs, according to the Insurance Information Institute (III).
Personal property coverage
Personal belongings (Coverage) provides coverage for the contents of your home in case it is lost, damaged or stolen. For example, if someone breaks into your home and stole your TV, personal property coverage will pay to replace the item. Your policy will generally limit your personal property coverage to 50% to 70% of the coverage you have on your dwelling, according to III.
It is important to note that most insurance companies will only cover the actual cash value of your stolen or damaged property. ACV coverage is the amount your insurance company will pay you to replace the damaged item minus depreciation. You can purchase an additional credit to cover the replacement cost to replace the damaged item with a similar value.
High-value possessions such as jewelry, furs, art, and collectibles can be covered. But since there is a Coverage C limit, you need to purchase a special personal property endorsement to cover the item at its appraised value.
loss of use
Loss of Use (Cover D) compensates you for increased living expenses if your home becomes uninhabitable. For example, let’s say you typically spend $200 per month on food; However, you cannot cook and have to eat more food outside because you are staying in a hotel. If your bill is now $400, your provider will reimburse you for the additional $200 expense.
Loss of use will only apply if your home is damaged by a covered hazard. Generally, your policy will set usage loss limits at 20% of the insured value of your home. For example, if your coverage amount is $250,000, your loss-of-use coverage amount will be $50,000.
You have the option of increasing your coverage by purchasing additional loss-of-use insurance.
If someone sues you for damages or injuries, liability insurance (Coverage E) will pay court fees and legal expenses. Coverage F covers medical bills if someone is injured on your property, especially if the victim is not insured.
Liability limits generally start at $100,000, but consider purchasing more protection with your insurance provider. Cycle 3 experts recommend liability coverage of at least $300,000 to $500,000.
Under certain circumstances, you may need more insurance. For example, if you have a pool, providers view you as a liability because someone could slip and fall in it. Providers also view dog owners as a liability, so you may want to consider comprehensive insurance, especially if your dog falls under an aggressive breed. Comprehensive insurance will provide liability coverage in multi-million dollar increments to protect your investment if you take on more liability due to your circumstances.
HO-3 vs HO-6 insurance
While the HO-3 policy covers the standard home, the HO-6 secures the apartments. Both the HO-3 and HO-6 policies provide for personal property, liability, and coverage for additional living expenses. The main difference is how your building housing is covered.
The main policy of the owner will usually secure the structure and foundation of the building as well as the common areas, such as the gymnasium or hallway. HO-6 insurance covers your unit and the contents of your unit, specifically referred to as “interior walls” coverage.
Both policies have similar listed exceptions, such as flood and earthquake protection.
What is the difference between HO-3 and HO-5 insurance?
HO-3 and HO-5 are homeowners insurance policies that cover the average home. HO-3 and HO-5 provide open risk coverage for your residence and other facilities. Both also provide coverage for personal liability and loss of use. However, HO-5 is more robust because it provides open risk coverage for your home and personal property.
Ho-5 coverage is often more expensive because it provides coverage for the value of the replacement cost of your personal belongings rather than the actual cash value.
How much does HO-3 insurance cost?
The average annual premium for homeowners’ insurance in the United States in 2019 was $1,272, according to the latest data from the third. But this number will vary based on property details, credit history, claims history, marital status, location, etc.
It’s important to consider the quality of the insurance you get and the amount of coverage in your policy – both may be more important than the cost.
“For most people, a home will be the single largest investment they make in their life,” Garcia says. “So, it’s important to frame the insurance purchase decision in this light.”
“Buying a cheaper policy may seem like a good deal, but without really understanding the purchased policy, you may find that ‘deal’ missing when you need it most.”
Start your search by comparing the best home insurance companies for 2022.