Policy guide · 10 min read

Homeowners Policy Explained: HO-3 Coverages, Forms, Limits and Exclusions

Homeowners policy explained for adjusters: HO-2 to HO-8 forms, Coverages A to F, Coverage C special limits, the 16 named perils, exclusions and the 80% rule.

A homeowners policy packages property and liability coverage for a home into one contract: Section I insures the house, other structures, personal property and loss of use, and Section II covers personal liability and medical payments to others. This guide uses the ISO 2011 homeowners forms (the HO-3 is HO 00 03 05 11), the same edition our practice questions use. Your insurer’s or your state’s version may differ, so always read the actual policy on a claim.

Homeowners forms compared

These are the six ISO homeowners forms to know. The HO-2, HO-3, HO-5 and HO-8 are for owner-occupants of a one- to four-family dwelling; the HO-4 is for tenants and the HO-6 for condominium and cooperative unit owners.

Form	Designed for	Dwelling (Coverage A)	Personal property (Coverage C)	Notes
HO-2 Broad Form	Owner-occupants	16 named perils	16 named perils	Named perils throughout
HO-3 Special Form	Owner-occupants	Open perils (also Coverage B)	16 named perils	The standard reference form in this guide
HO-4 Contents Broad Form	Tenants	None	16 named perils	Up to 10% of C for building additions and alterations the tenant paid for
HO-5 Comprehensive Form	Owner-occupants	Open perils	Open perils	Broadest owner form
HO-6 Unit-Owners Form	Condo and co-op unit owners	Named perils on alterations, fixtures, improvements and items the association agreement makes the owner’s responsibility	16 named perils	ISO rules provide $5,000 of Coverage A automatically
HO-8 Modified Coverage Form	Owner-occupants of homes, often older ones, whose replacement cost far exceeds market value	10 named perils	10 named perils	Repairs paid using common construction materials; theft limited to $1,000 per loss and to the residence premises

Texas candidates should also know that the Texas exam outline covers the Texas homeowners forms HO-A, HO-B and HO-C alongside the ISO forms.

Section I and II coverages: A to F

Coverage	What it covers	Usual limit on an HO-3
A Dwelling	The house and attached structures, plus materials on or next to the premises used to build or repair it	Chosen limit; keep it at 80% or more of replacement cost
B Other structures	Structures set apart by clear space, such as a detached garage, fence or shed	10% of A, in addition to A
C Personal property	Property owned or used by an insured, anywhere in the world	Program default 50% of A
D Loss of use	Additional living expense, fair rental value, and up to two weeks when a civil authority bars use of the home	Program default 30% of A
E Personal liability	Damages for bodily injury or property damage caused by an occurrence, plus defense	Basic limit $100,000 per occurrence
F Medical payments to others	Medical expenses of people injured on the premises with permission, or by an insured’s activities, regardless of fault	Basic limit $1,000 per person

The percentages need a careful note. The 10% for Coverage B is written into the HO-3 itself, and using it does not reduce Coverage A. The 50% for Coverage C and 30% for Coverage D are defaults of the ISO rating program, not policy language, so they can be raised or lowered and the declarations control. Coverage D defaults differ by form: 30% of A for the HO-2, HO-3 and HO-5, 30% of C for the HO-4, 50% of C for the HO-6 and 10% of A for the HO-8.

A few Coverage B and C details are tested often. Coverage B does not cover structures rented to anyone other than a tenant of the dwelling (unless used only as a private garage) or structures from which any business is conducted. Coverage C covers property usually kept at another residence of an insured, such as a lake cottage, only up to 10% of the Coverage C limit or $1,000, whichever is greater. Additional living expense pays only the increase in costs: if a family’s food bill rises from $900 to $1,300 a month, only the $400 increase counts, and a mortgage payment that continues anyway is not covered.

Coverage C special limits

Special limits cap payment for certain classes of property in each loss. They do not increase the Coverage C limit. These are the 2011 HO-3 values:

Property	Special limit	Applies to
Money, bank notes, bullion, coins, medals, stored value cards and smart cards	$200	Any covered peril
Securities, deeds, evidences of debt, manuscripts, passports, tickets and stamps	$1,500	Any covered peril
Watercraft of all types, including trailers, equipment and outboard motors	$1,500	Any covered peril
Trailers not used with watercraft	$1,500	Any covered peril
Jewelry, watches, furs, precious and semiprecious stones	$1,500	Theft only
Firearms and related equipment	$2,500	Theft only
Silverware, goldware, platinumware and pewterware	$2,500	Theft only
Business property on the residence premises	$2,500	Any covered peril
Business property away from the residence premises	$1,500	Any covered peril
Portable electronic equipment in or on a motor vehicle that can also run on other power	$1,500	Any covered peril
Antennas, tapes, wires, disks and other media in or on a motor vehicle	$250	Any covered peril

Each limit is the total for the whole category in one loss. A burglar who takes $900 in cash, a $400 gift card and a $1,100 coin collection triggers one $200 limit for all three. Owners who need more buy a scheduled personal property endorsement.

Section I additional coverages

The HO-3 adds 12 additional coverages to Section I:

Additional coverage	Key rule or limit
Debris removal	Included in the limit, plus an extra 5% of the limit if damage and debris removal exceed it; up to $1,000 per loss ($500 per tree) to remove certain fallen trees
Reasonable repairs	Reasonable cost of measures to protect covered property from further damage; does not increase the limit
Trees, shrubs and other plants	5% of A, no more than $500 per item, for fire or lightning, explosion, riot, aircraft, vehicles not owned or operated by a resident, vandalism and theft (no windstorm)
Fire department service charge	Up to $500, no deductible
Property removed	Any cause of loss while removed from endangered premises, for up to 30 days
Credit card, fund transfer card, forgery and counterfeit money	Up to $500, no deductible
Loss assessment	Up to $1,000 of an owners association assessment for a covered loss to commonly owned property
Collapse	Abrupt collapse from listed causes, such as hidden decay or insect damage unknown to the insured
Glass or safety glazing material	Glass breakage in a covered building; not after more than 60 days of vacancy unless caused by earth movement
Landlord’s furnishings	Up to $2,500 per rented apartment on the premises, Coverage C perils other than theft
Ordinance or law	Up to 10% of A for increased costs to meet building codes, as additional insurance
Grave markers	Up to $5,000, on or away from the premises, for Coverage C perils

Perils: open perils and the 16 named perils

Open perils (often called special form or all risk) covers any direct physical loss unless the policy excludes it. The HO-3 gives this coverage to Coverages A and B, subject to the Section I exclusions plus a list inside the perils section: collapse except as an additional coverage; freezing of plumbing unless the insured used reasonable care to maintain heat or shut off and drain the water; freezing and thawing damage to fences, pools and foundations; vandalism after more than 60 consecutive days of vacancy; mold, except hidden mold caused by accidental discharge; and wear and tear, mechanical breakdown, rust, settling, pollutants, birds, rodents, insects and animals owned by an insured. Water that suddenly escapes from a plumbing system or appliance is covered, but not the system or appliance itself.

Named perils covers only causes listed in the policy. HO-3 Coverage C, and every coverage in the HO-2, HO-4 and HO-6, uses these 16 perils:

Fire or lightning
Windstorm or hail (rain damage inside only if wind or hail first creates an opening in the roof or a wall; watercraft only inside a fully enclosed building)
Explosion
Riot or civil commotion
Aircraft
Vehicles
Smoke
Vandalism or malicious mischief
Theft
Falling objects
Weight of ice, snow or sleet
Accidental discharge or overflow of water or steam
Sudden and accidental tearing apart, cracking, burning or bulging of heating, air conditioning, sprinkler or water heating systems
Freezing of plumbing, heating, air conditioning or sprinkler systems or household appliances
Sudden and accidental damage from artificially generated electrical current
Volcanic eruption

The HO-8 uses only the first 9 of these plus volcanic eruption.

Key Section I exclusions

The main Section I exclusions apply regardless of any other cause that contributes at the same time or in sequence:

Ordinance or law: increased costs of meeting building codes, except what the ordinance or law additional coverage provides.
Earth movement: earthquake, landslide, sinkhole and similar movement. Direct loss by an ensuing fire, explosion or theft is covered.
Water: flood, surface water, waves, tides and overflow of a body of water; backup through sewers or drains and sump overflow; and water below the ground surface. Flood is usually insured through the NFIP (see our flood claims guide).
Power failure that takes place off the residence premises.
Neglect: failure to use all reasonable means to save and preserve property at and after a loss.
War and nuclear hazard.
Intentional loss: no insured is covered, even one who took no part in the act, although some states protect innocent co-insureds.
Governmental action: destruction or seizure of property by order of a public authority.

A second group applies only to Coverages A and B and leaves ensuing loss covered: weather conditions (only when they combine with an excluded cause), acts or decisions of any person or government body, and faulty planning, design, workmanship, materials or maintenance.

Loss settlement and the 80% rule

Personal property, awnings, carpeting, household appliances, outdoor equipment, structures that are not buildings and grave markers are settled at actual cash value. The HO 04 90 endorsement changes personal property to replacement cost.

Buildings under Coverages A and B are settled at replacement cost if, at the time of loss, the insurance is at least 80% of the building’s full replacement cost. The insurer then pays the least of the limit, the cost to replace with like kind and quality, or the amount actually spent. If the insurance is below 80%, the insurer pays the greater of:

the actual cash value of the damage, or
the replacement cost of the damage multiplied by the insurance carried divided by 80% of the full replacement cost.

Example: a home with a $400,000 replacement cost is insured for $240,000, which is below the $320,000 that 80% requires. A fire causes $40,000 of damage at replacement cost, with an actual cash value of $28,000. The proportional amount is $240,000 / $320,000 x $40,000 = $30,000, which beats the $28,000 ACV, so the insurer owes $30,000 before the deductible. Run your own numbers in the 80% rule calculator.

Two timing rules matter in the field. The insurer pays no more than actual cash value until repairs are complete, unless the damage is under 5% of the building’s insurance and under $2,500. And an insured who takes actual cash value first can still claim the replacement cost difference by notifying the insurer within 180 days after the loss of the intent to repair. Foundations below the basement floor, underground pipes and similar items are left out when measuring the 80%.

Section II basics

Coverage E (personal liability) pays damages an insured is legally liable for because of bodily injury or property damage caused by an occurrence, and the insurer defends the insured. The limit is per occurrence, no matter how many people are hurt, and defense costs are paid in addition to the limit. Coverage E does not cover the insured’s own property, property in an insured’s care (except for fire, smoke or explosion damage), or injury to an insured.

Coverage F (medical payments to others) pays necessary medical expenses incurred within three years of an accident, regardless of fault, but never to the named insured or regular residents of the household other than residence employees.

The Section II additional coverages pay claim expenses, first aid, up to $1,000 at replacement cost for damage to property of others regardless of legal liability, and up to $1,000 of a liability-related association assessment. Key exclusions both coverages share include expected or intended injury (except reasonable force to protect people or property), business and professional activities, most motor vehicles and aircraft, owned watercraft outside the allowed classes (generally outboard motors over 25 total horsepower, sailing vessels 26 feet or longer, and any owned inboard or jet-pump craft), communicable disease, sexual molestation and controlled substances. The business exclusion does not apply to activities that earned an insured no more than $2,000 in the 12 months before the policy began, or to a part-time business run by an insured under 21 with no employees. Libel, slander and other personal injury claims need the HO 24 82 endorsement.

Test yourself on all of this with our homeowners practice test, and compare these forms with the dwelling policies used for rentals.

Written by the CoveragePrep editorial team. Researched from policy forms, state statutes, regulator websites and exam handbooks, then fact-checked in a separate review. Read our editorial policy or report an error.

Frequently asked questions

What is the difference between the HO-3 and the HO-5?

Both insure the dwelling and other structures on an open perils basis. The HO-3 covers personal property only against 16 named perils, while the HO-5 also covers personal property on an open perils basis.

How much personal property coverage does an HO-3 include?

Under the standard ISO rating program, Coverage C defaults to 50% of the Coverage A limit, and Coverage D defaults to 30% of Coverage A. These are program defaults that can be changed, while the 10% of Coverage A for other structures is written into the form.

Is jewelry limited to $1,500 under the HO-3?

Only for theft. The 2011 HO-3 limits theft of jewelry, watches, furs and precious stones to $1,500 per loss, but jewelry destroyed by a covered peril such as fire is paid up to its value under the Coverage C limit.

Does a homeowners policy cover flood or sewer backup?

No. The water exclusion removes flood, surface water and water that backs up through sewers or drains or overflows from a sump. Flood is usually insured through the National Flood Insurance Program, and the HO 04 95 endorsement adds limited water backup coverage.

What happens if a home is insured for less than 80% of its replacement cost?

The HO-3 pays the greater of actual cash value or the proportion of the replacement cost loss that the insurance carried bears to 80% of the home's replacement cost, up to the limit.