Should I Get HO-1 or HO-3 Homeowner Insurance?

For most homeowners, an HO-3 policy is the right choice. It covers your home’s structure against all perils not specifically excluded, plus your personal property, attached structures, and liability. An HO-1 policy is far more limited; it only covers specific named perils, excludes personal property and liability entirely, and is often insufficient for mortgage lenders. Unless your budget is extremely tight and your property risk is minimal, the cost savings of an HO-1 rarely outweigh what you give up in coverage.

While homeowners insurance is a vital aspect to protecting your property and family, it’s also an important line item in your household budget. The benefits of your insurance policy are sometimes tough to distinguish, which makes the cost of the policy something you regularly call into question.

It is a good idea to review your homeowners policy every one or two years to make sure you have the appropriate coverage for your property and risks. But it’s also important not to make major changes based only on lower premiums. Far too many homeowners find out after it’s too late that what they saved on premiums will cost them thousands of dollars in a lack of coverage. We often talk with customers who are trying to decide between two different types of policies merely by comparing price. They aren’t aware of the critical coverage difference.

The biggest difference between HO-1 and HO-3 policies is how claims are evaluated. HO-1 policies only cover losses caused by specific “named perils” listed in the policy. If the cause of loss isn’t on that list, the claim is not covered (this makes it more restrictive). HO-3 policies use a broader “open perils” approach for the structure of the home, meaning the loss is covered unless it is specifically excluded in the policy, making it cover more perils.

What Does an HO-1 Homeowners Insurance Policy Cover?

The HO-1 policy is called the Basic Form, and it is the lowest level of homeowners insurance you can carry. Because the coverage is very limited, the premiums may appear to be the most affordable option. The problem is that if you actually have an insurance claim, the HO-1 policy will leave you financially responsible for most of your loss, damage, or liability.

The HO-1 policy covers fire, smoke, lightning, hail, explosions, vehicle or aircraft damage, theft, vandalism, and damage from riots or civil unrest. This type of policy covers the actual structure of the house. Many HO-1 policies either exclude coverage for personal property or provide only very limited coverage, and it does not provide any liability protection if someone sues you.

If you are applying for a mortgage, an HO-1 policy might not be sufficient to satisfy their homeowners insurance requirements. In Pennsylvania, most standard mortgage lenders will not accept an HO-1 policy as sufficient homeowners coverage.

While HO-1 policies are not very common these days, it is important to watch out for because they can be pitched as more “affordable” policies.

What Does an HO-3 Homeowners Insurance Policy Cover?

The HO-3 policy provides for significantly more coverage, which makes it the standard homeowners policy type. An HO-3 policy offers “special form coverage” on the structure of your home, which means any kind of loss or damage that’s not specifically excluded from the policy is covered. 

Not only is the home’s structure covered, but your attached structures and personal property inside the house are also covered. However, those are covered under a “named-peril coverage”, meaning that the damage must be a result of one of the named causes in the policy.

Finally, an HO-3 policy includes liability protection, so you have coverage if someone sues you after being injured or having their property damaged at your house.

Your HO-3 policy includes coverage for your heating, air conditioning, plumbing, and electrical systems. Also, if you get water damage from a burst pipe inside the house, or damage from snow and ice on the house, you could make a claim. With an HO-1 policy, the cost of cleanup and repairs from this kind of damage would come out of your own pocket.

HO-3 policies also typically include loss of use coverage, which helps pay for temporary housing, meals, and other expenses if your home becomes uninhabitable after a covered loss.

Flood and earthquake coverage are not covered under an HO-3 policy (along with some other perils), which is common industry practice. These are separate insurance policies that need to be reviewed based on your risks.

Always Review Your Policy Carefully with Your Trusted Agent

When the daily costs of living are high, it’s natural to look for ways to save. Your homeowners insurance policy is an obvious place to consider making cuts. You may wonder if you are paying for more coverage than you really need. This is absolutely a valid question, but the answer takes some thought and evaluation. Policy comparisons are almost never apples to apples based on premiums alone. 

If you would like to take a close look at your current homeowners policy to see if there are some ways to reduce premiums, you need to be fully informed about what that means for your coverage. Freedom Insurance Group has helped Pennsylvania and New Jersey homeowners navigate their coverage options for over 20 years. As an independent agency, we can compare policies from multiple carriers to find the right fit for your home and budget

Contact us to review your current homeowners policy and to request a quote for your needs.