Glossary
HO-3 policy, defined
The standard homeowners form for an owner-occupied house. It insures the dwelling and other structures on an open-peril basis and personal contents on a named-peril basis, and it bundles personal liability and medical payments to others.
In practice
The split is the thing to understand. Damage to the house is covered unless excluded; damage to what is inside is covered only if the cause is on the list. A burst pipe that ruins both the floor and the sofa pays for the floor and, because sudden discharge of water is listed, the sofa too, while a dropped television inside an undamaged house may not pay at all. Dwelling coverage is written at replacement cost; contents default to actual cash value unless endorsed. The form sets the other structures, loss of use and contents limits as fractions of the dwelling limit, so getting the dwelling figure right sets everything else. Roof settlement terms, water backup and ordinance coverage are common endorsements worth reviewing.
A worked example
Suppose a house is insured on this form with a $400,000 dwelling limit and contents at half that, $200,000. A kitchen fire causes $60,000 of structural damage and destroys $15,000 of contents. Fire is covered on both sides, so the policy pays $75,000 less one deductible. Suppose instead a bookcase topples and breaks a $2,000 television with no other damage; the house is untouched and the contents list has no matching cause, so nothing is paid. Hypothetical figures.
Applies to: Home Insurance