What Are the Types of Property Insurance Policies?
Most houses are insured under an HO-3 policy. Condos, renters and older or high-value homes use different forms.
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Your lender sets the dwelling coverage number, usually tied to the loan amount or what it would cost to rebuild the house, not its sale price. The binder they want before closing is a one-page proof of coverage showing that number and your deductible, the amount you pay before coverage starts. Pick a deductible you could actually pay in cash. Once you buy the policy, the insurer sends the binder to your lender, and the premium often gets folded into your monthly mortgage payment through escrow.
The same dwelling coverage number can cost very different amounts depending on the insurer, since each prices rebuilding costs, deductible options and your house's particulars differently. Before the binder goes out, it's worth seeing what other insurers would charge for that same coverage your lender requires. A lower premium now also means less added to your monthly mortgage payment once escrow kicks in.
What does the HO-3 actually cover, and what doesn't it cover?
An HO-3 covers your house and other structures like a garage or fence against a long list of risks, except the ones it names as excluded. Wind, fire, lightning, theft, and weight of snow are typically in. Your belongings inside the house are covered too, but usually at a lower amount than the dwelling, and against a shorter, named list of causes rather than the open-ended approach used for the house itself. If a pipe bursts and soaks your flooring, that's typically covered. If the ground shifts and cracks your foundation, that typically isn't, under this or almost any policy.
Two exclusions catch new homeowners off guard because they sound like they should be covered and aren't. Flood damage is never part of a standard homeowners policy, regardless of form. If your lender or a flood map says you need it, that's a separate flood policy, usually through the National Flood Insurance Program or a private flood insurer, and it has its own binder and its own timeline before closing. Earthquake damage is excluded too in most states, and also requires its own separate policy or endorsement if you want it.
The HO-3 also covers liability, meaning if someone gets hurt on your property or you accidentally damage someone else's, the policy pays for it up to a limit you choose. This sits alongside dwelling coverage on the same policy and the same binder, so it won't require a separate purchase, but the limit is worth checking rather than leaving at whatever default the insurer sets. Loss of use, which pays for a hotel or temporary rent if the house becomes unlivable after a covered loss, is typically included as well.
What exact causes of loss are excluded, and at what limits, lives in the policy's declarations page and the fine print behind it, and it differs by insurer even when the dwelling coverage number is identical because the lender set that part. Reading that list before closing, not after, is what finds the gap, whether that's a flood zone the lender didn't flag or a liability limit that's lower than what the house and its risks call for.
If HO-3 is the standard, why do other property insurance forms exist?
The HO-3 is built for a single-family house someone owns and lives in, which is most of the market, but it's one of several standard forms, and the one your lender requires depends on what you're buying. A condo doesn't need dwelling coverage for the whole building, since the condo association insures the structure itself, so condo owners use an HO-6, which covers the interior of the unit, belongings, and liability, with a much smaller dwelling number than a house would carry. Someone renting uses an HO-4, which drops dwelling coverage entirely and only covers belongings and liability, since they don't own the structure. If you're buying a condo or still renting while this closes on a different property, the binder your lender asks for will be built on a different form than the one described above, and the dwelling coverage number won't mean the same thing.
Older houses and high-value houses sometimes don't qualify for an HO-3 at all. An HO-3 assumes the insurer can estimate a rebuilding cost using current materials and methods. A house with knob-and-tube wiring, a slate roof, or construction details that are expensive or hard to replicate can push an insurer toward an HO-8, a form built around actual cash value or functional replacement cost rather than full rebuilding cost. That matters at claim time more than at closing, since a payout under an HO-8 can come in lower than what it would take to rebuild the house exactly as it was. If your house is older and the insurer quotes an HO-8, that's worth asking about directly, since the binder will look similar but the coverage behind it is not the same promise.
A few other forms exist for situations that don't come up at a typical closing. HO-2 covers a shorter, named list of causes of loss than an HO-3 and costs less because of it. HO-5 extends broader, open-ended coverage to belongings too, not just the dwelling, and costs more. Mobile and manufactured homes usually fall under their own form, HO-7, with different assumptions about rebuilding. None of these is better in the abstract. The one that fits is the one that matches the house, how it's built, and what the lender is requiring proof of before the binder goes out.
Checking which form a quote is actually written on, not just the dwelling number and the premium, is part of comparing insurers honestly. Two quotes with the same dwelling coverage and a similar price can be built on different forms with different assumptions about what gets paid out, and that difference doesn't show up until a claim is filed.
Before the binder goes out
Check your declarations page for the dwelling coverage your lender required and the deductible you chose. Then see what another insurer would charge for that same coverage before it locks into your escrow.
