What Does HO3 Cover?
It covers your house and belongings against most risks except the ones your policy lists as excluded, like flood or earthquake.
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What an HO3 policy actually pays for
An HO3 is built around your house, the structure itself, which is your dwelling coverage. Your lender sets a minimum dwelling amount, usually tied to the loan amount. The number that matters most is what it would cost to rebuild the house, not what you paid for it and not what it would sell for. The same policy also covers other structures like a detached garage, your belongings inside the house, and liability if someone gets hurt on the property. If you have to move out during repairs, it covers added living costs too. Your declarations page, the summary page the insurer sends with your binder, lists each of these as a separate dollar amount. Check that the dwelling figure reflects rebuilding cost before closing. That's what your lender is asking you to prove.
Dwelling coverage set too low is the gap that costs the most. Two insurers can quote the same house at different rebuilding figures, and one of them may undercut what it would actually take to replace it. Before closing is the easiest time to compare what each policy puts on that line, since you're setting the number for as long as you own the house.
What's excluded, and what the deductible means for a claim
An HO3 is called a special form policy because it covers your house for every cause of loss except the ones your policy lists by name. That list matters more than people expect. Flood is never covered under a standard homeowners policy anywhere, no matter which insurer writes it. If the house sits in a flood zone, the lender will likely require a separate flood policy before closing. Earthquake damage is usually excluded too. In a state where that risk is real, it's an endorsement or a separate policy added on, not something to assume is already included.
Your belongings are covered differently than the house itself. Dwelling coverage pays to rebuild the structure. Personal property coverage pays to replace what's inside it, furniture, clothes, electronics, and it's typically set as a percentage of the dwelling amount rather than calculated on its own. Some policies pay what the items are worth today, after wear and age are subtracted. Others pay what it costs to buy the same thing new. The declarations page or the policy wording will say which one applies, and it's worth knowing before anything happens to the house, not after.
The deductible is what comes out of pocket before the policy pays anything on a claim. If the deductible is the amount shown on the declarations page, that's what's owed first on a covered loss, and the insurer pays the rest up to the coverage limits. Some policies use a flat dollar deductible for most claims. Others use a percentage of the dwelling coverage for specific risks like wind or hail, which can add up to a much larger number than a flat figure would. That's worth checking line by line, since a lower premium sometimes comes paired with a higher percentage deductible that only shows up once a claim is filed.
Liability coverage applies if someone is hurt on the property or if there's responsibility for damage to someone else's property. It usually carries its own separate limit, shown on the declarations page apart from the dwelling and personal property amounts. Lenders don't typically require a minimum here the way they do for dwelling coverage, but it's the part of the policy that protects finances outside the house itself, so it's worth comparing closely between two quotes that otherwise look similar.
What happens when you actually file a claim
Filing a claim starts with the damage itself, not a phone call. Most insurers want notice soon after a loss, documented with photos if possible, before repairs start. An adjuster is typically assigned to inspect the house and estimate what it costs to fix or replace what was damaged. That estimate gets compared against the limits on the declarations page, the dwelling amount, the personal property amount, whichever applies to the loss. If the damage exceeds the deductible, the insurer pays the difference up to those limits. If it's under the deductible, there's nothing to collect, which is why some owners choose not to file for smaller repairs.
How a claim gets paid depends on the type of loss and the coverage involved. A kitchen fire that damages the structure draws on dwelling coverage. A burst pipe that ruins the furniture and the floors might draw on both dwelling and personal property coverage at once. If the house is uninhabitable during repairs, the additional living expenses coverage mentioned earlier starts paying for a hotel or a rental, usually up to its own separate limit and for a set period of time. The declarations page spells out each of these limits, and they don't borrow from each other. Running out of personal property coverage doesn't mean the dwelling limit can cover the rest.
Claims history follows the house and the person who filed, and it matters before closing in a way that's easy to miss. Insurers ask about prior claims on a property when writing a new policy, and a house with recent water damage or a prior roof claim can be harder to insure or more expensive to insure. A home inspection before closing sometimes turns up issues, like an aging roof or old wiring, that an insurer would flag anyway once the policy is in place. Addressing those before the policy starts, rather than after a claim is filed, keeps the first claim on a new policy from being a dispute about what was already there.
Some damage doesn't fit neatly into a single claim. A slow leak behind a wall that was never reported, for instance, is often treated differently than a sudden pipe burst, because policies generally cover sudden and accidental damage rather than gradual wear and neglect. That distinction gets tested the first time something goes wrong, and it's one more reason the exclusions on the declarations page are worth reading in full before the house closes, not after a claim shows what was never covered to begin with.
Before you sign anything
Check that the dwelling figure on the declarations page matches what it would actually cost to rebuild the house, not the purchase price. That's the number your lender is asking you to prove, and the hardest one to fix later.
