What Is the Most Common Type of Homeowners Insurance Policy?
An HO-3 policy. It covers the house for most risks and belongings for the risks your policy names.
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What HO-3 Actually Covers
An HO-3 covers your house for any cause of damage except what the policy specifically excludes, like flood or earthquake. Your belongings inside, like furniture and clothes, are covered only for the specific risks the policy lists. Your declarations page names both.
What Your Lender Requires
Your lender needs proof of HO-3 coverage, often called a binder, before closing, with dwelling coverage at least equal to the loan amount. The lender is named on the policy as mortgagee so they're notified if coverage lapses.
Dwelling Coverage, Set Right
Dwelling coverage pays to rebuild the house, not what you paid for it or what it would sell for. Setting it too low to save money leaves you short after a major loss. An agent or the insurer can estimate rebuilding cost for the property.
Your Deductible Choice
The deductible is what you pay out of pocket before coverage kicks in on a claim. A higher deductible lowers what you pay for the policy but means more cash out of pocket if something happens. Check what the policy sets by default.
Same House, Different Numbers
Two HO-3 policies on the same house can set dwelling coverage and deductibles differently, which changes what you pay now and what you'd owe after a claim. Worth checking before you commit to one.
What Else an HO-3 Covers Beyond the House Itself
An HO-3 policy includes more than dwelling coverage and belongings. It also covers other structures on the property, like a detached garage, shed, or fence. This is usually a separate limit set as a share of your dwelling coverage amount. If a structure on the property is worth more than that limit, like a large workshop, that limit may need to be raised on its own. Your declarations page lists this as its own number, separate from the dwelling figure.
Loss of use coverage is another piece worth knowing about. If the house becomes unlivable after a covered loss, like a fire, this pays for a hotel or rental and other living costs while repairs happen. It has its own limit too. That limit can run out if repairs take longer than expected or cost more than planned. This matters more than people expect when a claim first comes in. It's easy to focus on fixing the house and forget where you'll live in the meantime.
Liability coverage is the other half of an HO-3, and it has nothing to do with the house itself. It pays if someone is injured on the property and sues, or if you're found responsible for damage to someone else's property. It typically covers legal defense costs on top of the payout limit, not out of it. Standard liability limits are sometimes lower than what the house itself is worth. Some buyers raise this limit or add a separate umbrella policy, especially if the property has something like a pool that raises the chance of a claim.
None of these numbers are fixed across insurers, or even across HO-3 policies from the same company. The share used for other structures, the loss of use limit, and the liability amount can all be set differently from one policy to the next. Each one shows up as its own line on the declarations page. Reading through each limit before closing, rather than assuming a standard policy covers everything at an amount that matches the house, is how a gap gets caught before it turns into a problem after a claim.
What If the House Needs Repairs Before Anyone Can Move In
An HO-3 policy starts paying from the date the policy begins, not from the date of closing minus some grace period. If an inspection turns up something that needs fixing before the lender or insurer will sign off, like an aging roof or outdated wiring, that work usually has to happen before coverage starts or the insurer may exclude that specific risk. Some insurers will issue the policy with a condition attached, requiring proof the repair was done within a set window after closing.
Roof age comes up often. A roof nearing the end of its expected life can mean the insurer pays out less for a roof claim specifically, even while covering everything else in full. This shows up on the declarations page as a separate settlement method for roof losses, different from how the rest of the house is covered. Worth checking this line item directly rather than assuming the whole policy pays to rebuild at full cost.
Buyers sometimes assume the home inspection done for the purchase is the same as what the insurer requires. It isn't always. An insurer may order its own inspection, particularly on an older house, and that inspection can lead to conditions separate from whatever the buyer's inspector found. This can affect the timeline for getting the binder to the lender, since the insurer may not finalize the policy until their own inspection is scheduled or complete.
None of this is a reason to expect delays, but it's a reason to ask the insurer directly what their underwriting requires for the specific house, not just what the lender requires for the loan. The two are related but not the same. A lender wants proof of coverage at closing. An insurer wants to know what they're agreeing to cover, and on an older or unusual property, that can mean a condition tucked into the policy that's easy to miss if the declarations page isn't read in full before signing.
Before You Sign
Open the declarations page before the binder goes to your lender. Check the dwelling coverage, the deductible, the loss of use limit, and the liability amount. Each one is worth confirming on its own.
