Which HO Policy Has All-Risk Coverage on Structures?
HO-3 and HO-5 policies cover your home's structure on an open-perils basis, meaning all causes of damage except those specifically excluded.
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HO-3 is the standard policy most lenders expect, and it's what you'll likely be quoted for a typical single-family home. Your dwelling, the structure itself, is covered against any cause of loss except what the policy lists as excluded, things like flood, earthquake, and wear and tear. HO-5 works the same way for the dwelling but also extends that broader coverage to your belongings, where HO-3 covers belongings on a more limited, named-perils basis. Check the declarations page for the form number, HO-3 or HO-5, to see which one you're actually being offered.
Same dwelling coverage, different prices
An HO-3 and an HO-5 can cover your home's structure the same way, but what insurers charge for either one varies. Comparing quotes shows whether you're paying more than you need to for the same protection.
What counts as an exclusion on an open-perils policy?
Open-perils sounds like it covers everything, but every HO-3 and HO-5 policy lists exclusions, and they're the same handful of things across most insurers. Flood and earthquake are the two biggest. Both require separate policies, and neither is optional to skip thinking about just because your lender didn't ask for them. If the house sits near a river, on a coastline, or in a region with known seismic activity, ask about those separately before closing, not after.
Other exclusions are less about geography and more about how a house is maintained. Wear and tear, rot, mold that develops over time, pest damage, and neglect are not covered, because insurance is built to pay for sudden and accidental loss, not the slow cost of deferred maintenance. A pipe that bursts is covered. A pipe that's been leaking slowly for two years and rotted the subfloor underneath it is a harder claim, and sometimes not a covered one at all. This matters at closing because a home inspection report that flags aging plumbing, an old roof, or foundation issues is telling you where a future claim might run into exactly this kind of exclusion.
The exclusions list also explains why two houses with the same dwelling coverage amount can come with different premiums. A roof with ten years of life left on it is a different risk than one installed last year, even though both are insured the same way on paper. Some insurers will ask the roof's age and material outright, and the answer affects what they charge or whether they'll write the policy at all. This is worth asking about directly when comparing quotes, since it's not always obvious from the declarations page alone.
Reading the exclusions section of a policy before signing is not the same as reading the whole contract line by line. It's worth knowing the short list of what's carved out, because that list is what separates a policy that covers the thing that actually goes wrong from one that technically covers 'everything except.' If something stands out as a known issue with the specific house being bought, that's the moment to ask directly whether it's covered or whether it needs its own policy.
How is the dwelling coverage amount set?
Dwelling coverage is not based on what the house is selling for. It's based on what it would cost to rebuild it from the ground up at today's material and labor costs. That's a different number from the purchase price, sometimes a very different one. A house bought for less than its rebuild cost, which happens often in older neighborhoods or markets with low home prices but high construction costs, still needs dwelling coverage set at the rebuild figure. The insurer usually runs this estimate using the home's size, construction type, roofline, and local labor costs, not the appraisal.
Lenders care about this number because it affects whether the binder they're asking for actually satisfies the mortgage. Most mortgage agreements require dwelling coverage at least equal to the loan amount. Some require it to match the full rebuild cost regardless of the loan size. If the quote comes back with dwelling coverage set too low, either because the estimate undershot the rebuild cost or because a lower number was chosen to shrink the premium, the lender can reject the binder and send it back. That costs time right before closing, when there usually isn't much time to spare.
Underinsuring the dwelling doesn't just risk a rejected binder. It risks a bad outcome after a claim too. If the house is insured for less than it would actually cost to rebuild, a total loss from a covered peril, like a fire, pays out up to the policy limit and no further. The gap is covered out of pocket. Some HO-3 and HO-5 policies include an extended replacement cost option that adds a buffer above the stated dwelling limit for exactly this situation. It's worth asking whether a quote includes this option and what the buffer amount is, since it doesn't show up as its own line on most quote summaries.
The deductible chosen on the policy interacts with the dwelling coverage number too. It's worth separating the two kinds of deductibles if a quote includes a wind or hail deductible, which some states and coastal regions apply separately from the standard deductible. A standard deductible is usually a flat dollar amount. A wind or hail deductible is sometimes a percentage of the dwelling coverage limit instead, so a higher dwelling coverage amount can mean a higher out-of-pocket cost on that specific type of claim. The declarations page lists both if they apply. It's worth checking before assuming the deductible is the same number for every kind of loss.
Before the binder goes to the lender
Check the declarations page for the dwelling coverage figure. Confirm it matches rebuild cost, not purchase price, and meets what the lender actually requires before closing.
