What is HO3 Homeowners Insurance Coverage?

Homeowners insurance is meant to safeguard an insured against the financial effects of loss of property and liability. There are several types of home insurance policies, which have different levels of coverage. The most popular is known as an HO3 policy.

This type of homeowners insurance coverage is provided for one-or-two-family units. The property must be owner-occupied. HO3 insurance generally protects against direct losses due to the following:

• Explosions
• Fire
• Hail
• Lighting
• Theft
• Tornadoes
• Vandalism
• Wind storms.

Homeowners should read their policy and understand what is covered. This information can usually be found on the declaration page of your policy. Below are the coverage typically found in most homeowners insurance policies.

Coverage A: Dwelling

An HO3 insurance policy will cover the cost of structural damage to your home. This value is usually calculated on a replacement cost basis. However, the coverage is only up to the limits as specified in your policy. Check your policy to make sure that you have the proper amount of insurance coverage. You'll want to make sure that you're able to rebuild your home if the worst case scenario should happen and your home is completely destroyed.

Imagine your home is damaged and you have $250,000 worth of coverage. The actual cost to rebuild your home is $275,000, meaning you'll be responsible for paying the remaining $25,000 yourself. You can prevent this situation by increasing the limits of your coverage. Or you could purchase a guaranteed replacement cost policy, which will cover all costs associated with your rebuild.

Coverage B: Other Structures

This section of HO3 coverage will protect you against damage or loss to other structures or buildings on your property. Usually the coverage is capped at 10 percent of the amount of the main dwelling, but most insurers allow you to buy a higher limit. Some common structures covered are:

• Detached garage
• Fencing
• Work shed.

Coverage C: Personal Property

To a certain extent, HO3 homeowners insurance will cover your personal property, including household items or personal possessions utilized, owned or worn by you and family members. It provides coverage for your personal effects while you are anyplace in the world.

Again, coverage limits will apply. For instance, if your golf clubs are stolen while you're on vacation, you'll receive reimbursement minus the depreciated value of the clubs. You can purchase additional coverage limits and pay a pre-determined premium to receive full coverage.

Coverage D: Additional Living Expenses

If your home is damaged as a result of a covered loss, a homeowners HO3 policy will cover additional living expenses, according to the policy limits, until your home is habitable. Some insurance companies may calculate this amount using "fair rental value," which is based on the rental value of dwellings that are comparable to your home.

Coverage E: Comprehensive Personal Liability

This coverage pays for damages sustained by others should they fall or suffer from an accident on your property or on premises you are using temporarily. Coverage is also provided for named family members. Any legal expenses incurred as a result of a covered loss is also covered.