What Is the Most Common Type of Homeowners Insurance?

When you buy a home, insurance isn’t optional-it’s usually required by your mortgage lender. But not all home insurance is the same. The most commonly purchased homeowners insurance in the U.S. and many other countries is the HO-3 policy. It’s the default choice for about 80% of homeowners because it strikes the right balance between cost, coverage, and simplicity.

What Is an HO-3 Policy?

The HO-3 policy is a special form homeowners insurance that covers your home’s structure against all risks-unless they’re specifically excluded. That’s different from other types, like the HO-1 or HO-2, which only cover named perils like fire, wind, or theft. With an HO-3, you’re protected from things like lightning strikes, hail, vandalism, and even falling objects. The only major exclusions are earthquakes, floods, and normal wear and tear.

For example, if a tree falls on your roof during a storm, your HO-3 policy will pay to repair it. If a pipe bursts and floods your kitchen, that’s covered too. But if your basement floods because of heavy rain and poor drainage, that’s a different story-flood damage requires a separate policy.

What Does an HO-3 Policy Cover?

An HO-3 policy isn’t just about the house. It’s made up of six main parts:

1. Dwelling coverage - This pays to rebuild your home if it’s damaged by a covered event. It’s based on replacement cost, not market value. So if your house costs $300,000 to rebuild, that’s what you’re covered for-not what you paid for it in 2015.
2. Other structures - This covers things like detached garages, sheds, or fences. Usually, it’s about 10% of your dwelling coverage.
3. Personal property - Your furniture, clothes, electronics, and appliances are covered up to 50-70% of your dwelling limit. If your home is insured for $300,000, you’ll likely have $150,000-$210,000 in personal property coverage. Most policies pay actual cash value (depreciated value), but you can upgrade to replacement cost coverage for a small extra cost.
4. Loss of use - If your home becomes unlivable due to fire or storm damage, this pays for hotel stays, meals, and other living expenses while you’re displaced. It’s usually 20% of your dwelling coverage.
5. Personal liability - If someone gets hurt on your property or you accidentally damage their stuff, this covers legal fees and settlements. Most policies include $100,000-$300,000, but many people bump it up to $500,000 or $1 million.
6. Medical payments to others - This pays small medical bills if a guest gets injured on your property, regardless of fault. Typically $1,000-$5,000.

Why Is HO-3 the Most Popular?

It’s simple, broad, and affordable. Compared to older policies like HO-1 (basic coverage) or HO-2 (broad coverage), the HO-3 gives you way more protection without a huge price jump. Insurance companies push it because it’s easy to sell and covers most common claims.

Let’s say you live in a suburban neighborhood. You’re more likely to face wind damage, water leaks, or burglary than a volcanic eruption or nuclear accident. The HO-3 covers the real risks you face-not the rare ones. It’s also the policy most lenders require when you get a mortgage. You won’t get approved without it.

And because it’s so common, insurers have refined their pricing models around it. That means you can compare quotes easily. If you’re shopping for home insurance, asking for an HO-3 quote is the standard starting point.

What’s Not Covered?

Even though HO-3 is comprehensive, it has big gaps. Two exclusions come up again and again:

• Floods - If water comes from outside your home-like rising rivers, storm surges, or backed-up sewers-it’s not covered. You need a separate flood policy through the National Flood Insurance Program (NFIP) in the U.S. or a private provider.
• Earthquakes - Ground movement from seismic activity is excluded. In areas like California or the Pacific Northwest, many homeowners buy earthquake endorsements. In Ireland or the UK, it’s less common because the risk is lower, but it’s still worth checking your policy.

Other exclusions include:

• Damage from poor maintenance (like a roof that’s been leaking for years)
• Infestations (termites, rodents)
• War or nuclear events
• Intentional damage by the homeowner

That’s why it’s important to read your policy’s fine print. Don’t assume everything’s covered. A 2023 survey by the Insurance Information Institute found that 42% of homeowners didn’t know their policy excluded flood damage-until they had a claim denied.

HO-3 vs Other Home Insurance Types

Here’s how HO-3 stacks up against other common policies:

HO-5 policies are similar to HO-3 but cover your personal property the same way your home is covered-against all risks, not just named ones. That’s great if you own expensive art, jewelry, or electronics. But it costs 15-30% more. Most people don’t need it.

What About Renters?

If you rent, you don’t need homeowners insurance-you need renters insurance (HO-4). It covers your belongings and liability, but not the building itself. That’s the landlord’s job. About 40% of renters in the U.S. don’t have it, even though the average policy costs less than $15 a month. That’s a risky gamble if your laptop, TV, or winter coat gets stolen or destroyed.

How Much Coverage Do You Really Need?

Don’t just go with the lender’s minimum. You need enough to rebuild your home, replace your stuff, and cover liability. Here’s how to check:

• Rebuild cost - Use an online calculator from a trusted source like the National Association of Home Builders. Don’t use your home’s market value. A $500,000 house might only cost $300,000 to rebuild.
• Personal property - Walk through your home and list everything. Add up replacement costs. Most people underestimate this. A new TV, washer, fridge, and wardrobe can easily hit $20,000.
• Liability - If someone sues you for $500,000 and you only have $100,000 coverage, you’re on the hook for the rest. Many experts recommend at least $500,000.

Also, check if your policy includes replacement cost for personal property-not actual cash value. The difference can be thousands. For example, a 5-year-old refrigerator might be worth $300 in cash value but cost $800 to replace. Paying a little more upfront saves you big later.

Common Mistakes Homeowners Make

Even with HO-3, people mess up. Here are the top three:

1. Not updating coverage after renovations - You added a deck, finished the basement, or installed a new roof? Your policy needs to reflect that. Otherwise, you’re underinsured.
2. Ignoring flood risk - Just because you’re not near a river doesn’t mean you’re safe. Flash floods happen in unexpected places. A 2024 study found that 25% of flood claims came from low-to-moderate risk areas.
3. Not documenting belongings - If your house burns down, you’ll forget half your stuff. Take photos. Keep receipts. Use a free app like Encircle or Sortly to log your possessions.

Bottom Line

The HO-3 policy is the most common homeowners insurance because it works. It’s not perfect, but it covers the risks most people actually face. If you’re buying a home, start with HO-3. Then customize it: upgrade personal property to replacement cost, increase liability coverage, and add flood insurance if you’re in a risky area. Don’t skip the review. A quick 30-minute chat with your agent can save you from a costly surprise down the road.