HO8 vs HO3; What’s The Difference?

According to an American Community Survey, 49% of owner-occupied homes in the United States were built prior to 1980. If you are a homeowner who falls into this percentage, you may have been offered a specialized insurance policy to protect your older home. But how does this policy differ from the standard homeowner policy?

If you don’t know the answer, you’re not alone. Value Penguin conducted a study that showed 47% of homeowners don’t know what their home insurance policies cover. Fortunately, we’ve got you covered. In this article, we will discuss both the HO-8 and HO-3 policies and the differences between them, so you can determine the right policy for you.

An HO-8 policy is a modified version of the homeowners’ policy usually purchased, called an HO-3, and provides less coverage. The HO-8 is most often used for homes ineligible for a standard home insurance policy.

The two key differences between each policy form are the events (or perils) the home’s structure and personal property are insured against and how losses are settled.

Insurance companies will pay out claims on either an actual cash value or a replacement cost basis. Actual cash value policies will pay what it costs to repair or replace the damaged item, with depreciation.

Conversely, replacement cost policies will replace or repair the item at the price it would cost today, without depreciation.

What is an HO8 homeowners insurance policy?

An HO-8 policy is most often called the Older Home Form because it was created to cover homes older than 40 years old, on the historical register, or architecturally significant.

Insuring these homes on a standard home policy would often be too expensive. An HO-8 policy allows customers to get affordable coverage, albeit on an actual cash-value basis.

Per Corelogic’s residential cost handbook, 64% of homeowners don’t have enough insurance, and homes are underinsured by an average of 27%. Underinsurance can be an issue for homes not insured for replacement cost. So while HO-8 policies are more affordable, an HO-3 policy provides broader coverage and is a better option in most scenarios.

What does HO8 cover?

HO-8 policies protect both a home’s structure (or dwelling) and personal property from ten named perils:

• Fire or Lightning
• Windstorm or Hail
• Explosion
• Riot or Civil Commotion
• Aircraft
• Vehicles (Unless Caused by Insured)
• Smoke
• Vandalism or Malicious Mischief
• Theft
• Volcanic Eruption

Claims for the home’s structure and any personal property are settled at actual cash value. For example, if a $50,000 fire occurs at your residence and an adjuster determines $10,000 is the depreciation that should be taken into account, you would be paid $40,000 for the loss, minus any applicable deductible. This means that you may not be reimbursed for the full loss amount with an HO-8 policy.

What does HO8 not cover?

As a named peril policy, the HO-8 policy form does not cover any loss caused by anything not specifically named as a peril. While that list of 10 perils appears to be pretty exhaustive, there are a few events that are noticeably absent. Specifically, water damage and falling objects.

This means that if a pipe bursts in your home and causes water damage, or if a tree rots and falls onto your roof, your insurance will not pay to make these repairs. With the average price of water damage restoration between $1,300-$5,600, these exclusions can cost you thousands of dollars. Although all insurance policies contain exclusions, water damage and falling objects are often two exceptions in other policy forms, including the HO-3.

Here are some additional exclusions on an HO-8 policy:

• Earthquake
• Hurricane
• Mold
• Vandalism to Vacant Dwellings
• Government Actions
• Intentional Damage
• Building Code Enforcement
• General Wear and Tear

What is an HO3 homeowners insurance policy?

An HO-3 policy is the policy form most typically written for homes that are owner-occupied. It provides coverage for the structure of your home, any unattached buildings, personal property, additional living expenses, personal liability, and medical payments.

An HO-3 offers replacement cost for the dwelling and unattached structures on your property, but actual cash value for your personal property.

What does HO3 cover?

Unlike an HO-8, which is a named peril policy, an HO-3 policy covers homes and any unattached structures on an open peril basis. This means that your home is covered for any event that occurs unless it is specifically excluded.

However, similar to an HO-8, HO-3 policies cover your personal property on a named peril basis. Personal property is covered for the following events only:

• Fire or Lightning
• Windstorm and Hail
• Explosion
• Riot or Civil Commotion
• Damage Caused by Aircraft
• Damage Caused by Vehicles
• Smoke
• Volcanic Eruption
• Vandalism and Malicious Mischief
• Theft
• Falling Objects
• Weight of Snow, Ice, or Sleet
• Accidental Discharge/Overflow of Water
• Sudden Tearing/Cracking of Appliances
• Freezing
• Power Surges

Whereas an HO-8 policy lists ten named perils for both the home and personal property, HO-3 offers sixteen named perils for personal property only. In this way, an HO-3 provides much broader coverage than an HO-8.

What does HO3 not cover?

While coverage is broader than an HO-8, there are still some events that will not be covered by an HO-3 policy. Some common exclusions include:

• Earthquakes
• Floods
• Sinkholes
• Sewer Backup
• Government Intervention
• Wear and Tear
• Damage Due to Lack of Maintenance
• Rodent or Pest Infestation
• Rust, Mold, or Corrosion
• Pet Damage

These exclusions apply to both the home and any personal property.

Which Policy is Right for Me?

To determine which policy is right for you, you must consider price versus coverage and decide what is more important. While HO-8 policies may be more cost-effective than an HO-3, you are also getting less coverage. While that may not be an issue for some homeowners, an HO-8 is still not recommended.

Remember that HO-8 policies are often used in lieu of an HO-3 for older homes that aren’t eligible for a standard policy. If you need to make extensive home renovations in order to qualify for an HO-3, an HO-8 policy may be more economical. In this case, a homeowner may want to purchase an HO-8 policy, just until they are eligible for an HO-3.

If you’re still unclear about what policy may be best for you, I would recommend chatting with a licensed insurance agent. They can make suggestions based on your specific situation and guide you in the right direction.