The Homeowners (HO) policy is the most widely sold personal-lines property contract in the country and typically the largest single block on the general portion — about 15%. The package combines real-property, personal-property, loss-of-use, personal-liability, and medical-payments coverage in one contract with shared declarations, exclusions, and conditions. This chapter covers the standard HO forms, the four Section I property coverages, the two Section II liability coverages, exclusions, loss settlement, special internal limits, and the key conditions. These are ISO-standard, national forms; the state overlays (mandatory earthquake offers, wildfire moratoria, residual-market "FAIR" plans) belong to the state portion and are summarized in Chapter 10.
The standard HO forms at a glance
Carriers use the ISO Homeowners program or close proprietary equivalents:
- HO-2, Broad Form — dwelling and personal property on a named-peril basis (a list of roughly 16 perils).
- HO-3, Special Form — the workhorse owner-occupied contract. Open-peril on the dwelling and other structures; named-peril on personal property.
- HO-4, Contents Broad Form — the renter's/tenant's form. No dwelling coverage; protects the tenant's personal property, loss of use, liability, and medical payments.
- HO-5, Comprehensive Form — the broadest standard contract: open-peril on BOTH the dwelling AND personal property.
- HO-6, Unit-Owners Form — for condominium owners: interior building items, personal property, loss of use, liability, medical payments, and built-in loss-assessment coverage.
- HO-8, Modified Coverage Form — for older/historic homes whose replacement cost far exceeds market value; settles dwelling losses on an ACV or functional repair-cost basis.
Section I — Coverages A and B
- Coverage A — Dwelling: the dwelling on the residence premises, including attached structures and on-site building materials. Coverage A is the keystone because most other coverages are expressed as a percentage of it. The agent's first task is to determine the replacement cost of the dwelling with a cost estimator.
- Coverage B — Other Structures: detached structures separated by clear space (detached garage, shed, fence, gazebo). Provides an additional amount equal to 10% of Coverage A (a separate additional amount, not a sublimit). Structures rented to others or used for business are restricted/excluded.
Section I — Coverages C and D
- Coverage C — Personal Property: covers personal property owned or used by an insured anywhere in the world, automatically written at 50% of Coverage A on an owner-occupied HO-3 (different percentages apply on HO-4/HO-6, where Coverage C is the keystone). Off-premises personal property is covered, commonly up to 10% of Coverage C (or a stated minimum such as $1,000, whichever is greater).
- Coverage D — Loss of Use: pays the necessary increase in living costs above the normal baseline when a Section I peril makes the residence uninhabitable — additional living expense (ALE) for temporary lodging/meals, and fair rental value if the insured rented part of the home. Usually about 30% of Coverage A on an HO-3, payable for the shortest time to repair/replace or permanently relocate.
Section I — special internal limits and scheduling valuables
Within Coverage C, the form imposes special internal limits (sublimits) on classes of property that are easily stolen, hard to value, or invite moral hazard. Typical figures (edition-dependent) include roughly $200 on money/bullion; $1,500 on securities and on watercraft/trailers; $1,500 on theft of jewelry, watches, and furs; $2,500 on theft of firearms; $2,500 on theft of silverware; $2,500 on business property on premises. These caps apply per loss within the Coverage C limit — they are sublimits, not additional amounts, so they do not increase Coverage C. (Contrast Coverage B, which genuinely is a separate additional amount equal to 10% of Coverage A.) To insure valuables fully and on broader perils, add a Scheduled Personal Property endorsement (or a Personal Articles Floater): each item is listed at an appraised value, the deductible is generally waived, coverage is open-peril including mysterious disappearance, and the special-limit cap does not apply.
Section II — Coverages E and F
- Coverage E — Personal Liability: pays sums the insured is legally obligated to pay as damages for bodily injury or property damage caused by a covered occurrence, and includes a duty to defend with defense costs paid in addition to the limit. A common baseline limit is $100,000 per occurrence, though insureds routinely buy $300,000–$500,000 and pair the policy with a personal umbrella for $1 million or more.
- Coverage F — Medical Payments to Others: a small no-fault coverage paying reasonable medical expenses (typically within three years) for someone other than an insured injured on the insured location with permission, or off-premises by an insured, a residence employee, or an owned animal. Typical limits $1,000–$5,000 per person. It heads off small claims before they become lawsuits.
Section II — insureds, insured location, exclusions
An insured under Section II includes the named insured, resident spouse/partner, resident relatives, and others under age 21 in their care. An insured location includes the residence premises, other premises the insured uses in connection with it, vacant land, cemetery plots, and premises used temporarily (a hotel room, a vacation rental). Important Section II exclusions: business activities (a home daycare or for-profit venture needs a separate policy/endorsement), professional services, ownership/operation of most motor vehicles, watercraft over stated size/horsepower, and aircraft; intentional injury; communicable disease; molestation; controlled-substance offenses; injury to an insured; and obligations under workers' compensation (employee injuries belong on a WC policy).
Standard exclusions and companion coverages
Every HO form lists Section I exclusions that reveal the gaps needing separate coverage: earth movement (earthquake — needs an earthquake program/DIC), flood (needs NFIP or private flood), war/nuclear/government action, intentional loss, ordinance or law (add-back endorsement available), and wear and tear/settling/mold/vermin/faulty workmanship (inevitable, non-fortuitous). Some forms still cover an ensuing named peril (e.g., a fire that follows an excluded cause).
Loss settlement on the dwelling: 80% coinsurance and RC
The standard HO-3 dwelling loss-settlement clause uses an 80% coinsurance trigger. Carry Coverage A ≥ 80% of the dwelling's full replacement cost at the time of loss, and partial losses are paid at full replacement cost up to the limit with no depreciation deduction. Carry less than 80%, and the insurer pays the greater of (a) the ACV of the damaged part, or (b) the proportion the limit bears to 80% of full RC, up to the limit. To stay above the line as costs rise, insureds add Inflation Guard (auto-increases Coverage A), Extended Replacement Cost (pays a stated 25%/50% above the limit if needed), or Guaranteed Replacement Cost (removes the cap, subject to underwriting).
Personal-property settlement: ACV vs. RC
Unless endorsed, Coverage C settles on ACV (replacement cost minus depreciation). Most insureds add the Personal Property Replacement Cost endorsement, paying full RC for items actually replaced within a stated time (commonly 180 days). The endorsement still respects the special internal limits — adding it does not lift the jewelry-theft cap.
Mortgage clause, liberalization, and other conditions
The standard (union) mortgage clause protects the lender even when the insured's own claim would be denied; the insurer typically gives the mortgagee at least 10 days' notice for non-payment cancellation and more (often 30 days) for other cancellations, and the mortgagee may pay premium to keep the policy in force. The liberalization clause extends any broader form the insurer adopts during the term (without extra premium) automatically. Other conditions include appraisal (either party may demand it to resolve amount disputes), a suit-against-insurer time limit, an assignment condition (no transfer without consent), and subrogation/salvage rules.
### Key numbers & facts — Chapter 5 National ISO Homeowners concepts. Percentages are standard HO-3 defaults (edition-dependent). - HO-3 = open dwelling/other structures, named-peril contents (workhorse). HO-5 = open on both. HO-4 = renter's, no dwelling. HO-6 = condo + loss assessment. HO-8 = older homes, ACV. - Coverage B ≈ 10% of A (additional). Coverage C ≈ 50% of A (owner-occupied HO-3). Coverage D ≈ 30% of A. - Coverage E commonly $100,000 per occurrence; defense is in addition to the limit. - Coverage F (Med Pay) no-fault, ~$1,000–$5,000 per person, expenses within 3 years. - Special internal limits (typical): ~$200 money, $1,500 jewelry theft, $2,500 firearms theft, $2,500 silverware theft. - Dwelling loss settlement: 80% coinsurance trigger for full RC; below 80% → greater of ACV or the pro-rata amount. - Personal Property RC endorsement — replace within ~180 days; special limits still apply. - Excluded → companion coverage: earthquake (separate program), flood (NFIP), ordinance/law (endorsement). - State overlays (mandatory earthquake offer, wildfire moratorium, FAIR-type plans) are (state-set) — see Ch. 10.
Worked example
A homeowner's dwelling has a $400,000 replacement cost but she insured Coverage A for only $280,000 (70% of RC). A kitchen fire causes $60,000 of damage. Because she carries less than 80% of RC ($320,000 required), the RC settlement does not apply in full. The insurer pays the greater of the ACV of the damaged portion or the pro-rata amount: (280,000 ÷ 320,000) × 60,000 = $52,500 (before any deductible), versus the depreciated ACV of the damaged kitchen. She loses the depreciation/coinsurance shortfall for being under-insured — the reason Inflation Guard and periodic RC re-estimates matter.
Named exam traps
- HO-4 and HO-6 have no Coverage A percentage engine. On a renter's/condo form, Coverage C is the keystone, not 50% of a dwelling limit.
- Defense costs. On Coverage E, defense is outside (in addition to) the limit — a common wrong answer says it erodes the limit.
- Med Pay is no-fault and only for others. It does not pay the insured's own household members' medical bills.
- Scheduling doesn't lift Coverage C's RC vs. sublimit automatically. The Personal Property RC endorsement still respects special limits; only a Scheduled endorsement removes the sublimit for listed items.
- Earthquake/flood "must be in the HO." They are excluded — separate coverage required. Any answer covering flood under the HO is wrong.
Sources: ISO Homeowners program forms (HO-2/3/4/5/6/8) and standard endorsements; NFIP for the flood exclusion. State-specific homeowners overlays are treated in Chapter 10.