Premiums and Coverage Compared
Coverage Levels Compared: HO-3, HO-5, HO-2 and Basic vs. Full Coverage
Compare basic and full homeowners coverage, including HO-2, HO-3 and HO-5 forms, replacement cost versus actual cash value, and the endorsements that close common gaps.
"Basic" and "full" coverage are marketing terms, not insurance categories, but the difference they point to is real. A basic policy usually means a named-perils form, actual cash value settlement, and few endorsements. A fuller policy usually means an open-perils form such as an HO-3 or HO-5, replacement cost on the dwelling and belongings, and add-ons for water backup and rebuild cost increases. This guide explains each layer so you can request the same level in every quote and decide where the extra premium is worth paying.
The six coverage parts in a typical homeowners policy
Most standard homeowners policies, built on ISO-style forms, split protection into parts labeled A through F:
| Part | What it covers | Common default |
|---|---|---|
| A. Dwelling | The house and attached structures | The limit you choose, ideally full rebuild cost |
| B. Other structures | Detached garage, fence, shed | Often 10 percent of Coverage A |
| C. Personal property | Furniture, clothing, electronics | Often 50 to 70 percent of Coverage A |
| D. Loss of use | Hotel and extra living costs after a covered loss | Often 20 to 30 percent of Coverage A |
| E. Personal liability | Lawsuits for injury or property damage you cause | Commonly $100,000 to $500,000 |
| F. Medical payments | Small medical bills for guests hurt on your property | Commonly $1,000 to $5,000 |
Check your own declarations page, because percentages and defaults vary by carrier.
Policy forms: how perils are defined
Named perils (HO-2). The policy lists the causes of loss it covers, such as fire, lightning, windstorm, hail, theft and certain water discharge. If a cause is not listed, it is not covered. HO-2 is rarer today and mostly used for older or lower-value homes.
Open perils for the dwelling (HO-3). The most common owner form. The dwelling and other structures are covered for any direct physical loss unless the policy excludes it. Belongings are usually covered for named perils only. Exclusions such as flood, earth movement, neglect and wear and tear still apply.
Open perils for dwelling and belongings (HO-5). Both the structure and personal property are covered on an open-perils basis, and settlement terms are often richer. It costs more and is more common on newer or higher-value homes.
HO-8 (modified coverage). Written for older homes where full replacement to original standards would cost more than the market value. Settlement is often based on repair or actual cash value and limited to modern materials.
Condo and renter forms. HO-6 and HO-4 cover interiors, belongings and liability, not the whole building. They are not substitutes for an owner's dwelling policy.
Settlement basis: where "basic" and "full" really differ
The settlement basis matters more than the form number for what you actually receive.
- Replacement cost value (RCV) pays to repair or replace with comparable new materials. Many carriers pay the actual cash value first and release the depreciation holdback after you complete the repairs.
- Actual cash value (ACV) pays the replacement cost minus depreciation. Depreciation can be large on roofs and soft goods.
- Roof payment schedules attach a depreciation scale to roofs by age, so an older roof is paid at a percentage of cost even on a policy that is otherwise replacement cost.
- Extended or guaranteed replacement cost may pay a percentage above the dwelling limit, such as 25 percent or 50 percent, or in rare cases the full rebuild cost, if construction costs spike after a disaster.
Worked example (illustrative)
A hail storm damages a 15-year-old roof. The repair bill is $18,000. The deductible is $2,500.
- Under RCV with no roof schedule: the insurer pays $18,000 - $2,500 = $15,500.
- Under ACV with 50 percent depreciation on the roof: the insurer values the loss at $9,000 and pays $9,000 - $2,500 = $6,500. You cover $11,500.
- Under a roof schedule that pays 60 percent at that age: $10,800 - $2,500 = $8,300.
The premium difference between RCV and ACV may be a few hundred dollars a year, while the claim difference here is $9,000. Run your own scenario in the quote comparison tool.
Basic vs. fuller coverage in practice
| Feature | Basic approach | Fuller approach |
|---|---|---|
| Dwelling perils | Named perils or HO-3 | HO-3 or HO-5 |
| Dwelling settlement | RCV or ACV (ask) | RCV plus extended replacement cost |
| Roof | ACV or schedule | Full RCV when available |
| Personal property | ACV | RCV |
| Water or sewer backup | Not included | Added with $5,000 to $25,000 limit |
| Ordinance or law | Small default percentage | Higher percentage, such as 25 percent |
| Liability limit | $100,000 | $300,000 to $500,000 or an umbrella policy |
| Valuables | Sublimits only | Scheduled items |
| Deductible | Low flat | Higher flat, with attention to wind/hail percentage |
The endorsements that matter most
- Water or sewer backup. Standard policies commonly exclude backup through drains and sump pumps. This endorsement is inexpensive relative to a basement loss.
- Ordinance or law. If your home must be rebuilt to current building codes, this pays the extra cost. Older homes need it most.
- Scheduled personal property. Typical policies cap theft of jewelry, firearms and silverware at modest amounts, such as $1,500 or $2,500 per category. Scheduling items removes the cap.
- Equipment or service line coverage. Covers HVAC failure or buried utility lines in some carriers' wording.
- Higher liability or umbrella. Liability claims can exceed a $100,000 limit quickly. An umbrella policy is a separate contract that sits above your home and auto liability.
How to choose the level that fits you
- Decide the maximum amount you can lose without hardship, and set the deductible near that number.
- Insure the dwelling for full rebuild cost with replacement cost settlement. Skimping on Coverage A is the riskiest saving.
- Choose RCV for belongings unless your belongings are modest and the premium difference is large.
- Add backup and ordinance or law if your home is older or has a basement.
- Review liability and consider umbrella coverage if you have significant assets.
If budget is tight, trade down the deductible risk first, not the dwelling limit or the settlement basis.
Frequently asked questions
Is HO-3 enough?
For most owner-occupied homes, yes, as a starting point, with replacement cost and a few endorsements. An HO-5 matters most if you have many valuables or want open-perils protection for belongings.
What does "full coverage" mean on a homeowners policy?
It is informal. Ask for the dwelling limit, the settlement basis, the deductible and the endorsements in writing rather than relying on the label.
Does replacement cost mean I get a check for the full amount immediately?
Often not. Many insurers pay actual cash value first and release the rest after repairs are done and documented.
Do I need an umbrella policy?
Consider one if your assets exceed your liability limit or you have higher-risk exposures such as a pool or teenage drivers. Umbrella policies are sold separately.
Sources and where to check
- Insurance Information Institute — explainers on policy forms and coverage parts.
- National Association of Insurance Commissioners — consumer guide to homeowners insurance and links to state regulators.
- Your insurer's policy forms and your state department of insurance for exact wording and rules.