Property Insurance Policies Explained: HO-1 to HO-8 for the Texas P&C Exam

Types of Property Policies is the largest single topic on the Texas P&C exam, accounting for approximately 22 out of 150 questions. That's nearly 15% of your total score from just one content area. If you master property policy forms, you walk into the exam with a significant advantage.

The challenge is that property policies come in many forms — homeowners forms (HO-1 through HO-8), dwelling policies (DP-1, DP-2, DP-3), and commercial property policies — and the exam tests whether you understand the specific differences between them, not just a general sense of "what insurance covers."

The most heavily tested form is the HO-3 Special Form. If you only memorize one thing from this article, make it this: HO-3 uses open perils on the dwelling and named perils on personal property. That distinction appears on the exam repeatedly.

But understanding the full range of homeowners forms — why someone would have an HO-4 instead of an HO-3, what makes an HO-8 different from an HO-1 — is what separates candidates who score 85% from those who barely pass. This article breaks it all down the way the exam tests it.

Quick orientation before we dive in:

• Homeowners policies (HO forms) — for owner-occupied residential properties
• Dwelling policies (DP forms) — for properties that don't qualify for homeowners coverage
• Commercial property policies — for businesses and commercial buildings

The Insurance Services Office (ISO) created standardized homeowners forms numbered HO-1 through HO-8. Here's what each one covers — and what you need to know for the exam:

HO-1 — Basic Form
Covers only 11 named perils: fire, lightning, windstorm, hail, explosion, riot, aircraft, vehicles, smoke, vandalism, and theft. This form is rarely sold today because HO-2 provides broader coverage for a similar price. The exam may test whether you know it covers only 11 named perils.

HO-2 — Broad Form
Expands coverage to 18 named perils, adding: falling objects, weight of ice/snow/sleet, accidental discharge of water, sudden tearing apart of heating systems, freezing of plumbing, damage from electrical current, and volcanic eruption. Both dwelling and personal property are covered on a named perils basis.

HO-3 — Special Form (MOST TESTED)
The most common homeowners policy in the US. Uses open perils on the dwelling (Coverage A and B) and named perils on personal property (Coverage C). This hybrid approach is the key distinction the exam tests. Open perils means everything is covered unless specifically excluded. Know common exclusions: flood, earthquake, intentional loss, war, nuclear hazard.

HO-4 — Renters/Tenants Form
Designed for renters who don't own the dwelling. Covers personal property only (Coverage C) — no dwelling coverage (Coverage A). Also includes liability (Coverage E) and medical payments (Coverage F). This is the policy for apartment tenants.

HO-5 — Comprehensive Form
The most comprehensive homeowners policy. Uses open perils on both the dwelling and personal property. More expensive than HO-3 because personal property gets broader coverage. Less commonly tested but worth knowing as the "best" homeowners coverage.

HO-6 — Condo Unit Owners Form
For condominium unit owners. Covers the interior of the unit (walls, floors, ceilings, fixtures) and personal property. The condo association's master policy covers the building exterior and common areas.

HO-7 — Mobile/Manufactured Home Form
Similar structure to HO-3 but designed specifically for manufactured or mobile homes. Provides open perils on the dwelling structure.

HO-8 — Modified Coverage Form
For older homes where replacement cost exceeds market value — typically historic or architecturally unique homes. Pays on a repair cost basis (functional replacement), not replacement cost. This prevents over-insurance situations where the insurer would pay more than the home is worth.

The difference between open perils and named perils coverage is one of the most tested concepts on the exam. It appears directly in questions about HO-3, HO-5, and dwelling policies — and indirectly in questions about coverage disputes and exclusions.

Named perils coverage means the policy only covers losses caused by perils specifically listed in the policy. If it's not on the list, it's not covered. The burden is on the insured to show that the loss was caused by a listed peril. HO-1 (11 perils) and HO-2 (18 perils) both use named perils for all coverages.

Open perils coverage (also called "all-risk" or "special form coverage") means the policy covers all causes of loss except those specifically excluded. If a peril isn't listed as an exclusion, it's covered. The burden shifts — the insurer must prove the loss falls under an exclusion to deny a claim. This is significantly broader protection for the insured.

Common open perils exclusions to know for the exam:

• Flood — requires separate NFIP or private flood policy
• Earthquake — requires a separate endorsement or policy
• Intentional loss — no coverage for deliberate damage
• War and nuclear hazard — excluded across virtually all personal lines
• Neglect — failure to protect property from further damage after a loss
• Ordinance or law — unless endorsed, increased costs due to building codes aren't covered

The HO-3 hybrid: HO-3 uses open perils for the dwelling (Coverage A and B) but named perils for personal property (Coverage C). This is the most tested combination. A question might describe a scenario where the dwelling is damaged by an unusual cause — if it's not an excluded peril, HO-3 covers it. But the same unusual cause damaging personal property inside might not be covered if it's not one of the 18 named perils.

Standard homeowners policies are divided into six coverage sections. The exam tests both what each section covers and the default coverage limits relative to Coverage A (the dwelling amount). Memorize these ratios.

Coverage A — Dwelling
Covers the physical structure of the home and attached structures (garage, deck, built-in appliances). This is the base amount; everything else is calculated as a percentage of Coverage A. Insured sets this limit based on replacement cost of the home.

Coverage B — Other Structures
Covers detached structures: fences, detached garages, sheds, pools. Default limit: 10% of Coverage A. If your home is insured for $300,000, Coverage B provides $30,000 for other structures. Additional coverage can be purchased by endorsement.

Coverage C — Personal Property
Covers the insured's personal belongings: furniture, clothing, electronics, appliances. Default limit: 50–70% of Coverage A. Special sub-limits apply to high-value items like jewelry, firearms, and fine art — these often require scheduled personal property endorsements for full coverage.

Coverage D — Loss of Use / Additional Living Expenses
Pays for temporary housing and increased living costs if the home becomes uninhabitable due to a covered loss. Default limit: 30% of Coverage A. Covers hotel, meals above normal costs, and similar expenses while repairs are made.

Coverage E — Personal Liability
Covers the insured against claims and lawsuits for bodily injury or property damage they cause to others. Default limit: $100,000. Does not cover intentional acts or business activities. Umbrella policies can extend this coverage.

Coverage F — Medical Payments to Others
Pays medical expenses for guests injured on the insured's property, regardless of fault — a "goodwill" coverage. Default limit: $1,000–$5,000. Does not cover the insured or household residents.

Exam tip: Know the percentage relationships — 10% (B), 50–70% (C), 30% (D). These numbers appear in calculation questions where you're given a Coverage A amount and asked what Coverage B or D provides.

Dwelling policies (DP forms) cover residential properties that don't qualify for homeowners insurance. The most common situations:

• Rental properties — the landlord owns it but doesn't live there
• Vacant homes — between occupants or being sold
• Homes under construction — builder's risk situations
• Properties with deferred maintenance — doesn't meet insurer standards for HO forms

Like homeowners forms, dwelling policies come in three levels:

DP-1 — Basic Form
Covers the same 11 named perils as HO-1. Pays on an actual cash value (ACV) basis by default. Very limited coverage — basically just fire and a handful of other perils.

DP-2 — Broad Form
Covers 18 named perils (same as HO-2). Includes additional perils not in DP-1. Pays replacement cost if that option is added; otherwise ACV.

DP-3 — Special Form
Uses open perils on the dwelling (like HO-3) but named perils on personal property, if personal property coverage is included. This is the broadest dwelling policy and the one most likely to appear on exam questions. Most landlords with rental properties want DP-3 coverage.

Key difference from homeowners forms: dwelling policies don't include liability coverage (Coverage E and F) by default. A landlord who wants liability protection needs to add it separately or carry a separate liability policy.

Exam tip: If a question describes a landlord insuring a rental property, think DP forms — not HO forms. HO forms require owner-occupancy.

Commercial property coverage appears on the exam as part of the Types of Property Policies section, though it's tested less deeply than homeowners forms. Know these key concepts:

Building and Personal Property (BPP) Policy
The standard commercial property form. Covers the building (if the insured owns it) and business personal property (equipment, inventory, furniture). If the insured leases the building, only BPP coverage for contents is needed.

Business Owners Policy (BOP)
A packaged policy combining property coverage (BPP) and general liability into one policy. Designed for small to medium businesses. More convenient than purchasing separate policies, often at a lower combined cost.

Commercial Package Policy (CPP)
A modular commercial policy where the insured selects from various coverage parts: commercial property, general liability, commercial auto, inland marine, etc. More flexible than a BOP, suited for larger or more complex businesses.

Coinsurance Clause (the 80% Rule)
The coinsurance clause is heavily tested. It requires the insured to carry insurance equal to at least 80% of the replacement cost of the property. If they carry less, they become a "co-insurer" and must share in any partial losses.

The formula: (Amount carried ÷ Amount required) × Loss = Amount paid

Example: Property worth $500,000. Required coverage = $400,000 (80%). Insured carries only $300,000. A $100,000 loss is paid as: ($300,000 ÷ $400,000) × $100,000 = $75,000. The insured absorbs the $25,000 difference.

Exam tip: Coinsurance calculation questions are common. Know the formula and practice it.

After reviewing all the property policy forms, here's how to approach these questions strategically on exam day:

HO-3 is the default. If a question describes a typical homeowner with standard coverage and doesn't specify otherwise, they likely have an HO-3. Any question about what's covered for a homeowner is probably testing HO-3 rules.

Know the coverage percentages cold:

• Coverage B (Other Structures): 10% of Coverage A
• Coverage C (Personal Property): 50–70% of Coverage A
• Coverage D (Loss of Use): 30% of Coverage A
• Coverage E (Personal Liability): $100,000 default
• Coverage F (Medical Payments): $1,000–$5,000 default

Remember what's excluded under open perils: Flood, earthquake, intentional loss, war, and nuclear hazard are excluded from virtually all property policies. If an exam question involves a flood or earthquake, the answer almost always involves a coverage gap — not a covered loss.

Match the policy to the situation:

• Renter in an apartment → HO-4
• Condo owner → HO-6
• Landlord with rental house → DP-3
• Older historic home → HO-8
• Mobile home owner → HO-7
• Small business owner → BOP or BPP

For coinsurance questions: Always check whether the insured meets the 80% requirement before calculating the payout. If they do, they receive the full claim amount (up to policy limits). If they don't, apply the formula.

Property policies make up ~15% of your exam score. Master these forms and you've put yourself in a strong position to pass.