Open-peril coverage
On an HO-3, the dwelling is covered for direct physical loss from any cause not specifically excluded. That is broader than a named-peril form, which covers only listed causes. The burden of showing an exclusion applies generally falls on the insurer.
Setting the limit
The dwelling limit should reflect the cost to rebuild the home with similar materials, not the market price or the mortgage. Land is not rebuilt, and construction costs can differ a lot from sale prices. Insurers usually estimate rebuilding cost with a replacement cost tool; review the inputs such as square footage and finishes.
Replacement cost conditions
Many policies pay replacement cost on the dwelling only if the limit is at least a stated percentage of the full replacement cost. Underinsuring can reduce a claim payment. Ask each insurer how its condition works.
Frequently asked questions
Should my dwelling limit equal my purchase price?
Not necessarily. Purchase price includes land and market factors; rebuilding cost can be higher or lower.