It's all right to hug a tree (3)
I believe the answer is:
oak
'tree' is the definition.
(oak is a kind of tree)
'it's all right to hug a' is the wordplay.
'it's all right' becomes 'ok' ('ok' can be a synonym of 'all right').
'to hug' indicates putting letters inside.
'ok' placed around 'a' is 'OAK'.
(Other definitions for oak that I've seen before include "Common deciduous tree" , "Deciduous forest tree" , "Nose of certain wines" , "Acorn tree" , "Large tree" .)