Homeowners Insurance: HO3 vs. HO5 Policy Comparison

Most homeowners believe that all homeowners insurance is equal. A common notion is that as long as the coverage limits match, a policy comparison is “apples to apples.” The reality is that that homeowners policies differ substantially even though their Coverage limits may appear to be identical. Each Policy may be the same in that they have say, $300,000 in dwelling coverage and $150,000 of Contents Coverage.  One major difference between homeowners policies is whether coverage is provided on a HO3 or HO5 form.

The HO3 is the most widely available policy form and is generally the minimum coverage requirement when obtaining a mortgage. It covers a broad range of property types, but offers a more limited coverage for your personal belongings as detailed below:

            HO3             HO5
Dwelling Coverage Type         Open Perils         Open Perils
Contents Coverage Type         Named Perils         Open Perils

Open Perils – Insures against all causes of loss that are not specifically excluded
Named Perils – Insures against a list of specified causes of loss

Here is a list of the named perils that limit the personal property coverage on a HO3:

  1. Theft
  2. Fire or Lightning
  3. Explosion
  4. Smoke
  5. Freezing
  6. Vehicles
  7. Falling Objects
  8. Volcanic Eruption
  9. Windstorm or Hail
  10. Riot or Civil Commotion
  11. Damage caused by Aircraft
  12. Vandalism or Malicious Mischief
  13. Damage due to weight of Ice, Snow, or Sleet
  14. Sudden & Accidental Tearing Apart, Cracking, Burning, or Bulging
  15. Sudden & Accidental Damage from Artificially Generated Electric Current
  16. Accidental Discharge or Overflow of Water from Plumbing, Air conditioning etc.

The HO5 Difference

The HO5 removes many of the limitations of the HO3, adds new coverage, and expands existing coverages such as a higher limit for jewelry items and business personal property. Many coverages that are available by endorsement on the HO3 are automatically included on the HO5. For example, the HO5 automatically includes replacement cost coverage on contents.

Another great benefit of the HO5 is that you no longer have to prove that the damage to your property was caused by one of the named perils. This can take a lot of the uncertainty and headache out of adjusting a loss.

Claims scenario: Say for example, a deer charged through a sliding glass door at a home. The animal proceeded to destroy virtually everything in the living room and kitchen including the furniture, television, and appliances. The loss was fully covered under the homeowners HO5. An HO3 would have had this homeowner paying out of pocket to repair and replace these belongings. While this isn’t a likely scenario, it provide an example of the countless (almost unimaginable) ways your personal belongings could be damaged by things other than the sixteen named perils.

It’s important to note, however, that because the HO5 provides broader coverage, the underwriting guidelines can be more restrictive. Generally insurance providers limit HO5 coverage to new(er) and/or well cared for homes that are in an area protected by a fire department.

Which should you choose?

Assuming that you qualify for both forms, the HO5 is the coverage that most prefer due to its greater level of coverage and typically minimal difference in cost.  The HO5 provides broader coverage, and can also simplify the claims process. While the price of the HO5 may be slightly higher than the HO3, the total long run costs of an HO5 may be lower.

The HO3-HO5 difference is one of many differences you could find between seemingly identical quotes or policies. It’s important that you know the differences between good, bad, and average policies. Don’t wait until you have a claim to learn about your coverage.