HO-3 vs HO-5 insurance

The terms “HO-3” and “HO-5” refer to two types of homeowners insurance. Both types provide coverage for your home and your property, as well as liability coverage if someone is injured at your home. However, most property insurers only offer HO-3 policies. There are substantial differences in how each policy covers your personal property. Bankrate’s insurance editorial team — which includes four licensed insurance agents — can help you understand each option so you can choose the best policy type for your needs.

HO-5 vs. HO-3 policies

To understand the difference between HO-3 and HO-5 policies, you have to know a bit about how insurance works. Home insurance policies provide coverage for insurance perils, or types of losses. Policies can provide coverage in two ways: named perils and open perils. Named perils means only the specific types of damage listed in the policy are covered, while open perils means anything that isn’t specifically excluded is covered.

Open perils coverage is broader, making the claims process smoother. When you have named perils coverage, you bear the burden of proving that your damage should be covered. With open perils coverage, the burden falls on the home insurance company to prove that your claim should not be covered.

Both HO-3 and HO-5 policies include open perils coverage for the actual structure of your home and any detached structures. However, HO-5 policies are typically geared toward high-value homes with dwelling coverage of around $750K or higher, according to the Insurance Information Institute. The difference between the two is the coverage for your personal property. This includes everything from your clothing and electronics to your curtains and furniture. HO-3 policies only cover personal property for named perils. If you want open perils coverage for your belongings, you will need an HO-5 policy.

As always, it is a good idea to read your policy documents and ask questions, since the exact coverage you are purchasing may vary from company to company. If you are unsure what your homeowners policy covers, talking to your company or your agent might be a good idea.

What isn’t covered by HO-3s and HO-5s?

While a policy can protect your finances from many different types of damage, home insurance doesn’t cover everything. Both HO-3 and HO-5 policies generally have several coverage exclusions:

• Flooding
• Earthquake and earth movement
• Pests
• Mold
• Sewer backup and sump pump failure
• Maintenance costs
• Issues caused by poor maintenance
• Damages caused during the course of business
• The full cost of some high-value items

While these exclusions are fairly standard, keep in mind that HO-3 policies only cover damage caused by the perils listed in the policy. This means that if your home is damaged by an event that is not specifically covered, it’s excluded.

Named perils vs. open perils

Now that you know the difference between an HO-3 and an HO-5 policy, let’s delve a little bit deeper into insurance perils. To recap: a peril is a cause of damage, like a fire, windstorm or theft. Both HO-3 and HO-5 policies use open perils coverage for your home’s structure and any detached structures like a shed or gazebo. However, HO-3 policies only cover your personal belongings for named perils, while HO-5 policies also cover your belongings on an open peril basis. Understanding how your personal property is covered could help you choose a policy option that best fits your needs.

Named perils

HO-3 policies cover your personal property from damage by a list of named perils that are spelled out in the policy. There are typically 16 named perils, and they are generally the same throughout the U.S., though there might be differences depending on the state you live in and your insurer. The most commonly covered named perils are:

• Fire and lightning
• Windstorm and hail
• Explosions
• Riots or civil unrest
• Damage caused by aircraft
• Damage caused by vehicles
• Smoke
• Vandalism
• Theft
• Falling objects (such as a tree that falls on your house)
• The weight of ice, snow and sleet
• An accidental overflow of water or steam
• Sudden and accidental tearing, cracking, burning or bulging in household systems
• Freezing
• Sudden and accidental damage due to an electrical current
• Volcanic eruption

Open perils

A policy written to cover open perils means you are covered for any kind of peril not specifically excluded in the policy. Common exclusions include flood damage, sewer backups, mold or fungal damage, earthquakes and mechanical breakdowns.

Many insurers offer endorsements, or added coverage options, that will cover some of these additional perils that might otherwise be excluded. A common endorsement, for example, covers sewer backup damage.

How to choose an HO-3 or an HO-5

Since HO-5 policies provide broader coverage, they tend to cost more than HO-3 policies. However, by paying a higher premium, your personal property will be covered for most loss scenarios than if you purchased an HO-3.

Due to HO-5 policies having more stringent underwriting guidelines that not every homeowner will qualify for, it is ultimately an insurer’s call on whether an HO-5 policy is an option for you. If you qualify and an HO-5 policy is within your budget, it is important to note that it will give you more extensive coverage for your personal property than an HO-3 policy. However, if you do not have the budget for the additional coverage or if you do not qualify for or require the additional coverage for your personal property, an HO-3 policy may be sufficient.

Frequently asked questions

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    Is an HO-5 policy more expensive than an HO-3 policy?

    Generally, yes. HO-5 policies are usually more expensive than HO-3 policies because they offer broader coverage for your personal property. However, there are many factors that impact the cost of your homeowners insurance, including what state you live in and where in that state your home is located. Obtaining both HO-3 and HO-5 quotes from multiple insurance companies may help you determine which policy is right for you.
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    I live in a flood zone. Is an HO-3 or HO-5 better for me?

    Neither an HO-3 nor an HO-5 will cover you for flood damage. To cover damage from floods, you will need a separate flood insurance policy, although a few companies do offer a flood insurance endorsement. You can purchase this through the National Flood Insurance Program. Some private insurance companies also offer flood insurance, so it may be worth getting multiple quotes to compare premiums.
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    Can I get replacement cost coverage with an HO-3 policy?

    Whether your insurance policy includes actual cash value coverage, which subtracts depreciation from a payout, or replacement cost coverage is something that you will work out when you purchase your policy. Many insurers do offer replacement cost coverage as an endorsement with an HO-3 policy; it is more likely to be standard with an HO-5. Working with a licensed agent could help you decide which option fits your needs.