HO3 vs HO5 Homeowner insurance

When shopping for home insurance, many people focus on the price comparison first before discussing what is covered in the policy.   HO3 and HO5 are very different and this is why we have decided to write about the HO3 and HO5 homeowners insurance. 

In many cases, insurance policies from different companies appear identical as most of the policy specs tend to look like they match.  However, it makes a difference in what type of form is used for the policy, whether HO3 or HO5 can make a lot of difference.

When obtaining a mortgage, HO3 is a very common insurance policy that most people go for, this is not because it’s the best, but it’s mainly because it’s the minimum coverage required when obtaining a mortgage. HO3 can cover many types of properties, however, it only offers limited coverage for the policyholders' personal belongings.

The major difference between HO3 and HO5  

What are Open Perils? - Insures against all causes of loss that are not specifically excluded

What is a "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 an 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 takes away a lot of the limitations of the HO3, it gives new coverage and extends existing coverages in terms of coverages like higher limit for jewelry items and business personal property. Keep in mind that all items under the HO3 coverages are also under the HO5 coverages. For example, the HO5 automatically includes replacement cost coverage on contents. 

Under the HO5 policy, you no longer have to prove that the damage to your property was caused by one of the named perils. This will save you a lot of time and you won't have to spend a lot of time trying to convince your insurer of what happened to your property. 

Important: Keep in mind that because the HO5 provides broader coverage, the underwriting guidelines can be more complex. Normally, the insurance providers will 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?

If you qualify for both forms, the HO5 may be a  better choice. it gives you a broader coverage, but can also simplify the claims process as we stated above. Since you are getting better coverage, you should expect the cost to be higher than the HO3 policy. 

When it comes to HO3 or the HO5 insurance, make sure you ask you insurer a lot of question so that will be no confusion. As you all know, an insurance policy comes with lots of fine prints. You don't want to be caught off guard when it's time to file your claims.