HO3 vs. HO5: What’s the difference?

Often times, homeowners assume that all insurance policies are the same, with little understanding that they actually differ and specify different things. Although home policies may appear to be identical, they differ substantially. One major difference between home insurance policies is the coverage as in the case of HO5 and HO3.

HO3 and HO5 are home insurance policies that both cover an owner’s house on an open peril basis.

The HO3 is the most common and widely available home insurance policy form. It includes the minimum coverage requirement when getting a mortgage. It also covers a broad range of property types but offers limited coverage for your personal belongings.

HO3:

• Your House: Open Peril

• Your Personal Property: Named Peril

• Personal Property: Actual Cash Value

List of named perils that limit personal property coverage on an HO3 form:

• Fire or lightning

• Smoke

• Explosion

• Volcanic Eruption

• Windstorm or Hail

• Freezing

• Damage due to weight of Ice, Snow, or Sleet

• Theft

• Vandalism or Malicious Mischief

• Riot or Civil Commotion

• Falling Objects

• Accidental Discharge or Overflow of Water from Plumbing, Air Conditioning, etc.

• Damage caused by Aircraft

• Sudden & Accidental Tearing Apart, Cracking, Burning, or Bulging.

On the other hand, HO5 takes out many of the limitations listed on the HO3. It also adds a new coverage limit for personal belongings like jewelry and business property. Some coverages that are available by endorsement on the HO3 are by default included in the HO5. For example, replacement costs on coverage contents.

It is important to note that the HO5 may provide broader coverage, but its underwriting guidelines is more restrictive. Mostly, insurance providers allow HO5 insurance coverage to new(er) or well-cared-for homes located in areas with a fire department.

HO5:

• Your House: Open Peril

• Your Personal Property: Open Peril

• Personal Property: Replacement Cost

The major difference between the two policies can be found in the manner they protect personal property. An HO3 policy covers your personal property on a Named Peril basis, whereas an HO5 policy covers your personal property on an Open Peril basis. Also, the HO3 plan excludes Replacement Cost Coverage on your personal property.

Difference between Open Peril and Named Peril

An Open Peril insures your home against all causes of loss that are not specifically excluded. It means you have coverage for all perils with the exclusion of those that are specifically stated ‘excluded’ on your home insurance policy documents. This type of peril provides coverage to your personal property if any damage was caused relating to perils that were not excluded from your insurance policy.

Named Peril insures against a specified list of perils. It only provides coverage for perils listed in your insurance policy. For example, if your policy document lists fire as a covered peril but do not outrightly list smoke, then no coverage will be provided for smoke in your Named Peril policy. However, if a peril was caused by smoke which led to a fire, it can be considered as a Named Peril. Most times, a fire always comes after smoke, but there are a few cases where this is not always the case.