Difference between HO3 and HO5

Difference Between HO3 and HO5 Homeowners Insurance Policy

With the perks of being a new homeowner comes the baffling selection of home insurance policies. HO3, HO5, special endorsements, Coverage A, B, C- the list goes on!

Making heads or tails out of this insurance jargon is not everybody’s cup of tea.  Especially when you need to make a decision as soon as possible before any unforeseen damage takes place.

The two most common insurance policies- HO3 and HO5 have their fair share of benefits. But the difference between HO3 and HO5 insurance policies will help you understand what you’re putting your money into!

Making the right call can help your family overcome a peril without paying a single dollar for replacements. On the contrary, an unfulfilling insurance plan can make you pay dearly!


What Is Homeowners Insurance?

What Is Homeowners Insurance

It’s mandatory for homeowners on a mortgage to choose suitable insurance. A homeowners’ insurance is a contract made between an insurance company and an individual about the risk management and reimbursement for damaged property.

Your chosen plan must cover all sorts of possible property damage from natural calamities and accidents alike. As of today, the two most popular insurance policies are HO3 and HO5. Both of these plans offer generous reimbursements for your dwelling and personal property damage.

On many occasions, they will offer third-party medical expenses, extra coverage on special limits of liability, and lucrative add-ons to go with your monthly plan!


HO3 Policy: The Most Affordable Insurance Policy for US Homeowners

HO3 Insurance Policy

The HO3 policy is hands-down the most common insurance policy to exist across the US insurance companies.  It not only is an affordable plan but also offers you plenty of advantages regarding coverage, actual cash payments, and additional endorsements.

HO3 is an ideal choice for people who are looking for a cost-effective insurance policy. If you live in a good neighborhood with modest personal property, then HO3 is the way to go!


What Does an HO3 Insurance Policy Cover?

Your HO3 insurance plan, however affordable it is, offers reasonable protection against perils such as theft, fire, vandalism, and natural disasters to name a few. Although there are internal limits on valuables and collectible items, the standard HO3 policy does not reimburse you for accidental breakage of antiques.

Gold jewelry, sterling silver, firearms, stamps, and money will be compensated for up to a precalculated level.


Basic Coverage & Exclusions

HO3 will cover any structural damage to your home exterior and structure on an open-peril principle- similar to that of the premium HO5. Your porch, deck, and garage also fall under the open-peril dwelling coverage.

As for the exclusions, any home damage that occurred by sewer backup, sinkholes, pest infestation, mold, corrosion, floods, and earthquakes are not covered. You can always purchase additional coverage and personalize the HO3 policy according to your needs.


HO3 Covers Personal Property Damage on a Named-Peril Basis

Losses to your dwelling and connected structures within the property will be reimbursed for on a replacement cost principle. It means that the insurer will not factor in depreciation of the original price you paid for the item. This way, you get the full market price!

Losses to your personal property, however, will not be compensated on the replacement cost method. Rather you’ll be reimbursed with the actual cash value unless the previous settlement is amended by an endorsement.


Living Expenses & Medical Payments

You can avail the much-needed living expenses (food, laundry, and hotel when your house is damaged by a named peril) from your HO3 insurance. What’s more, it also covers medical fees for a guest who has been injured on your property!

That’s not all; the liability coverage of HO3 takes care of all your legal fees if someone encounters property damage on your premises. Similarly, HO3 covers your legal penalties if you damage another individual’s property by accident.

But let’s not forget- you have to present well-founded and justifiable proof of any said damage to qualify for a reimbursement.

Difference Between Policy and Procedure


HO5 Policy: A Premium Insurance Policy with High Coverage Limits

HO5 Insurance Policy

An HO5 insurance policy is for times when you want to take your overall property protection up a notch. It can either be for keeping expensive heirlooms in your house, hanging a priceless painting you got from an auction, or simply feeling more secure in your own house.

Not to mention, there are many homeowners who are constantly in fear of snowstorms and earthquakes, floods, and vandalism. To help you have peace of mind, any HO5 policy should suffice.

HO5 offers you open-peril coverage for your home, condominium, etc. Unlike the basic HO3 where personal property coverage is on a named peril basis, HO5 expands it to open perils. It means that any damage to your personal belongings will be reasonably compensated!


Why Should You Get an HO5 Policy?

If you’re thinking to yourself- why pay a handsome insurance premium when hardly anything happens to your property? Well, not every day do you have to fix a flooded basement or a cracked wall siding, right?

But once you do, the cost can sure break the bank. There goes the trip to a luxurious week in the Bahamas. In a worst-case scenario, you might have to take money out of your kids’ college funds to pay for heavy structural reparations.

The good news is, HO5 policy reimburses you without having to provide proof of property damage. In fact, you get real-time replacement costs of the property that has been damaged.

Did someone get injured on your premises? HO5 has it covered. Got that fence wrecked from your neighbor kid’s bike? You can now get instant reimbursements for a brand-new fence. And guess what? It applies to all your personal properties unless you exclusively state otherwise!


Broader Coverage

Once you submit claims for your losses, you will be automatically compensated. There is no proof-collection and assessment procedure. The best part? Both your dwelling and personal property are on track with the open-peril coverage.

There is no hassle of choosing the named perils, only to find your beloved property damaged out of the blue! HO5 is a no-nonsense policy that provides all-over protection to your house and valuables. Its personal liability coverage and living expenses are also quite generous.


All-Around Personal Property Protection

When it comes to insuring your valuables, HO5 doesn’t discriminate. All your personal belongings are automatically covered under HO5. You don’t have to purchase insurance supplements and look for endorsements.

Unless you strictly rule something out of the contract, each of your things is safe and sound and will be fully compensated for if the need arises.


Expanded Limits on Valuable Items

The limit of liability is the max level of reimbursement your insurance company can go.

Reconstruction costs, damage to property, personal liability and property, medical payments, loss of valuables from vandalism, and ransacking have different limits. And all insurance companies are not necessarily looking at the same numbers.

Insurers offer a percentage of this limit of liability. But it’s safe to say that once you’re on an HO5 policy, this percentage is a lot higher.

The fact that you’re getting reimbursed on a replacement cost basis in both open-peril personal property damage and dwelling damage makes HO5 the better financially profitable option.


Some of Our Articles You May Want to Read:


HO3 Vs. HO5: Which Homeowners Insurance Policy Is Better for You?

Taking the value of your physical dwelling, attached structure, and indoor particulars into consideration, the ideal choice of insurance policy is no other than HO5. But sometimes, the hefty insurance premium and additional payments go over the top. Especially if you have a simple home with a few valuables.

If that’s the case, signing up for an HO3 policy is a reasonable decision. On the other hand, choosing an HO5 policy keeps you protected in more ways than one. And if you can afford the premium without cutting corners on your health insurance and car insurance, then HO5 is the way to go!

Here’s a handy comparison table to show you the basic differences between HO3 and HO5.

Parameter of Comparison

Dwelling Coverage Personal Property Coverage Reimbursement Plan Special Features
HO3 Open Perils Named perils Personal Property- Actual Cash Value


Damage to the dwelling- Replacement Cost (Conditions applied)

Options of additional endorsements
HO5 Open perils Open perils Replacement Cost Offers high-percentage reimbursements against the limit of liability


Bottom Line

You can never be too sure about what life has in store for you. This is where a great home insurance policy comes into play.

By analyzing the difference between HO3 and HO5 insurance policy, the latter is a homeowner’s insurance that truly makes up for everything. Compensating you for sixteen different perils, HO3 isn’t that bad itself. The decision is yours. All the best!

Similar Posts