HO-3 vs. HO-5 – Homeowners insurance offers essential financial security for your home, belongings, and liabilities in cases where you are accountable for injuries or property damage to others. While not mandatory by law, homeowners insurance is often a prerequisite when you have a mortgage and is advisable even without one.
The prevalent types of home insurance, HO-3 and HO-5, differ slightly in coverage and cost. It is crucial to grasp the variances between HO-3 and HO-5 insurance policies before buying home insurance to select the most suitable option for your circumstances. Thus, in this article, we will critically evaluate HO-3 vs. HO-5.
What is HO-3 insurance?
HO-3 home insurance is a popular and common type of homeowners insurance policy. It offers more extensive coverage than HO-1 and HO-2 policies but less than HO-5 policies, making it a cost-effective choice for homeowners seeking comprehensive coverage. The insurance policy provides coverage for various aspects including the house, additional structures, personal belongings, liability, medical expenses, and expenses incurred due to loss of use.
HO-3 policies cover 16 named perils, including fire, theft, and vandalism, but exclude certain types of damage such as earth movement, power failure, and neglect.
What is Covered by HO-3 Insurance?
The HO-3 insurance policy protects various aspects of homeownership, including the main dwelling, additional structures on the property, personal possessions, legal liabilities, medical expenses, and living expenses in the event of a covered loss. This comprehensive coverage ensures that homeowners are protected against a wide range of perils that can affect their property and personal assets.
In addition, HO-3 policies cover your belongings for 16 named perils, including HO-3 insurance policies typically cover accidental damage to heating, plumbing, air conditioning, and sprinkler systems, including cracking, burning, or tearing.
- Accidental damage from short-circuiting electrical currents
- Damage from cars
- Damage from ice, sleet, or snow
- Damage from frozen pipes
- Damage from planes
- Explosions
- Falling objects
- Fire or lightning
- Hail and windstorms
- Lightning strikes
- Riots and civil disturbances
- Smoke damage
- Sudden water overflow
- Theft
- Unexpected power surges and electrical malfunctions
- Vandalism
HO-3 policies provide coverage for personal possessions based on their actual cash value (ACV) if replacement cost coverage is not in force. ACV considers depreciation or wear and tear when the home insurance company reimburses you for a loss. This is different from replacement cost value (RCV), which doesn’t factor in depreciation. With replacement cost coverage, you will be reimbursed for the cost of buying new, similar items to replace damaged items.
What is Not Covered by HO-3 Insurance?
HO-3 insurance doesn’t cover every type of damage. These are standard exclusions that you’ll find in an HO-3 policy:
- an ordinance or law, such as an order requiring the demolition of your property.
- Earth movements such as earthquakes, landslides, and mudslides.
- Water damage caused by floods and storm surges is typically excluded from standard HO-3 policies.
- Power failure.
- HO-3 policies may not cover damage resulting from the homeowner’s failure to take reasonable steps to protect their property during a loss event.
- Wars such as civil wars and insurrections.
- Nuclear hazards.
- HO-3 policies do not cover intentional damage caused by policyholders.
- Government action, such as the seizure of your property.
Pros and Cons of HO-3 Insurance
Pros
- HO-3 insurance is a widely available and popular type of homeowners insurance policy.
- HO-3 policies are typically less expensive than HO-5 policies due to their less extensive coverage.
Cons
- Certain HO-3 policies may reimburse you based on the actual cash value (ACV) of your personal belongings, considering depreciation.
- Named peril coverage for personal property: An HO-3 insurance policy provides named peril coverage for your items. HO-3 policies typically cover common issues like fire and theft, but flooding is usually not included in the coverage.
What is HO-5 Insurance?
HO-5 insurance is a more extensive type of home insurance policy, also known as a comprehensive policy. It covers your dwelling, unattached structures, and personal belongings on a broader basis, referred to as an “open peril” basis. This implies that any cause of damage, except those explicitly listed as exclusions in the homeowner’s insurance policy, is covered.
What Does HO-5 Insurance Cover?
HO-5 insurance includes the following coverage types, similar to an HO-3 policy:
- Dwelling
- Detached structures
- Personal property
- Medical payments to others
- Personal liability
- Loss of use
HO-5 insurance policies offer the advantage of paying out based on the replacement cost of your personal property.
What Does HO-5 Insurance Not Cover?
HO-5 insurance excludes specific types of damage, similar to HO-3 policies. These exclusions may include:
- Ordinance or law
- Earth movement
- Water damage
- Power failure
- Neglect
- War
- Nuclear hazards
- Intentional damage
- Governmental action
Pros and Cons of HO-5 Insurance
Pros
- Comprehensive homeowner coverage
- Suitable for newly built homes
- Open perils policy
Cons
- More expensive than HO-3 insurance
- There may be more coverage than is necessary.
- Not all homes may qualify for HO-3 insurance coverage due to certain factors like location, age, or condition.
However, HO-5 insurance offers more comprehensive coverage than HO-3 insurance, making it a suitable choice for new construction. However, the policy is more expensive and may not be necessary for all homeowners. Additionally, not all homes may qualify for HO-5 insurance, particularly those with lower values.
HO-3 vs. HO-5 What’s the difference?
| HO-3 Insurance | HO-5 Insurance | |
| Cost | Less expensive option | More expensive choices |
| Personal property coverage | Named peril (offers less protection) | Open peril provides more protection. |
| ACV vs. RCV for personal property | Actual cash value (ACV) is standard, but replacement cost value (RCV) can be added at an additional cost. | Replacement cost value (RCV) is included as standard. |
| Dwelling coverage | Open peril provides more protection. | Open peril offers less protection. |
FAQs
Are HO-5 policies more expensive than HO-3 policies?
Yes, HO-5 policies are generally more expensive than HO-3 policies because they offer more comprehensive coverage for both dwellings and personal property. This additional coverage comes at a higher cost, making HO-5 policies less common than HO-3 policies.
What are some standard exclusions in HO-3 policies?
Some standard exclusions in HO-3 policies include ordinances or laws, earth movements such as earthquakes, landslides, and mudslides, certain water damage such as floods and storm surges, power failure, neglect on the part of the homeowner, war, nuclear hazards, and intentional damage.