Homeowners Insurance: What’s the difference between HO-3 and HO-5?

August 28, 2019

Not all homeowners insurance is the same. Have you ever seen or heard the terms HO-3 and HO-5 and wondered what they meant or how they impact your coverage? This article covers the differences between the two so you can learn which policy might work best for you and your home.

Homeowners insurance is a package policy combining real and personal property coverage with personal liability coverage. Coverage typically applies to the dwelling, appurtenant structures, unscheduled personal property and additional living expenses. It also includes mobile homes at a fixed location.

What Protection Does an HO-3 Policy Offer?

An HO-3 policy, the most common homeowners policy found in the US, is a hybrid “open perils” and “named perils” policy—that is, your dwelling (house) is covered on an open perils basis and your contents (personal property, or everything that would fall out if you flipped the house over and shook it) are covered on a named perils basis.

There are generally 16 named perils for an HO-3 policy:

  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 and accidental tearing apart, cracking, burning or bulging
  15. Sudden and accidental damage from an artificially generated electric current
  16. Accidental discharge or overflow of water from plumbing, air conditioning, etc.

What is an HO-5 Policy?

An HO-5 policy is a complete open perils policy—both your dwelling and personal property are covered on an open perils basis. Therefore, an HO-5 policy gives the insured a list of exclusions that usually include the following (the same exclusions apply for the dwelling in an HO-3 policy):

  1. Earth movement (earthquake coverage can be endorsed on)
  2. Ordinance or law
  3. Water damage (sudden and accidental water damage is automatically included)
  4. Power failure
  5. Neglect
  6. War
  7. Nuclear hazard
  8. Intentional loss
  9. Government action
  10. Collapse
  11. Theft to a dwelling under construction
  12. Vandalism or malicious mischief (only if vacant more than 60 days)
  13. Mold, fungus or wet rot
  14. Wear and tear, deterioration
  15. Mechanical breakdown
  16. Smog, rust and corrosion
  17. Smoke from agricultural smudging and industrial operations
  18. Discharge, dispersal, seepage of pollutants
  19. Settling, shrinking, bulging or expanding
  20. Birds, vermin, rodents, insects
  21. Animals owned by insured

So What’s the Difference Between the Two Policies?

While the two policy types offer identical coverage for dwellings, the HO-5 policy is clearly superior in terms of personal property coverage.

Most homeowners will choose the HO-3 policy as it is available everywhere. The HO-5 policy is not available in all areas, and in some cases may only be offered for homeowners of newer, well-maintained homes.

In most cases, the HO-3 policy is cheaper as the coverage is not quite as comprehensive as the HO-5. However, some homeowners find that an HO-5 policy is very similar in price.

Claims process:
A big difference between the two policies is how the claims process is handled. In an open claims process, the burden is on the insurance company to prove that damage sustained was caused by something on the exclusion list. In an HO-3 policy, the burden is on the homeowner to prove that the damage was caused by a named peril—and depending on the homeowner’s knowledge of insurance terminology, that can prove difficult.

Looking Ahead

Regardless of the policy that you choose, it’s important that you have enough coverage to:

  • Completely rebuild your house if it is destroyed by fire or another insured disaster
  • Replace everything in the house
  • Protect your liability in case someone is injured on your property and sues you

If you have any further questions, don’t hesitate to contact The Ross Maghan Agency at (732) 566-0003 to get a quote today.

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