Making sure you get the best home insurance policy can be a bit overwhelming.
And figuring out the how the different types of home insurance work, like HO3 vs HO5, can be down right confusing.
But, it doesn't have to be since there are only a few types of policies that are actually for your home and learning how they work isn't hard.
In this post today, I will go over the differences between HO3 and HO5 homeowners insurance, how they work and how to choose between the two.
What's An HO3 & HO5 Insurance Policy
Before we can talk about the differences between an HO3 and an HO5 policy, we first must understand how each plan works individually.
What is An HO3 Homeowners Policy
The most common type of homeowners insurance policy you can find will be the HO-3, also known as a Special Form policy.
Since it has a broad range of coverage and some of the most affordable premiums, it has become the most offered type of home insurance policy.
The HO-3 policy is actually a combination of an "open perils" policy and a "named perils" policy.
It's considered a combination because it will cover your Dwelling (the physical house, and attached structures) on an open perils basis and your personal property (your things) on a named peril basis only.
The HO3 policy also only pays out claims on an Actual Cash Value basis.
We will cover exactly what the different types of perils mean, as well as the kind of claims payout options a little further down in this post.
This policy will also cover Other structures, Personal Liability, and Medical payments to others.
Open Peril Policy
An open peril policy is a complicated way of saying that you are covered for any peril as long as it is NOT listed as being excluded in your policy.
For example:
If your policy lists exclusions for ice, lightning, and floods, as long as the damage caused to your property wasn't from ice, lighting, or floods, you would be covered.
Named Peril Policy
A Named Peril policy is only going to cover you for perils that are specifically named in your policy documents.
This means, if your homeowner's insurance policy lists "snow" as a type of covered peril, but not "hail," then hail damage would not be covered in a named peril policy.
Below is a list of named perils that limit your personal property coverage on an HO3 policy
Remember, when it comes to your personal property if it is damaged by anything other than the below items; it won't be covered by your home insurance policy:
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What Is An HO5 Homeowners Policy
An HO5 policy is also known as a comprehensive form policy and will have the most coverage options available.
However, that also makes it the most expensive of all the home insurance policies.
It will cover more perils than other policies and is also an "open peril" policy.
Although they are similar to an HO3 policy they have a few main differences:
Replacement Cost Value
When you have to file a claim, an HO5 policy will reimburse your dwelling and personal property on a replacement cost value.
This means that the policy will cover what it would cost to actually replace the item, not the current value of the policy.
So:
If you were to purchase a laptop for $1,500 and after 3 years it is destroyed by a covered loss.
It's current value is definitely not going to be $1,500; however, the insurance policy is going to pay out what it would cost to totally replace the same item, not its current value.
Total Open Peril
HO5 policies are open peril for both dwelling and personal property and as we stated above, an open peril policy covers you for any peril as long as it is NOT listed as being excluded in your policy.
Expanded Limits
HO5 policies have increased limits for losses and damages to items like jewelry, fine furs, and electronics and are usually for newer homes in a low-risk area with high value relative to the rest of the state.
HO3 vs HO5 Homeowners Policy
When it comes to the framework of these policies, they are practically the same, they cover the same types of perils but just in a different way.
HO5 policies are more comprehensive when it comes to covering your overall home and personal items.
There are two primary differences between an HO3 and HO5 policy, and those differences are how they protect your personal property and how they pay out claims.
An HO5 policy protects you by giving you the Replacement Cost Value of any items that have suffered a covered loss.
It also has an open perils coverage on everything else.
The HO3 policy will only return you the Actual Cash Value of the items you have lost and covers your personal property on a named peril basis.
Here is what it looks like:
Dwelling Coverage (coverage for your physical house, inside and out)
HO3 | HO5 |
|---|---|
Open Perils | Open Perils |
Personal Property Coverage (coverage for your stuff)
HO3 | HO5 |
|---|---|
Named Perils | Open Perils |
Claims Reimbursement
HO3 | HO5 |
|---|---|
Actual Cash Value | Replacement Cost Value |
Should I Get An HO-3 OR HO-5 Policy?
Which option you pick will depend on the insurance company you choose, the age of your home, and the location of your home.
Some companies have HO3 policies that can rival an HO5 policy in both cost and coverage.
So:
My recommendation is that you should go with the policy that will give you the best price for Maximum coverage.
In General, Who's It For?
HO3 policies are available to all home types (it’s at the insurance company’s discretion whether to accept your application for insurance).
HO5 policies are available to newer homes in areas with a low risk of natural disasters, crime, and other bad things that could cause losses or damages.
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Who Has The Best Homeowners Insurance Policy?
We have found the best home insurance to come from Hippo, you can check out or quick review below.
About Hippo Home Insurance
Hippo is the newest entrant into the home insurance world but is backed by TOPA Insurance company.
As of today TOPA has an A- (Excellent) rating with A. M. Best.
Hippo believes that great homeowners insurance should be affordable, smart, convenient, and fast.
Hippo wants to make sure that you are able to get a homeowners insurance policy that covers you for the most relevant things today.
Product Features
- Available In: AL, AZ, CA, IL, IN, MD, MN, MO, MS, NM, NV, OH, PA, TN, TX, WI
- Free Water leak Sensor For Home
A Free (Roost Water Leak Sensor) With Every Policy
With every policy Hippo offers a free Roost water leak sensor that has a value of $50.00. According to Roost, you can outsmart water with their smart water leak and freeze detector. The way it works is that you place it anywhere the potential for flooding or leaking exists and if it senses water it will send an alert to your smart phone.
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Hippo has come out of the gates swinging at its competitors with on average 25% lower premiums. They also have a much faster application and approval process which doesn't require an agent to complete. Hippo is the best answer if you need fast quotes and fast coverage.
Want to learn more? Check out our full Hippo Insurance Review.
Take Action
There is no reason to go without home insurance, in fact, over 70% of people don't even shop for their homeowners insurance; they just take what's offered by a real estate or mortgage broker.
Now that you understand the differences between and HO3 and HO5 policy it's time to take action. Click here to get some quick quotes the process started today.