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HO-3 and HO-5 are both common home insurance policies. The coverages included in HO-3 and HO-5 policies provide financial protection and liability coverage for damages to your home, other structures on your property, and personal property. HO-3 insurance offers open peril coverage for your home and other structures, plus the flexibility to add coverage through endorsements. While coverage for your home and other structures is similar, HO-5 offers more extensive coverage for your personal property. In this guide, Bankrate’s team of insurance editors will explain the details of HO-5 and HO-3 insurance to help you make an informed decision when choosing insurance for your home.
What is the difference between HO-3 and HO-5 policies?
To understand the difference between HO-3 and HO-5 homeowners insurance, you need to know a little bit about how insurance works. Home insurance provides coverage for insured perils, or types of loss. Insurance can provide coverage in two ways: named perils and undetermined perils. Named perils mean that you are only covered for the specific types of loss that are listed in your policy. Undetermined perils, on the other hand, mean that you are covered for anything that is not specifically listed in your policy’s homeowners insurance exclusions.
Open perils coverage is more comprehensive and can make the claims process easier. With named peril coverage, the burden is on you to prove that the damage actually arose from a covered named loss. With open perils coverage, the burden is on your home insurer to prove that your claim should not have been covered.
Both HO-3 and HO-5 policies include open peril coverage for the actual structure of the home as well as any freestanding structures, but HO-5 policies are typically for more expensive homes with dwelling coverage of around $750,000 and up.
The biggest difference between HO-3 and HO-5 home insurance is the coverage for personal property. Anything in your home that isn’t permanently attached to the structure is considered personal property. This includes everything from clothing and electronics to curtains and furniture. HO-3 insurance only covers your personal property for named perils. If you want open peril coverage for your property, you’ll need an HO-5 policy or an endorsement added to the HO-3 (if available).
Another important difference between HO-3 and HO-5 insurance is how insurance companies calculate claim payouts for personal property. HO-5 insurance typically includes replacement value (RCV) coverage for your belongings, while HO-3 insurance typically offers actual cash value (ACV). With ACV, instead of receiving money to replace your items at their current market value, you receive the value of the items minus their depreciation. However, most insurance companies offer replacement value coverage for personal property in HO-3 insurance, which can make your premiums about 10 percent higher.
As always, we encourage you to read your policy and ask questions, as the specifics of the insurance you purchase may vary depending on the insurance company. If you are unsure of what your homeowners insurance coverage includes, we recommend consulting with your insurance company or agent.
learn more: How to read a homeowners insurance policy
| Housing Compensation | Danger lurks | Danger lurks |
| Compensation for other structures | Danger lurks | Danger lurks |
| Personal Property Insurance | Specified risk, possible ACV claim payment | Unresolved risk, possible payment of RCV claims |
What is not covered by HO-3 and HO-5?
While insurance can protect your property against a variety of losses, homeowners insurance doesn’t cover everything. Both HO-3 and HO-5 policies typically have several coverage exclusions, including:
- flood
- Earthquakes and ground movements
- Problems caused by lack of maintenance
- pest
- Maintenance costs
- Type
- Sewer backflow and drainage pump failure
- Damage caused during business operations
- Full cost of some high-value items
While these exclusions are standard, it’s important to note that HO-3 insurance only covers damage to personal property caused by the perils listed on the policy, meaning that if your property is damaged by an event that isn’t specifically covered, you won’t be covered.
Named and open hazards
Now that you know the difference between HO-3 and HO-5 insurance, let’s take a closer look at the insured perils. To summarize, perils are sources of damage such as fire, windstorms, and theft. Both HO-3 and HO-5 insurance use open peril coverage for the home’s structure and any freestanding structures such as sheds and gazebos. However, HO-3 insurance only covers your personal possessions against named perils, while HO-5 insurance also covers your possessions on an open peril basis. Understanding how your personal possessions are covered can help you choose the type of insurance that best suits your needs.
What is the named danger?
HO-3 insurance covers your personal property from damage caused by named perils that are specified in the policy. There are usually 16 named perils, and they are generally the same, but may vary depending on your state and insurance company.
The most commonly covered named perils are:
- Fire and Lightning
- Storm and hail
- explosion
- Riots and civil unrest
- Aircraft damage
- Vehicle damage
- smoke
- Vandalism
- theft
- Falling objects (such as a tree falling on a house)
- Weight of ice, snow, and sleet
- Accidental spillage of water or steam
- Sudden and accidental breaks, cracks, burns, or swelling in your home systems
- frozen
- Sudden, accidental damage from electrical current
- Volcanic eruption
What is an Open Peril?
A policy written to cover open perils means that any type of peril that is not expressly excluded in the policy will be covered. Common exclusions include flood damage, sewage back-up, mold and fungus damage, earthquakes, mechanical breakdowns, etc.
Many insurance companies offer optional policy endorsements, or additional coverage options, that cover some of the additional perils that might normally be excluded. For example, a common endorsement might cover damage from sewer backflow.
HO-3 vs. HO-5 Home Insurance: How to Choose
HO-5 insurance tends to be more expensive than HO-3 insurance because it offers broader coverage. By paying a higher premium, your personal property is covered under more loss scenarios than if you purchased an HO-3. That said, the 16 perils specified in an HO-3 policy cover the most frequently occurring claims. According to the Insurance Information Institute, 90.9% of home claims made in 2022 were due to fire, wind, hail, flood damage and theft.
Damage caused by animals not owned is an example of a peril that is not covered under an HO-3 policy but is covered under an HO-5 policy. Typically, animal damage is not a named peril under an HO-3 policy, and HO-5 policies exclude damage caused by animals owned by the policyholder. However, foxes, deer, raccoons, and even bears can get into your home and wreak havoc. If you live in an area where this is common, you may be able to get more extensive coverage.
HO-5 insurance has strict underwriting guidelines that mean not all homeowners qualify, so ultimately it’s up to your insurance company to decide if HO-5 insurance is an option for you. Keep in mind that if you qualify and HO-5 insurance is within your budget, it may provide better coverage for your personal property than HO-3 insurance. However, if you can’t budget for the extra coverage, don’t need the extra coverage, or don’t qualify for HO-5 insurance, HO-3 insurance may be all you need.
