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When shopping for home insurance, you might be surprised at how many different types of homeowners insurance there are. With so many to choose from, you might have questions. If you’re looking for more coverage than a traditional HO-3 policy, HO-5 insurance might be appealing, but not every home is covered. Bankrate explains who can benefit from HO-5 insurance and which homes it covers.
What is an HO-5 insurance policy?
HO-5 insurance is a homeowners insurance policy type that insures your home and personal possessions under open peril coverage, except for certain exclusions. This is slightly different from a standard HO-3 homeowners insurance policy, which insures the structure of your home on an open peril basis and insures your personal possessions only against named perils. As an open peril policy, an HO-5 insurance policy will list its exclusions, meaning the policy will cover any scenario that is not specifically excluded.
What does an HO-5 policy cover?
Home insurance policies can often be customized to fit your needs, so the specific coverages will vary depending on the particular policy, but a standard HO-5 policy will include several elements, including:
- Dwelling Coverage: The structure of your home is usually covered on an open peril basis, meaning that any loss that is not expressly listed as an exclusion is covered.
- Personal Property Coverage: Your possessions are also usually covered on an open peril basis, meaning anything that isn’t excluded is covered.
- Other Structures Coverage: HO-5 insurance also protects structures that aren’t attached to the home, such as a detached garage, a backyard shed, or fences.
- Liability Coverage: Another standard feature of HO-5 insurance is liability coverage, which protects you financially if someone is injured while in your home or if you are held responsible for damaging someone else’s property. It also covers legal and settlement costs if someone tries to sue you.
- Medical Expenses Coverage: This coverage may help with medical expenses if a guest is injured on your premises, depending on whether or not you were at fault.
- Loss of Use Compensation: HO-5 may also cover additional living expenses, such as hotel and food costs, if a covered claim damages your home and makes it uninhabitable while it is repaired.
HO-5 Policy Approval
To customize your HO-5 policy, you may need to purchase additional insurance or homeowners insurance endorsements. Consider these common options:
- Sewer and water backflow: This warranty covers damage to your home caused by sewage backup or sump pump failure.
- Identity Theft: Identity theft coverage helps cover actual expenses related to identity theft, such as credit repair costs and legal fees.
- Scheduled personal property: Regular personal property coverage can help protect expensive possessions like an expensive diamond ring or a firearm.
- Earthquake insurance: Earthquake insurance add-ons or policies provide protection against earthquake damage to your home, any freestanding structures on your property, and your personal possessions.
- Replacement of personal property: Personal property coverage helps pay for the costs of repairing or replacing possessions, like your laptop or furniture, that are damaged in a covered event.
- Flood Insurance: Flood insurance covers loss of your home and belongings due to direct flooding, such as from a storm.
Flood insurance is usually a separate policy from your home insurance, but earthquake coverage may be available as an add-on or stand-alone policy, depending on your state and insurer.
HO-5 Policy Exclusions
As an open peril insurance type, HO-5 coverage usually has a fairly lengthy list of exclusions. We recommend reviewing your policy for a comprehensive list of HO-5 exclusions. Each company may have different exclusions. However, the following homeowners insurance exclusions are fairly standard across HO-5 insurance policies:
- Earth’s Movement
- Power outage
- Nuclear disaster
- Collapse
- Establishment or expansion
- Mold, fungi, decay
- Smog and corrosion
- Ordinance or law
- ignore
- Intentional loss
- Theft from buildings under construction
- Birds and pests
- Typical wear and tear
- Smoke from agricultural and industrial areas
- Flooding caused by sewage backflow, flooding, and inundation
- war
- Government Action
- Vandalism of vacant houses
- Machine failure
- Pollutant emissions
- Captive animals
This may seem like a long list of exclusions, but remember that any damage caused to your home or personal property will be covered under your HO-5 policy unless specifically excluded by your property insurance company.
What is the difference between HO-3 and HO-5 policies?
HO-3 insurance is the most common type of homeowners insurance. Both HO-3 and HO-5 insurance cover the dwelling (the structure of your home) on an open peril basis.
The difference between HO-3 and HO-5 is how each policy covers your personal property. With an HO-5 policy, you get open peril coverage for your property, while with an HO-3, your property is covered on a named peril basis. This means that your personal property is only covered for the perils specifically listed in your policy, and everything else is excluded.
Who is covered under HO-5 insurance?
Eligibility for HO-5 insurance typically depends on several factors, including the condition of the property, its location, and the homeowner’s insurance claims history. Generally, homeowners with newer or well-maintained homes in areas considered to be at low risk for natural disasters and other potential threats may be eligible for HO-5 insurance. Keep in mind that eligibility criteria may vary by insurance company, so it’s best to consult with an insurance agent to determine if HO-5 insurance is available and appropriate for your particular situation.
Who needs HO-5 coverage?
You don’t have to own an expensive home to get HO-5 insurance. Because HO-5 insurance provides open peril insurance for both your home and personal possessions, it can better protect your finances against a wider range of scenarios. Homeowners can choose this powerful insurance as a financial safety net against potential losses. However, because of its broad coverage, HO-5 insurance is often more expensive than standard HO-3 insurance. Therefore, it may not be ideal for homeowners on a budget.
How much does an HO-5 policy cost?
HO-5 insurance typically costs more than HO-3 insurance because HO-5 insurance provides financial protection for personal property against a wider range of perils. The price of home insurance depends on several factors, including the type and limits of coverage, location, age of the home, square footage, and condition of the home. For HO-3 insurance, the average cost of home insurance for a home with $300,000 in dwelling coverage is $2,270 per year. Similar HO-5 insurance typically costs more.
