The HO3 is the most widely available policy form and is generally the minimum coverage requirement when obtaining a mortgage. This covers a broad range of property types, but offers a more limited coverage for your personal belongings as detailed below:
|Dwelling Coverage Type
|| Open Perils
|| Open Perils
|Contents Coverage Type
|| Named Perils
|| Open Perils
Open Perils – Insures against all causes of loss that are not specifically excluded
Named Perils – Insures against a list of specified causes of loss
To clarify, here is a list of the named perils that limit the personal property coverage on a HO3:
- Fire or Lightning
- Falling Objects
- Volcanic Eruption
- Windstorm or Hail
- Riot or Civil Commotion
- Damage caused by Aircraft
- Vandalism or Malicious Mischief
- Damage due to weight of Ice, Snow, or Sleet
- Sudden & Accidental Tearing Apart, Cracking, Burning, or Bulging
- Sudden & Accidental Damage from Artificially Generated Electric Current
- Accidental Discharge or Overflow of Water from Plumbing, Air conditioning etc.
The HO5 Difference
The HO5 removes many of the limitations of the HO3. Because of this, it adds new coverage, and expands existing coverages. For example, it has a higher limit for jewelry items and business personal property. Even though many coverages that are available by endorsement on the HO3, there are several that are automatically included on the HO5. For example, the HO5 automatically includes replacement cost coverage on contents.
Another great benefit of the HO5 is that you no longer have to prove that the damage to your property was caused by one of the named perils. This can take a lot of the uncertainty and headache out of adjusting a loss.
While a family was away on vacation, a deer charged through a sliding glass door at their home. Because of this, the injured animal proceeded to destroy virtually everything in the living room and kitchen including the furniture, television, and appliances. Thankfully, loss would be fully covered under the homeowners HO5. But an HO3 would have had this homeowner paying out of pocket to repair and replace these belongings. While this isn’t a likely scenario, it helps serve as proof that there are countless (almost unimaginable) ways your personal belongings could be damaged by things other than the sixteen named perils.
It’s important to note, however, that because the HO5 provides broader coverage, the underwriting guidelines can be more restrictive. Generally, insurance providers limit HO5 coverage to new(er) and/or well cared for homes that are in an area protected by a fire department.
Which should you choose?
Assuming that you qualify for both forms, the HO5 is the form of choice. The HO5 not only provides broader coverage, but can also simplify the claims process. While the initial price tag of the HO5 may be higher than the HO3, the total long run costs of an HO5 are generally lower.
The HO3-HO5 difference is one of many differences you could find between seemingly identical quotes or policies. It’s important that you know the differences between good, bad, and average policies. Don’t wait until you have a claim to learn about your coverage.