HO-3 vs. HO-5 Insurance for Homeowners

As a homeowner, you may be surprised to learn that there are eight types of home insurance, which offer varying levels of coverage for homes, condos, mobile homes and apartments. The most common type is HO-3 insurance, which provides coverage for your home, other buildings on your property and your personal belongings. It usually also has liability and medical payment coverage. HO-5 insurance, another common type, is similar, but with more robust coverage and the possibility of higher payouts on claims. In exchange for this higher level of coverage, you will generally pay more for HO-5 coverage. In this guide, we look at the differences between HO-3 and HO-5 insurance to help you decide which one works best for your own situation.

What’s the difference between an HO-3 and HO-5 policy?

To compare HO-3 vs. HO-5 insurance, let’s first look at what’s similar. Both policies cover your home’s structure and personal possessions from insurance perils, or events that cause damage. In some cases, you may be covered for named perils — that is, for perils that are specifically named in your policy. Or they may be covered on an open peril basis, which covers all damage unless it’s from a peril that is expressly excluded in your policy documents, such as flood and earthquakes.

Both HO-3 and HO-5 insurance cover your home itself (along with any other structures on your property such as a detached garage, in-ground swimming pool or gazebo) on an open perils basis. But the similarity ends there. There are distinct differences between the two policies when it comes to Coverage C, the part of your policy that deals with your personal property, from clothing and appliances to furniture and books. With HO-3 insurance, property is covered for named perils — that is, the basic and broad named perils outlined in your policy. HO-5 insurance, on the other hand, covers your belongings on an open perils basis — also referred to as special peril coverage — which includes all direct causes of loss to the dwelling and other structures unless specifically excluded. Partly because of this, HO-5 insurance is usually more expensive than HO-3.

HO-5 policies usually pay out on claims based on replacement cost value (RCV), which is often higher and provides enough money for you to replace your belongings with new ones of similar value. So, you might receive enough to replace your 10-year-old couch with a comparable new one without any out-of-pocket cost. HO-3 policies provide coverage on either an RCV or actual cash value (ACV) basis. ACV includes depreciation. That means that if, say, your 10-year-old couch is destroyed in a fire, you would only receive an amount equal to what the couch is worth now, rather than when it was new.

Learn more: How to read a homeowners insurance policy

Named perils vs. open perils

We’ve talked about the differences between named and open perils, and how these concepts are used for determining claims payouts when your belongings are damaged. Let’s take a closer look at what each type entails.

What are named perils?

HO-3 policies cover your personal property from damage caused by named perils — those that are spelled out in the policy. There are typically 16 named perils, and they are generally the same across the U.S., though there might be differences depending on the state you live in and your insurer.

• The most commonly covered named perils:
  

  Fire and lightning

  Windstorms and hail

  Explosions

  Riots or civil unrest

  Damage caused by aircraft

  Damage caused by vehicles

  Smoke

  Vandalism

  Theft

  Falling objects (such as a tree that falls on your house)

  The weight of ice, snow and sleet

  An accidental overflow of water or steam

  Sudden and accidental tearing, cracking, burning or bulging in household systems

  Freezing

  Sudden and accidental damage due to an electrical current

  Volcanic eruptions

What are open perils?

A policy written to cover open perils means you are covered for any kind of peril not specifically excluded in the policy. Common exclusions include flood damage, sewer backups, mold or fungal damage, earthquakes, mudslides, sinkholes and mechanical breakdowns.

Many insurers offer optional policy endorsements, or added coverage options, that will cover some of these additional perils that might otherwise be excluded. A common endorsement, for example, covers sewer backup damage.

What isn’t covered by HO-3s and HO-5s?

While a policy can protect your finances from many different types of damage, home insurance doesn’t cover everything.

• Common HO-3 and HO-5 policy exclusions:
  

  Flooding

  Earthquake and earth movement

  Sinkholes

  Issues caused by poor maintenance

  Pests

  Maintenance costs

  Mold

  Sewer backup and sump pump failure

  Damage caused during the course of business

  The full cost of some high-value items

  War or acts of war, including undeclared war or civil war

  Power failure — off residence premises

  Ordinance or law — regulating construction, repair and demolition

  Intentional loss by insured or someone else at the insured’s direction

  Nuclear hazard

  Governmental action — destruction, confiscation and seizure of property by government or public authority

  Loss to property — faulty zoning, bad repair workmanship, faulty construction materials and defective maintenance

While these exclusions are fairly standard, keep in mind that HO-3 policies only cover personal property damage caused by the perils listed in the policy. This means that if your belongings are damaged by an event that is not specifically covered, it’s excluded.

HO-3 vs. HO-5 home insurance: How to choose

Since HO-5 policies provide broader coverage, they tend to cost more than HO-3 policies. By paying a higher premium, your personal property will be covered for more loss scenarios than if you purchased an HO-3. That said, the 16 named perils on an HO-3 policy cover the most frequent claims. According to the Insurance Information Institute (Triple-I), 90.9 percent of home claims made in 2022 — the latest industry data available — were for fire, wind, hail, water damage and theft.

Damage caused by an animal you don’t own is an example of a peril that an HO-3 policy would not cover but an HO-5 policy would. Typically, animal damage is not a named peril on an HO-3 policy, and HO-5 policies usually exclude damage from an animal owned by the policyholder. However, foxes, deer, raccoons and even bears can find their way into homes and wreak havoc. If you live somewhere where this is common, you might benefit from more extensive coverage.

Due to HO-5 policies having more stringent underwriting guidelines that not every homeowner will qualify for, it is ultimately an insurer’s call on whether an HO-5 policy is an option for you. If you qualify and an HO-5 policy is within your budget, keep in mind that it might give you more extensive coverage for your personal property than an HO-3 policy. However, if you do not have the budget for the additional coverage, do not need it or do not qualify for an HO-5 policy, an HO-3 policy may be sufficient. 80 percent of U.S. homeowners have an HO-3 policy, according to Triple-I.

*The quotes and citations included on this page have been verified by our editorial team and are accurate as of the posting date. Outlinked content may contain views and opinions that do not reflect the views and opinions of Bankrate.

Frequently asked questions

• Is an HO-5 policy more expensive than an HO-3 policy?
  

  Usually, yes, you will pay more for an HO-5 policy than you would for an HO-3 policy on the same property. Keep in mind, however, that this isn’t the only factor that determines your premium. Your insurer will also look at your location, the age and condition of your home and, in most states, your own credit history, among other factors, when determining what you will pay for coverage. When you are looking for the best homeowners insurance for your situation, it can be helpful to ask for quotes from a range of carriers to see who offers you the cheapest rate. It’s usually simple and easy to get quotes, and you may even be able to get one by answering a few questions on an insurance company’s website. Or you may want to talk to an independent agent who can help you decide how much and what types of coverage you need, and aid you in sourcing the best policy for your needs.

• I live in a flood zone. Is an HO-3 or HO5 better for me?
  

  Generally, both HO-3 and HO-5 policies exclude coverage for floods. If you live in a flood zone or have any concerns about possible flooding, you may want to consider purchasing a separate flood insurance policy. This type of coverage is available from the National Flood Insurance Program, which is managed by FEMA. NFIP policies cover up to $250,000 for property damage and $100,000 for contents, and take 30 days to become effective. Alternatively, there are dozens of private insurers that also offer flood insurance. Private flood policies typically offer higher policy limits and additional living expenses (ALE) for temporary living if you are displaced from your home following a flood. NFIP does not include ALE.

• Can I get replacement cost coverage with an HO-3 policy?
  

  Yes, you can get an HO-3 policy with replacement cost coverage instead of actual cost coverage. You will likely pay more for this coverage, however, since you are, in essence, purchasing a potentially higher claims payout following any sort of covered disaster.

• How does the claims process differ between an HO-3 and HO-5 policy?
  

  The process of filing a homeowners insurance claim is the same whether you have an HO-3 or HO-5 policy and can be broken down into these three steps:

  • Take action to prevent further damage to the property.
  • Document the loss.
  • Contact the insurance provider to submit the claim.

  Usually, the only difference between an HO-3 vs. HO-5 claim is how your personal property is covered. The insurance provider could deny the claim if the proximate cause of loss is not a named peril on an HO-3 policy or is an excluded peril on an HO-5 policy. And for a covered HO-3 claim, policyholders would receive a claim payout up to the policy limit for their personal belongings minus depreciation (unless they purchased RCV coverage), whereas HO-5 policies typically pay out on a replacement cost basis that doesn’t consider depreciation.

• Is an HO-5 policy better than an HO-3 policy?
  

  Both policies have pros and cons. HO-3 policies are often cheaper, but you run the risk of having to pay out-of-pocket costs after an approved claim. This might be the case if your property is damaged, since an HO-3 policy’s actual cash value payout will generally not be enough to replace all your damaged or destroyed belongings with new items. HO-5 policies may also protect your belongings from a broader range of perils, since coverage is generally on an open perils basis. That said, HO-3 is more common to purchase as approximately 80 percent of single-family homes own it versus HO-5.

• What is the eligibility criteria for an HO-5 policy?
  

  Not all insurers offer HO-5 and may have restrictions on eligibility. If you want to have the more extensive coverage of an HO-5 policy, ask your insurer about their criteria for it. HO-5 policies are often seen with high-value homes, but many insurers will sell policies to any homeowner, as long as the home is in fairly good condition. It is also more common in areas that are not at high risk of natural disasters such as hurricanes or wildfires. Every insurer has its own rules for HO-5 coverage, though, so it can be worth asking about if you wish for more robust coverage.