Updated: August 7, 2025
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HO-3 insurance covers specific named risks and pays based on the item’s depreciated value, while HO-5 covers most risks unless excluded and pays the full cost to replace items.
Both HO-3 and HO-5 insurance provide open peril coverage for your home’s structure, including liability and loss of use protection, but don't cover flood or earthquake damage.
Choosing between HO-3 and HO-5 depends on your budget, the value of your personal belongings and how much risk you're comfortable taking on.
HO-3 and HO-5 are two common types of home insurance that provide financial protection for your home, with the key difference being personal property coverage. HO-3 policies replace your belongings if they were damaged by named perils only, while HO-5 includes broader protection through open peril coverage and replacement cost reimbursement.
Open peril, Replacement Cost (RCV) | Open peril, Replacement Cost (RCV) | Covers damage to your home’s structure; pays to rebuild or repair without depreciation. | |
Open peril, Replacement Cost (RCV) | Open peril, Replacement Cost (RCV) | Covers detached structures like garages, fences or sheds; reimburses full repair cost. | |
Named peril, Actual Cash Value (ACV) by default | Open peril, Replacement Cost (RCV) | Protects belongings like furniture and electronics; HO-3 pays depreciated value, HO-5 pays full replacement cost. | |
Covered (no peril distinction) | Covered (same as HO-3) | Pays for injuries or property damage to others that you’re legally responsible for. | |
Covered (usually triggered by named peril) | Covered (triggered by open peril) | Pays for temporary living expenses if your home is uninhabitable due to covered damage. |
Perils are events or hazards that can cause damage to your home or belongings, such as fire, theft or wind.
Specific perils covered vary by insurer and policy, so read your policy carefully. Understanding what's covered helps you avoid gaps in protection and ensures your policy matches the risks most relevant to your home.
HO-5 insurance offers broad open peril coverage, but doesn't cover everything. Insurers typically exclude certain high-risk or maintenance-related issues, which you'll need to address separately or with add-on coverage.
Most HO-5 policies exclude natural disasters like floods and earthquakes. You’ll need separate flood or earthquake insurance if you live in a high-risk area.
Damage caused by wear and tear, mold or pest infestations isn’t covered. These are considered preventable and fall under homeowner responsibility.
Any damage resulting from intentional actions or illegal activity is excluded. Insurers won’t cover losses you caused on purpose or through fraud.
Losses from war, nuclear hazards or government seizure of property aren’t covered. These are considered uninsurable due to their scale and unpredictability.
Damage from power outages or equipment breakdowns is excluded unless it causes a covered peril. Standalone equipment breakdown coverage may be available as an add-on.
Named perils are specific events listed in your policy that are covered by insurance. If damage is caused by one of these events, you can file a claim, but if it’s not named, it’s not covered.
When you file a personal property claim, your insurer will reimburse you based on how your policy values the lost or damaged items. This affects how much money you receive and how much you’ll pay out of pocket to replace what you lost. There are two kinds:
Actual Cash Value (ACV) | Pays the item’s depreciated value based on age and condition | A five-year-old laptop bought for $1,000 may only be valued at $400 today |
Replacement Cost Value (RCV) | Pays the full cost to replace the item with a new one of similar kind | A five-year-old laptop laptop bought for $1,000 would be reimbursed at the full $1,000 |
While both policies protect your home and belongings, they differ in how coverage is applied. Here’s how HO-3 and HO-5 compare across key features.
If a tree falls on your roof during a storm and damages your attic, both HO-3 and HO-5 policies would cover the repairs in full, since the structure is insured on an open peril, replacement cost basis, assuming the peril isn’t excluded.
If a detached garage is struck by lightning and catches fire, both policies would pay the full replacement cost to rebuild the structure, since other structures are also covered under open peril and RCV.
If your five-year-old TV is stolen:
If a guest trips over a rug and breaks their arm, both policies would cover their medical bills and legal costs, regardless of the cause, because liability protection doesn’t depend on perils or property type.
If a kitchen fire forces you to move out temporarily:
Choosing between HO-3 and HO-5 depends on how much protection you want and how much you’re willing to pay. HO-3 is a strong baseline policy with room for customization, while HO-5 offers more complete coverage out of the box. Use the table below to see which one fits your needs better.
Choose HO-3 if You... | Choose HO-5 if You... |
|---|---|
Want reliable coverage at a lower cost | Want broader protection with fewer gaps |
Don’t own many high-value personal items | Own expensive items like electronics, jewelry or collectibles |
Are comfortable with named peril coverage + ACV payouts | Prefer open peril coverage + RCV payouts |
Plan to add extra coverage through endorsements if needed | Want fewer decisions and more built-in protection |
HO-3 policies are typically less expensive than HO-5 policies because they offer less comprehensive coverage. HO-5 policies might not cost much more, depending on your circumstances. Since HO-5 policies provide broader coverage, they may save you money in the long run by covering more claims.
According to our study of policies across the country, the average annual homeowners insurance policy in the United States costs $2,520 annually or $210 per month. Whether you choose HO-3 or HO-5 insurance, costs vary widely depending on where you live and your home's value.
If you're looking for homeowners insurance coverage, we've ranked the best homeowners insurance companies to help you decide. Always compare home insurance quotes to ensure you get the best deal when shopping for insurance.
Both HO-3 and HO-5 policies offer strong protection for your home, but the difference lies in how they treat your personal property. HO-3 provides named peril coverage and pays out based on depreciated value, making it a good fit for budget-conscious homeowners. HO-5 offers broader, open peril protection with full replacement cost reimbursement, which is ideal if you own high-value belongings. Weigh your coverage needs, risk tolerance and budget to decide which policy gives you the right level of financial security.
The difference between HO-3 and HO-5 policies can help you make a smarter coverage decision. We answered common questions about both types of policies.
It depends on your needs. HO-5 offers more comprehensive coverage, while HO-3 is more affordable and still provides solid protection.
HO-3 policies usually reimburse personal property at actual cash value, but you can sometimes upgrade to replacement cost coverage for an added premium.
If you have valuable personal property or want broader protection with fewer claim restrictions, the extra cost of HO-5 may be worth it.
Yes, both policies offer open peril coverage for the dwelling, meaning you’re covered unless a peril is specifically excluded.
Yes, if HO-5 is available through your insurer, you can upgrade at any time. Just be sure to review the cost and coverage differences first.
MoneyGeek analyzed quotes from multiple insurance providers across the U.S. using a profile that reflects the average homeowner. By considering different locations and companies, we aim to give a reliable estimate of what homeowners can expect to pay, showing why comparing rates is important.
Homeowner Profile
For our analysis, we created a sample homeowner profile with the following characteristics:
Homeowners Insurance Coverage Details
Unless otherwise specified, we used the following coverage limits to collect quotes for our comparison:
We also compiled data for policies with broader coverage to determine the best companies for insuring expensive homes, increasing limits to $1 million in dwelling coverage, $500,000 in personal property coverage and $1 million in liability coverage.
About Mark Fitzpatrick
Mark Fitzpatrick, a Licensed Property and Casualty Insurance Producer, is MoneyGeek's resident Personal Finance Expert. With over five years of experience analyzing the insurance market, he conducts original research and creates tailored content for all types of buyers. His insights have been featured in publications like CNBC, NBC News and Mashable.
Fitzpatrick holds a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He's also a five-time Jeopardy champion!
Passionate about economics and insurance, he aims to promote transparency in financial topics and empower others to make confident money decisions.
