Buying a home is often the most significant purchase of your life, and it’s important to make sure that your home and its contents are insured. Both HO-3 and HO-5 homeowners insurance policies cover your home, but there are a few essential differences between the two regarding personal property.

What Is the Difference in Coverage Between HO-3 and HO-5?

The main difference between HO-3 and HO-5 homeowners insurance policies comes down to personal property. An HO-3 homeowners policy covers your personal property only if damaged by a cause named on your policy. In addition, HO-3 policies typically cover your property’s cash value but not necessarily the replacement cost. In some cases, you can add additional coverage to an HO-3 policy.

An HO-5 homeowners policy covers all damage to your personal property except for damages explicitly excluded from your policy. This might be a good option if you have more valuable personal property since it’s a more comprehensive coverage type. An HO-5 policy covers the replacement cost of your items, not just the cash value.

What Is a Peril?

Peril can refer to a wide variety of causes when it comes to personal property damage. “Named perils” are causes specifically named in your HO-3 insurance policy. Examples of named perils vary from policy to policy but often include theft, fire, smoke and vandalism. “Open perils” mean that you have coverage for all causes when it comes to your personal property, except for perils explicitly excluded from your policy.

Dwelling Coverage Differences

Your home typically has open peril dwelling coverage with both HO-3 and HO-5 homeowners insurance policies, so any damage to your home is covered unless it’s excluded from your policy. For example, if your insurance policy excludes mold damage, you wouldn’t be able to file a claim for damage caused by mold in your home, but you would be able to file a claim for any other kind of damage, including fire, smoke, vandalism or other causes.

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Personal Property Coverage Differences

HO-3 homeowners insurance policies cover personal property on a named peril basis, which means that damage to your property is only covered if named on your policy. HO-5 policies cover personal property on an open peril basis, so this coverage is more comprehensive and covers all damage to your personal property except for excluded damages.

ACV vs. RCV Differences

HO-3 policies reimburse you for damaged property based on the property’s ACV or actual cash value. For example, if you have a five-year-old laptop, its actual cash value would be less than the sticker price because it has depreciated over time. In contrast, HO-5 policies reimburse you based on the RCV or replacement cost value of your property. This means that your insurance policy will pay you enough to replace damaged property, regardless of depreciation.

Claims Process Differences

Because HO-3 homeowners insurance is less comprehensive, you’ll only be eligible to file a successful claim if a named peril has damaged your property. When you file your claim, you’ll need to provide specific evidence about how your property was damaged. Because HO-5 homeowners insurance is more comprehensive, you’ll most likely receive automatic reimbursement for your personal property damage.

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Is HO-3 or HO-5 Better for You?

Choosing between HO-3 and HO-5 insurance policies largely depends on your particular circumstances, including where you live, the value of your personal property and whether or not HO-5 coverage is available in your area.

If you have a lot of valuable personal property and live in an area where coverage is available, you might want to consider an HO-5 policy. They’re often not that much more expensive than a typical HO-3 policy and can help protect your property in a wide variety of situations. While the cost of an HO-5 insurance premium may be slightly higher, it can help save you money in the long run.

If you don’t have much valuable personal property, an HO-3 policy will probably meet your needs. While HO-3 policies aren’t quite as comprehensive as HO-5 policies, they still provide adequate coverage in many cases. If an HO-5 policy isn’t available where you live, you can also opt to include extra coverage with your HO-3 policy for an additional cost.

What Is Not Covered in an HO-3 or HO-5 Policy?

HO-3 policies include dwelling coverage and also usually cover many types of common personal property damage, including damage caused by fire, smoke, hail, lightning, vandalism, snow and more. HO-5 expands upon the personal property coverage offered by HO-3 policies and covers damage to personal property in pretty much all cases except excluded perils. Some types of damage that both HO-3 and HO-5 policies typically don’t cover include:

  • Flood damage
  • Mold
  • Earthquakes
  • Pollutants
  • Insect or animal damage
  • Wear and tear

In addition to homeowners insurance, you may want to purchase additional coverage not typically included under these policies, such as hazard, flood and earthquake insurance. While insurance coverage is a significant first step to protect your home from potential damage, you should also be sure to develop an emergency preparedness plan in case of natural disasters or other hazards.

Which Policy Costs More?

The average annual homeowners insurance policy in the United States costs $1,979 annually or $175 per month, according to MoneyGeek's study of policies across the country. Costs can vary widely depending on a number of factors, including where you live, your home’s value and how much coverage you opt for. HO-3 policies are typically less expensive than HO-5 policies since they offer less comprehensive coverage. However, HO-5 policies might not be that much more costly, depending on your circumstances. Because HO-5 policies provide broader coverage, they may save you money in the long run because they cover more claims.

If you’re looking for homeowners insurance coverage for your home, we’ve ranked the best homeowners insurance companies to help you decide. As always, when shopping for insurance products, you should be sure to compare home insurance quotes to make sure you’re getting the best deal possible.

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About Margaret Wack

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Margaret Wack is a freelance writer who covers insurance, saving, investing, banking, and more. Margaret earned a bachelor's degree in classics, comparative literature, and poetry from Smith College and a master's degree from St. John's College.