HO-3 vs. HO-5 insurance: Understanding the key differences

When you shop for homeowners insurance, you may run into several policy types. The most common choice is an HO-3 policy, but you may also have the option to buy an HO-5 policy. 

An HO-3 policy, also known as a special form policy, is by far the most commonly sold homeowners insurance policy, according to the National Association of Insurance Commissioners (NAIC). It covers your home, personal property, liability and loss of use.

An HO-5 policy is also known as a comprehensive form policy. Like an HO-3 policy, it covers the home, contents, liability, and loss of use. 

But compared to an HO-3 policy, an HO-5 policy offers more comprehensive contents coverage: where an HO-3 covers contents only for named perils at actual cash value, an HO-5 covers contents for all perils at replacement cost.

“The main difference between an HO-3 and an HO-5 home insurance policy is that an HO-5 policy is more comprehensive for your personal possessions,” says Loretta Worters, vice president of media relations for the Insurance Information Institute, an insurance industry association.

Below, we will cover the differences between HO-3 and HO-5 policies and how to choose the right home insurance for your needs.

HO-3 vs. HO-5 insurance comparison chart

HO-3 and HO-5 are two types of homeowners insurance policies. They have differences and similarities, which we have outlined in the quick reference chart below so you can compare and contrast the coverage.

Difference between HO-3 and HO-5: Coverage and exclusions

For dwelling coverage, the differences between HO-3 and HO-5 policies are minimal.

With an HO-3 policy, the dwelling coverage portion—which covers the structure of the house and attached structures—will cover any peril not specifically excluded in the policy. An HO-5 is the same.

The specific list of home insurance exclusions can differ from policy to policy, but as a general rule, HO-3 and HO-5 policy exclusions include floods, earthquakes, wear and tear, and pest damage. Depending on the policy, HO-5 policies may not exclude some things that an HO-3 excludes.

Both cover the dwelling at replacement cost, meaning the cost to replace it with like kind and quality at today’s prices, without depreciation.

However, HO-3 and HO-5 policies differ more substantially in terms of personal property coverage. An HO-3 policy only covers contents for the perils named in the policy. 

By contrast, an HO-5 policy’s contents coverage will include all perils not specifically excluded in the policy. And there are a few more differences covered below.

HO-3 vs. HO-5 coverage differences

While HO-3 and HO-5 policies offer similar types of dwelling coverage, there may be a few differences. 

Insurers who sell HO-5 policies sometimes include extended or guaranteed replacement cost coverage in a standard policy. For example, Amica offers an additional 30% above your policy’s coverage limits to repair or rebuild your home when this is necessary on its Platinum Choice HO-5 policy. This is generally offered only as an endorsement on an HO-3.

An HO-5 policy might also cover water backup and sump pump overflows, which are not standard in most HO-3 policies. 

In terms of contents coverage, HO-5 policies typically offer broader coverage of more perils than HO-3 policies do. And there are other differences. An HO-5 policy might provide perks such as:

• More extensive coverage of expensive valuables, including jewelry and watches
• Higher limits for liability and medical payments coverage
• Extended coverage of business property

In addition, HO-5 policies include replacement cost coverage for contents, while HO-3 policies offer lesser actual cash value coverage unless you purchase an endorsement. 

Here are two examples of how a home insurance claim might be handled with an HO-3 policy vs. an HO-5 policy: 

• If thieves enter your home and steal your 5-year-old big-screen TV, an HO-5 policy would reimburse you for the full cost of buying a replacement TV of similar kind and quality at today’s prices. By contrast, the HO-3 policy would pay you for the depreciated value of the TV unless you purchased an endorsement to include replacement cost coverage. 
• If a fire destroys a particularly expensive piece of jewelry, you might not receive a check for the jewelry’s full value if you have an HO-3 policy unless you purchased an endorsement that fully covers the item. By contrast, HO-5 policies usually have higher coverage limits and are more likely to cover the entire value of the item. 

Worters offers another example: She imagines a situation where you have a fire, and your 10-year-old couch is destroyed. With actual cash value, “you’ll only get perhaps $500 for the couch,” Worters says.

“But if it’s got full replacement, if a new couch of similar kind and quality is bought, it could cost $5,000,” she says. “So, the insurance would pay for that.”

HO-3 vs. HO-5 exclusion differences

Each insurance company has its own set of coverage exclusions that apply to its HO-3 and HO-5 policies. So, it’s important that you read your policy carefully and talk to your insurer about what is and is not excluded. 

While exclusions vary from policy to policy, the following are generally standard. Here are some things that one or both of these policies might exclude. A “yes” means they are likely excluded: 

Pricing difference between HO-3 and HO-5 policies

If you decide to purchase an HO-5 policy, it likely will be more expensive than an HO-3 policy. However, the difference in expense is not huge. 

On average, you can expect to pay $127 more annually for an HO-5 policy, according to the National Association of Insurance Commissioners. 

In the end, what you pay “depends on the company and your own claims history,” Worters says. 

HO-3 v. HO-5: Which is better for you?

In general, an HO-3 policy is the standard type of coverage that most homeowners have, while an HO-5 policy provides additional protection for more expensive properties.

Most homeowners purchase HO-3 policies and feel they adequately meet their insurance needs. However, an HO-5 policy can offer more comprehensive coverage. 

While both types of policies offer robust protection, an HO-5 policy can make sense if the price difference is not great and if your home qualifies.

When you should consider HO-3 insurance

According to Alaina Hixson, director of sales and operations at The Churchill Agency, a Nashville-based insurance agency, most homeowners can meet their needs by purchasing an HO-3 homeowners insurance policy.

“For most homeowners, an HO-3 policy is likely what they already have and probably all they need,” she says.

Hixson says she has an HO-3 policy on her own home. “Speaking from experience, I have an HO-3 policy on my house and have never seen the need for an HO-5,” she says. 

Worters agrees that an HO-3 policy makes sense for a lot of people. 

“If a homeowner doesn’t have a lot of valuable personal belongings — maybe old hand-me-down furniture — it doesn’t make sense to pay more for an HO-5 policy,’ she says.

Homeowners can easily add endorsements to an HO-3 for things like replacement cost on personal property to bolster the standard coverage. 

When you should consider HO-5 insurance

Hixson says an HO-5 policy is most likely to make sense for owners of expensive homes who want extra coverage. 

She notes that HO-5 policies are exclusionary, meaning they will cover any type of damage except things that are specifically excluded. With an HO-5, the burden is on the insurance company to prove the damage isn’t covered.

“For this reason, HO-5 policies are more expensive and are generally for homes that cost over $750,000,” she says. 

She says an HO-5 might make sense for homeowners who are concerned about the possibility of abnormal events occurring. 

“An HO-5 policy could provide an extra layer of peace of mind, but it is likely not necessary to provide adequate protection for your home and belongings,” Hixson says. 

Worters says HO-5 makes sense for those who want the maximum protection. 

“HO-5 policies are ideal for homeowners who want to protect their home and personal property against all risks that aren’t explicitly excluded in their policy,” she says. “You’ll have higher coverage limits and less restrictions on perils.”

However, even if you want HO-5 coverage, it might not be easy to get. HO-5 policies have higher standards for homes to qualify.

“Not everyone qualifies and not every insurer offers it,” Worters says. 

If you’re not sure which policy is right for your needs, it’s best to sit down with an insurance agent who can review your coverage needs and help you choose the right policy.

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