Last Updated on October 6, 2020 by Andrew Lee
HO-5 homeowner’s policies provide the ultimate insurance for homeowners who want the highest degree of coverage. If you only need basic protection for your home – an HO-3 policy will cover you. However, if you’re looking for the highest protection class available along with the highest coverage limits, an HO-5 premium policy is an excellent choice. HO-5 policies offer advantages such as complete protection for your dwelling and personal property. HO-3 policies require you to provide proof that your personal property claim happened through one of the named perils listed on the policy. This is not the case with HO-5 policies where all perils as included.
HO-5 homeowner policies provide all-around protection that includes full replacement value for your home and compensation for all personal belongings in the home. The replacement value extends to all side structures located on the property. HO-5 policies are the most expensive homeowner policies, however, they are still relatively popular and insure around 14% of all homes in the US according to the National Association Of Insurance Commissioners (NAIC). HO-5 policies are the second most popular policies after HO-3 policies which insure more than 80% of all homes in the US.
Is HO-5 ‘Open-Peril’ Or ‘Named-Peril’?
HO-5 homeowner policies are known as “comprehensive form policies” and they are considered the most superior form of homeowner insurance. HO-5 policies have the widest assortment of protection against virtually all possible perils. In insurance lingo, “perils” are all specific dangers that could cause damage to your property (partial or full destruction). Example: Tornadoes, molding, busted pipes, flooding, hail storms, etc, are all perils. If the policy is a “named peril” this means that it covers you for those specific perils. ‘Named-peril’ homeowner’s policies are the less popular HO-1 and HO-2 policies.
HO-5 policies cover homeowners for all perils which means they’re “open perils” policies. To get the best coverage for the home you need an “open-perils” policy. HO-3 is the most popular open-perils policy but it only applies to the main dwelling. Certain forms of damage don’t cover personal property on HO-3 plans.
HO-5 policies include damage to the dwelling and personal property as well. This means that you’re covered for all assets stored in the home. Example: Let’s say a neighbor drives a car through your living room. An HO-3 policy would pay for the home but not the furniture and belongings inside. An HO-5 policy would pay for the house damage and the property damage inside the house.
HO-5 Homeowners Insurance: Highest Level Of Protection
There are a few reasons why HO-5 plans are the most superior homeowners’ insurance plans. For one, you get a much higher level of protection for personal items in the home such as your clothes, furniture, appliances, electronics, and high-value items. Under an HO-3 homeowners policy, your personal belongings are only insured against a set of named perils. The average HO-3 plan includes 16 perils for personal property (similar to an HO-2 plan) and you must provide proof to the insurance company that the damage was caused by one of those perils. If you fail to provide evidence you may lose out on tens of thousands of dollars of damages on the personal property because your peril was not named.
The HO-5 policy covers you on an “all risks included” basis which means that you get open perils treatment for all personal items. There are very few perils which are exempt from this policy (listed below). The main advantage of HO-5 plans is that when you file a claim for personal property, you won’t have to prove to the insurance company that it was damaged by a certain peril. If the company refuses to pay out for the damage caused, the burden of proof is on them. The following coverage is included in all HO-5 plans:
- The Home. The main dwelling structure including all built-in appliances is covered at full replacement cost. This means that if the property burns down, you will get replacement value until you can rebuild.
- Side Structures. All other structures on your property (attached or detached) will also be covered at full replacement cost. On HO-3 homeowner plans, you only have access to 10% of the total coverage for side structures.
- Personal Property. All personal property in the home is insured at full value for the replacement cost and this includes property outside the home as well.
- Living Expenses. Sometimes called “Loss Of Use”, this policy ensures you will get financially reimbursed for your living expenses while your home is being repaired or rebuilt.
- Extra Charges. This policy supplements the “loss of use” policy and covers things such as cleaning, debris removals, and loss assortment for the home.
- Liability Insurance. The plan includes liability insurance to cover you for the legal fees if you’re being held legally liable for property damage done to a third party.
- Medical Coverage. If a family member or a guest is injured in your home, they are entitled to a certain payout regardless of who is at fault in the accident. Note: This is not a replacement for health insurance, and tends to be restricted.
What An HO-5 Policy Does NOT Cover
There a few exclusions on coverage for HO-5 plans and companies are very transparent about those exclusions. Depending on the insurance company, these may not apply. You must consult with your agent about “exclusions” to find out what is NOT covered under your HO-5 plan. The following things are usually not covered under HO-5 plans:
- Water Damage. Most water damage in the home is covered, but not all. For instance, damage caused by pipes bursting may be included while damage caused by a water backup might not be included. Most insurance agencies allow you to purchase full water damage protection for an extra fee.
- Neglect. If the home decays due to owner negligence, the company may refuse to cover the owner for things such as molding, fungus, wet rot, or collapse.
- Vacancy. If the home is left vacant for 60 days, the insurance company will not pay for vandalism and malicious mischief. While these perils are covered under every homeowner’s policy, insurance companies make exceptions for vacant homes.
- Earth Movements. While this policy tends to vary by the insurer, most tend to exclude earth movement damage such as earthquakes, landfills, and landslides. These policies can be purchased separately.
Conclusion: Who Should Get An HO-5 Insurance Policy?
For homeowners who have a fantastic credit score and want the best insurance plan for their home, an HO-5 homeowner’s policy is the best policy available. The cost is relatively similar to HO-3 policies while HO-5 policies provide higher coverage for their personal items. The burden of proof for personal property claims lies in the insurance company which makes filing claims easier for clients. HO-5 policies mean less fuss and the highest level of protection for your home.