HO-5 Home Insurance: Premium Policy for Complete Asset Protection

HO-5 homeowner’s policies provide the ultimate insurance for homeowners who want the highest degree of coverage. 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.

Writer & Insurance and Financial Expert
Kyle has extensive background in financial planning and financial writing. He is an expert in home, auto and life insurance. Kyle holds a Bachelor's degree in Business Administration from San Diego State University and multiple financial planning designations.

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Home insurance coverage is important, although not required by law. It can be tough to determine what homeowners insurance policy is the right fit for you. It seems as if the insurance industry intentionally makes home insurance difficult to comprehend. This article is meant to help you gain a better understanding of the insurance coverage HO-5 insurance provides and how it compares to the standard HO-3 homeowners insurance policy.

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.

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Key takeaways
  • HO-5 provides more comprehensive coverage than any other policy
  • Dwelling, detached structures, and personal property are covered on an open peril basis
  • The maximum replacement limits for each section of coverage are significantly higher than other policies

What is HO-5 home insurance?

Of all the homeowners insurance policies out there, HO-5 is the most comprehensive coverage offered. It provides open peril coverage to not only the dwelling and various structures on the property, but also for one’s personal belongings. Another key point is that in all of those cases, the burden of proof falls on the insurance company to determine that the cause of damage or loss was due to one of the specifically excluded instances in the policy. Generally, HO-5 policies have higher coverage limits as well, making it the gold standard of homeowners insurance policies.

What does HO-5 homeowners insurance cover?

HO-5 provides broader coverage than all other policies on the market. What the policy covers is broken up into two sections (property coverages and liability coverages). The subsections of property coverages are- Coverage A-Dwelling, Coverage B- Detached Structures, Coverage C-Personal Property, Coverage D- Loss-of-use, and Additional Coverages. The subsections of liability coverages are- Coverage E- Personal liability, Coverage F- Medical Payment to Others.

HO-5 is the most comprehensive coverage not only in terms of what it covers but also in terms of how much is covered. In other words, HO-5 will provide the highest financial protection to a homeowner, if there is a covered claim.

Coverage A – Dwelling Coverage

Dwelling coverage provides protection for the home itself and any attached structures to the home (chimney, porch, deck, etc.)

If damage is caused by a covered peril, meaning any exclusion (see below for the typical exclusions) not specifically listed in the policy, then the repair cost will be covered. With HO-5 policies, the burden of proof is on the insurer to prove that the damage to the home was caused by one of the specifically excluded instances.

Typical Limit: the replacement cost of the home.

Coverage B – Other Structures

The other structures section of the policy covers structures that are not attached to the house (barn, shed, detached garages, etc.)

If damage occurs to one of these detached structures the process and exclusions are the same as in the dwelling coverage section above. With HO-5 insurance, the coverage limit is far greater than in other policies.

Typical Limit: the replacement cost.

Coverage C – Personal Property Coverage

Personal property coverage takes care of the cost to replace personal property damage or stolen personal items (furniture, jewelry, electronics, etc.)

While in other policies like an HO-3 policy, this section of coverage would be on a named peril basis. In HO-5 it is on an open perils basis along with the dwelling and other structures sections above.

Typical Limit: the replacement cost.

Coverage D – Loss of Use or Additional Living Expenses

Loss of use coverage is also known as additional living expenses coverage. It is meant to cover any expenses accumulated while not being able to live in one’s home due to damage (staying at a hotel while repairs are completed).

The maximum limit to this section is generally far higher than in other policies.

Additional Coverages

This section generally provides explanations of all of the additional cases that may be covered under the policy. This can include instances like debris removal and damage due to natural disasters among other instances. The limits for each will be outlined within each policy.

Coverage E – Personal Liability Coverage

Personal liability coverage provides liability protection for any legal fees or medical bills that may be incurred due to an injury or property damage caused to someone else’s property on a homeowner’s property if the homeowner is held liable.

The maximum amount covered varies across locations, insurers, and the scope of the policies.

Coverage F – Medical Payments Coverage

Medical expenses or bills accumulated due to a bodily injury acquired by a guest on the homeowner’s property fall under coverage F.

The maximum amount covered varies across locations, insurers, and the scope of the policies.

What does an HO-5 insurance policy exclude?

Even though HO-5 home insurance is the most comprehensive coverage and an open peril coverage policy, there are still some named perils that insurers will typically exclude.

Usually, these exclusions are:

  • Ordinance/law
  • Earth movement
  • Water damage from flooding, sewer backups, or water that seeps up from the ground
  • Power failure
  • Neglect
  • War
  • Nuclear hazard
  • Intentional loss
  • Government action
  • Theft of a dwelling under construction
  • Vandalism or malicious mischief (if vacant more than 60 days)
  • Mold, fungus, or wet rot (except if it resulted from an accidental discharge or overflow of water)
  • Wear and tear
  • Mechanical breakdown
  • Smog, rust, or other corrosion
  • Smoke from agricultural smudging and industrial operations
  • Discharge, dispersal, and seepage of pollutants
  • Settling, shrinking, bulging, or expanding of parts of the structure like your foundation or walls
  • Birds, vermin, rodents, insects
  • Damage caused by animals owned by insured
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HO-5 Insurance VS. HO-3 Insurance

HO-5 and HO-3 are the most common types of homeowners insurance policies. HO-3 insurance is commonly referred to as standard homeowners insurance. policy. It is by far the most widely used home insurance product on the market, even though an HO-5 policy provides the broadest coverage and the most protection to the homeowner. There are many similarities between the two along with some key differences.

HO-3 policies provide dwelling and detached structure coverage on an open perils basis, and HO-5 policies do as well.

Where they differ is when it comes to the personal belongings section of the policies. HO-3 provides named perils coverage, meaning that the perils covered are specifically listed in the policy and all other perils are not covered. An HO-5 policy provides open perils coverage for personal property damage or stolen personal belongings, meaning that all perils are covered unless explicitly excluded. This means there is essentially extra coverage for one’s personal belongings in HO-5 versus HO-3.

Another key difference in the personal property section between the two policies is in the replacement value when a claim is filed. In HO-3 personal property provides actual cash value coverage of the belongings that were damaged or stolen. This means that the insurance writer will pay the homeowner up to what the used item was actually worth after depreciation. An HO-5 policy provides additional coverage by providing coverage on a replacement cost basis. This means that not only the actual value of the property be reimbursed to the homeowner, but the cost to replace the damaged property will be included in the reimbursement as well.

Should you choose an HO-3 or an HO-5 insurance policy?

This is a question you may be asking yourself at this point. Which of these policies is right for me? Both an HO-3 policy and an HO-5 policy are great options. They are both better options than any of the other coverages out there as they are on an open peril basis instead of a named peril basis like many of the other policies. Being open peril inherently provides greater protection to the homeowner.

As mentioned above, an HO-5 policy provides more protection, but an HO-3 policy is the far more utilized policy today. This can be due to a number of factors. One important thing to keep in mind is cost. Obviously, with more protection comes more cost. This can deter homeowners from going with an HO-5 policy.

The biggest reason why one would not be able to use coverage under an HO-5 policy is due to the fact that many homeowners are not eligible for an HO5 policy. Insurers typically will not offer an HO-5 insurance policy in high-risk areas or for homes that are not of high value.

If a homeowner has the personal property that would be considered to contain high-value items, or simply a lot of personal property, and/or a home that is of higher value than an HO-5 policy is the way to go. The replacement cost coverage in each aspect of the policy is also an important reason why one would go with an HO-5 home insurance policy over an HO-3 homeowners insurance policy.

You can’t go wrong with HO-3 or HO-5. They will both work well for the homeowner. When disaster strikes you will be far more covered than you would be otherwise. While most will end up with an HO-3 policy, an HO-5 policy is important to consider. If you fit all of the requirements and have high-value personal property or a lot of personal property that should be protected, then an HO-5 policy is the one you want to make sure you have to protect yourself.

Make sure to compare policies across various insurers to determine what best suits your needs.

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Kyle has extensive background in financial planning and financial writing. He is an expert in home, auto and life insurance. Kyle holds a Bachelor's degree in Business Administration from San Diego State University and multiple financial planning designations.