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Homeowners insurance policies come in eight different forms. HO-3 and HO-5 policies are the two most common types. Both policies help protect your home against losses, but they handle reimbursements differently.
Here’s how HO-3 policies compare to HO-5 policies:
- HO-3 vs. HO-5 insurance policies
- Perils covered by an HO-3 vs. HO-5 policy
- HO-2 vs. HO-3 vs. HO-5 home insurance policies
- HO-3 vs. HO-5 vs. HO-6 home insurance policies
- Why do you need home insurance coverage?
- How much home insurance do you need?
HO-3 vs. HO-5 insurance policies
While HO-3 and HO-5 insurance policies are similar in name, they work a little differently.
An HO-3 policy is a general policy that offers the minimum amount of acceptable coverage to secure a mortgage. It’s available for all home types, but you’ll only receive actual cash value (the cost to replace the item, minus depreciation) for your personal property. HO-3 policies also only cover your personal property on a named perils basis, meaning you’ll only be reimbursed if the loss is caused by a specific event listed in your policy.
May be best for: Comprehensive coverage at a lower cost
An HO-5 policy is a more comprehensive policy, but they’re less common nowadays. Unlike an HO-3 policy, your belongings receive protection in any event (unless your policy contract lists it as an exclusion — this is known as open perils coverage), and your items are insured at their full replacement cost.
May be best for: Comprehensive coverage for your home and belongings
HO-3 vs. HO-5 comparison chart
Here’s a quick breakdown of each policy:
| HO-3 | HO-5 | |
|---|---|---|
| Type of coverage | Basic | Comprehensive |
| Dwelling coverage | Open perils | Open perils |
| Personal property coverage |
|
|
| Coverage limits for high-value items | Limited coverage for high-value items; endorsements (i.e., additional coverage) may be required | Higher coverage limits for expensive items |
| Requirements | Minimum amount of coverage required by mortgage lenders | Accepted by mortgage lenders but not as widely available |
Actual cash value vs. replacement value
Whether you’re shopping for a homeowners insurance policy or already have one, you should understand how these policies reimburse you for damaged personal property.
An insurer will pay you in one of two ways:
- Actual cash value — Sometimes called depreciated cash value, actual cash value reimbursement represents the amount of money required to fix your home or replace belongings while accounting for any depreciation in value (due to use and age, for instance).
- Replacement cost value — Replacement cost value pays the full cost to repair or replace your personal property at current market prices.
With an HO-3 policy, you’ll receive the actual cash value for any belongings that need to be replaced, minus depreciation. If you have an HO-5 policy, you’ll receive the replacement value of your destroyed or stolen belongings.
Learn More: Replacement Cost vs. Market Value
Perils covered by an HO-3 vs. HO-5 policy
Most HO-3 (structures only) and HO-5 policies insure against damage from the following 16 perils:
- Fire or lightning
- Windstorm or hail
- Explosion
- Riots or civil commotion
- Aircraft
- Vehicles
- Smoke
- Vandalism
- Theft
- Falling objects
- Weight of ice, snow, or sleet
- Accidental discharge of water or steam
- Sudden accidental cracking, tearing, bulging, or burning
- Freezing
- Damage from a power surge
- Volcanic eruptions
Credible can help you compare homeowners insurance rates from multiple carriers.
HO-2 vs. HO-3 vs. HO-5 home insurance policies
Alongside HO-3 and HO-5 policies, you may also be considering an HO-2 policy. Here’s a quick look at how HO-2 policies compare to HO-3 and HO-5 policies:
- HO-2 — HO-2 policies provide less coverage than HO-3 and HO-5 policies. Unlike an HO-3 and HO-5 policy, an HO-2 policy only covers damage to your home on a named perils basis. However, you’ll still receive coverage for the same 16 named perils found on an HO-3 and HO-5 policy.
- HO-3 — HO-3 policies provide more coverage than HO-2 policies. With an HO-3 policy, you’ll have coverage on your home for any peril unless one is specifically listed as an exclusion.
- HO-5 — HO-5 policies come with higher coverage limits than an HO-2 or HO-3 policy. They also provide open perils coverage for your personal property, not just the home.
HO-3 vs. HO-5 vs. HO-6 home insurance policies
Another common home insurance policy is an HO-6 policy. Here’s how it stacks up among HO-3 and HO-5 policies:
- HO-3 — HO-3 policies provide less coverage than an HO-5 policy, but provide similar coverage to an HO-6 policy.
- HO-5 — HO-5 policies provide more coverage than both HO-3 or HO-6 policies.
- HO-6 — This type of coverage only applies to condos and provides a similar amount of coverage to an HO-3 policy. It provides coverage for the inside of your condo, your personal belongings, liability, and additional living expenses.
Learn More: Types of Homeowners Insurance (Policy Forms)
Why do you need home insurance coverage?
Mortgage lenders often require homeowners insurance. So, unless you can afford to buy a house in cash, you can expect to take out a home insurance policy.
Even if you can buy a home without a mortgage, you’ll want to have a policy that protects you financially in case disaster strikes. Repairs, theft, and injuries that occur on your property can all lead to significant expenses that might be hard to cover without a good homeowners policy in place.
A standard homeowners policy typically includes up to six types of coverage:
- Dwelling coverage (Coverage A) — Covers the home and attached structures such as a garage, deck, or porch
- Other structures coverage (Coverage B) — Covers unattached structures on your property like pools, detached garages, and sheds
- Personal property coverage (Coverage C) — Covers the contents of your home, such as appliances and furniture
- Loss of use coverage (Coverage D) — If your home becomes uninhabitable due to a covered loss, loss of use coverage can help pay for the costs of staying in a hotel and other reasonable living expenses until you can move back into your home.
- Liability coverage (Coverage E) — This portion of a homeowners policy can help pay for your legal expenses if you’re sued for any damages.
- Medical payments coverage (Coverage F) — Covers medical costs for guests that suffer an injury on your property. This coverage doesn’t apply to you or your family members.
How much home insurance do you need?
How much home insurance you need depends on the price of your home and where you live. Homes in areas prone to natural disasters, like earthquakes or floods, may need additional coverage for those types of events.
You should consider purchasing enough coverage to cover the full cost of rebuilding your home. This means a policy with a dwelling coverage limit of 100% or more. You can work with an insurance broker or agent to determine the right policy for your situation.
Shopping around for home insurance can be stressful and confusing. Fortunately, Credible simplifies this process and makes comparing multiple insurers easy. You can compare different insurance options without leaving our platform.
Learn More: How to Buy Homeowners Insurance
