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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

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:

Type of coverageBasicComprehensive
Dwelling coverageOpen perils Open perils
Personal property coverage
  • Named perils
  • Actual cash value coverage
  • Open perils
  • Replacement cost coverage
Coverage limits for high-value itemsLimited coverage for high-value items; endorsements (i.e., additional coverage) may be requiredHigher coverage limits for expensive items
RequirementsMinimum amount of coverage required by mortgage lendersAccepted 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

HO-3 policies and HO-5 policies cover the same perils. The key difference is that HO-3 policies only provide open perils coverage for structures; your personal property is insured on a named-perils basis. HO-5 policies insure both your structures and personal property on an open-perils basis.

Most HO-3 (structures only) and HO-5 policies insure against damage from the following 16 perils:

  1. Fire or lightning
  2. Windstorm or hail
  3. Explosion
  4. Riots or civil commotion
  5. Aircraft
  6. Vehicles
  7. Smoke
  8. Vandalism
  9. Theft
  10. Falling objects
  11. Weight of ice, snow, or sleet
  12. Accidental discharge of water or steam
  13. Sudden accidental cracking, tearing, bulging, or burning
  14. Freezing
  15. Damage from a power surge
  16. Volcanic eruptions

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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.
Good to know: HO-1 policies also exist, though they’re not widely available. These bare bones policies only cover the perils (generally 10) listed in the policy. Anything not listed is not covered.

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

Copyright (c) 2023, Credible Insurance, Inc. d/b/a Credible Insurance Agency (CA Lic. # 0M90597). Insurance Services provided through Credible Insurance, Inc., VA: Credible Insurance Agency, Inc., MN SOS: Credible Cover, Inc. Credible Insurance is a subsidiary of Credible Labs Inc. 1700 Market St. Ste. 1005, Philadelphia, PA 19103.
About the author
Jacqueline DeMarco
Jacqueline DeMarco

Jacqueline DeMarco has been a personal finance writer for over seven years and is a contributor to Credible. She has contributed content to more than a dozen financial brands, including LendingTree, Credit Karma, Fundera, Chime, MagnifyMoney, Student Loan Hero, ValuePenguin, SoFi, and Northwestern Mutual.

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