HO-3 vs. HO-5 Home Insurance

Elizabeth Rivelli has nearly five years of experience covering insurance for finance publications. She has expertise in various insurance lines, including car insurance, health insurance, travel insurance, life insurance and others. In her writing, she aims to make insurance more approachable and understandable for people in all stages of life. Elizabeth also writes for several insurance company blogs.

Elizabeth Rivelli

Elizabeth RivelliInsurance Writer

Insurance Writer

Les MastersonDeputy Editor, Insurance

Les Masterson is a deputy editor and insurance analyst at Forbes Advisor. He has been a journalist, reporter, editor and content creator for more than 25 years. He has covered insurance for a decade, including auto, home, life and health. Before covering insurance, Les was a news editor and reporter for Patch and Community Newspaper Company and also covered health care, mortgages, credit cards and personal loans for multiple websites.

Reviewed

Les Masterson

Les MastersonDeputy Editor, Insurance

Deputy Editor, Insurance

Reviewed

Updated: Jun 6, 2023, 6:08am

Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.

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Homeowners insurance provides valuable financial protection for your house, personal items and liabilities if you’re responsible for injuries or property damage to others. Homeowners insurance isn’t a legal requirement, but it’s typically required if you have a mortgage and is a good idea even if you don’t have one.

The two most common types of home insurance are HO-3 and HO-5, which have slightly different coverage and vary in cost. Before purchasing home insurance, it’s important to understand the differences between HO-3 vs. HO-5 insurance policies to choose the best one for your situation.

What Does Home Insurance Cover?

The best home insurance provides sufficient coverage for the typical problems you might experience as a homeowner, such as damage to your house or the theft of your belongings. Most standard home insurance policies include:

Dwelling insurance: Dwelling coverage pays to repair the physical structure of your house, as well as attached structures, like a garage or porch.
Other structures: This covers unattached property, such as a pool house, gazebo or shed.
Personal property insurance: Personal property coverage pays out if the items inside your home are damaged or stolen.
Personal liability insurance: Personal liability home insurance covers your financial responsibilities if you accidentally damage someone else’s property or you’re legally liable for injuring someone (excluding for auto accident-related damage and injuries).
Medical payments insurance: Medical payments insurance pays small medical bills if a guest gets hurt in your home, even if you’re not responsible.
Loss of use insurance: Loss of use insurance, also called additional living expenses coverage, pays for extra living costs such as temporary housing, meals, laundry and other essential services while your home gets repaired after a problem covered by your policy.

What’s the Difference Between HO-3 and HO-5 Home Insurance?

Standard homeowners insurance policies can be distinguished by numbers, such as HO-3. The main difference between an HO-3 and an HO-5 home insurance policy is that an HO-5 policy provides better protection for your personal possessions. An HO-3 insures the contents of your house only for specific problems named in the policy, such as fire and wind. An HO-5 policy insures your belongings against all causes of damage that aren’t excluded.

Another key difference: HO-5 policies automatically include replacement cost coverage—HO-3 policies might not. When you buy an HO-3 policy, you might choose between replacement cost and actual cash value coverage.

HO-5 policies are usually used to insure high-value homes, while HO-3 policies are more common.

What Is HO-3 Insurance?

HO-3 home insurance, also called a special form policy, is the most common type of home insurance.

HO-3 insurance is more comprehensive than HO-1 and HO-2 insurance policies but provides less coverage than HO-5 policies. As a result, HO-3 insurance is generally cheaper than HO-5 insurance.

What Does HO-3 Insurance Cover?

HO-3 insurance provides coverage for your dwelling, other structures on your property, personal property, personal liability, medical payments and loss of use.

An HO-3 policy provides:

“Open perils” coverage for your dwelling and other structures: It pays to repair any damage that isn’t specifically excluded, such as floods.
“Named perils” coverage for your personal items: Only problems specifically listed in the policy are covered, such as fire.

An HO-3 policy provides coverage for your belongings for these 16 named perils, or problems:

Accidental cracking, burning, tearing of heating, plumbing, air conditioning systems or sprinkler systems
Accidental damage from short-circuiting of electrical currents
Damage from cars
Damage from ice, sleet or snow
Damage from frozen pipes
Damage from planes
Explosions
Falling objects
Fire or lightning
Hail and windstorms
Lightning strikesRiots and civil disturbances
Smoke damage
Sudden water overflow
Theft
Unexpected power surges and electrical malfunction
Vandalism

If you don’t have replacement cost coverage for your possessions, HO-3 policies pay out based on actual cash value (ACV). ACV factors in depreciation, or wear and tear, when the home insurance company reimburses you for loss. That’s different from replacement cost value (RCV), which doesn’t factor in depreciation. With replacement cost coverage you will be reimbursed for the cost to buy new, similar items to replace damaged items.

Replacement cost coverage costs more but you get a higher insurance payout when you need it.

What Does HO-3 Insurance Not Cover?

HO-3 insurance doesn’t cover every type of damage. These are standard exclusions that you’ll see listed in an HO-3 policy:

Ordinance or law, such as an order requiring demolition of your property.
Earth movement such as earthquakes, landslides and mudslides.
Certain water damage such as floods and storm surges.
Power failure.
Neglect on the part of the homeowner in terms of failing to take “reasonable means” to save property at the time of the problem.
War such as civil war and insurrections.
Nuclear hazards.
Intentional damage on the part of the policyholders.
Governmental action such as the seizure of your property.

Pros and Cons of HO-3 insurance

Pros

Widely available: HO-3 insurance is the most common type of home insurance.
Less expensive than HO-5 insurance: HO-3 insurance policies are usually cheaper than HO-5 policies because the coverage is somewhat less comprehensive.

Cons

May pay out based on actual cash value: Some HO-3 insurance policies cover your personal belongings based on ACV, which accounts for depreciation, not replacement cost, which pays to replace destroyed belongings with new ones. You can increase coverage to replacement cost value with an HO-3 policy endorsement.
Named perils coverage for personal property: An HO-3 insurance policy provides named perils coverage for your personal items. Common problems like fire and theft will be covered, but other common issues like floods won’t be.

What Is HO-5 Insurance?

HO-5 insurance offers more complete protection than other types of home insurance. This policy, which is also called a comprehensive policy, covers your dwelling, unattached structures and personal belongings on an “open perils” basis.

That means any cause of damage you might experience is covered unless the cause is specifically listed as an exclusion in the homeowners insurance policy.

What Does HO-5 Insurance Cover?

HO-5 insurance includes the same basic coverage types as an HO-3 policy. All HO-5 policies include coverage for the dwelling, detached structures, personal property, medical payments to others, personal liability and loss of use.

In addition to being an open perils policy, HO-5 insurance policies pay out based on the replacement cost of your personal property.

What Does HO-5 Insurance Not Cover?

Some types of damage are excluded from HO-5 insurance. HO-5 policies usually have the same exclusions as HO-3 policies.

Pros and Cons of HO-5 insurance

Pros

Comprehensive homeowners coverage: HO-5 home insurance provides more coverage than HO-3 insurance.
Good option for newly built homes: HO-5 insurance provides more protection than HO-3 insurance, making it a good choice for new construction.
Open perils policy: HO-5 policies cover your dwelling and personal items for any problem that’s not listed as an exclusion.

Cons

More expensive than HO-3 insurance: HO-5 insurance provides more coverage, so it’s going to cost more than HO-3 insurance.
Might be more coverage than you need: While some homeowners can benefit from HO-5 coverage, others might find the extra protection unnecessary.
Some homes may not be eligible for coverage: HO-5 insurance policies often have stricter eligibility requirements, so not all homeowners qualify, particularly if your home doesn’t have a high value.

Named Perils vs. Open Perils

When comparing the types of homeowners insurance, it’s important to understand the differences between named perils and open perils. This is one of the major differences between HO-3 vs. HO-5 insurance.

“Named perils” coverage means your insurance company will cover damage from any cause that is “named” in your policy. Most named perils policies provide coverage against 16 perils, which include things like fire and smoke damage, theft, vandalism and hail. Problems not named in the policy aren’t covered.

If you have an “open perils” insurance policy, you’re covered for any problem that is not explicitly excluded in the wording of your insurance policy. As a result, an open perils policy provides coverage against more issues than a named perils policy.

Actual Cash Value vs. Replacement Cost Coverage

“Actual cash value” vs. “replacement cost” coverage indicates how you get compensated for a personal property claim.

ACV reflects the current value of your personal belongings with depreciation. RCV is what it would cost to replace your belongings with new, similar items.

Here’s an example of how ACV and RCV work. Imagine a fire destroys your living room. The fire damages your living room furniture, decor and television, which would cost a combined $20,000 to replace as new.

An ACV policy factors in depreciation, so you may only receive a payout of $10,000.
With an RCV policy, you would receive the cost to replace them with new items, which is the full $20,000 (minus your deductible) because depreciation isn’t included.

ACV policies provide less coverage than RCV policies, which means home insurance policies with ACV are usually less expensive.

Summary: HO-3 vs. HO-5 Insurance

	HO-3 insurance	HO-5 insurance
Cost	Less expensive	More expensive
Personal property coverage	Named perils (less protection)	Open perils (more protection)
ACV vs. RCV for personal property	Actual cash value (lower reimbursement), but you can upgrade to RCV	Includes replacement cost coverage (higher reimbursement)
Dwelling coverage	Open perils (more protection)	Open perils (more protection)

Should I Get HO-3 Insurance or HO-5 Insurance?

If you’re looking for the lowest premium or don’t have a high-value home, an HO-3 insurance policy is likely sufficient.

Consider an HO-5 home insurance policy If you want the most comprehensive homeowners insurance.

Also consider the potential eligibility requirements of an HO-3 vs. HO-5 insurance policy. Some insurance companies only offer HO-5 policies to owners of high-value homes. While an HO-5 policy might be a good option for a newly constructed home, you may not qualify for this type of coverage if your home is older or has lost significant value.