Claire Smith Last Updated On: February 9, 2024

Choosing HO3 vs HO5 Insurance For Your Home and Property

Your home is your most important investment, from not only a monetary standpoint but also, emotionally. After all, home is where the heart is. This is why finding the best homeowner’s insurance is so crucial to protecting your investment and peace of mind, and this starts with understanding the difference between HO3 and HO5 insurance. 

At first, these two types of insurance may seem similar, but they have a few key differences that you’ll want to understand so you can make the best possible choice for your home and property. 

What Is HO3 Insurance?

An HO3 insurance policy is a type of homeowners insurance. By paying a monthly or annual premium, you get coverage for your house, personal property, and personal liability. An HO3 insurance policy is the most standard form of homeowners insurance and also the most common.

As mentioned, HO3 insurance covers your home, your belongings, and your personal liability from damage or injury. It’s designed mostly for traditional, standalone houses rather than condos or duplexes. It’s also often required to get a mortgage because it helps protect the bank’s investment. 

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Table of Contents

What Does HO3 Insurance Actually Cover?

  • Dwelling. HO3 insurance covers any damage to your house or to any structures on your property, like garages and sheds. These dwellings are protected under “open peril”, meaning they’re covered for any possible events unless specified otherwise. Named exclusions typically include earthquakes, floods, and government seizures.
  • Personal Property. Your belongings are also insured in case of damage, theft, or loss, although they’re insured on a “named peril” basis. This means they’re only covered for events listed in your insurance policy—but you can increase the coverage with add-ons to your policy if you want. Your personal property will be reimbursed at either the actual cash value of it or the replacement value of it, depending on your plan.
  • Personal Liability. This is an incredibly important type of coverage. Personal liability covers you if someone gets injured on your property. You could be held personally and financially liable, but HO3 insurance helps cover you for this.
HO3 insurance also covers loss of use, meaning that if your home is made unlivable from an event like burst pipes or a fire, your expenses for a hotel and living costs will be reimbursed to a certain extent.

Why Get An HO3 Insurance Policy?

Aside from the fact that it’s generally required to get a mortgage, an HO3 policy protects your biggest investment. Your house and personal property are typically where you’ll spend the most of your money throughout your life, so it makes good financial sense to ensure they’re covered in the case of something devastating and unexpected happens, like a fire. 

Even if you don’t like in an area where fires or hail are common and cause home and property damage, smaller but more common events can occur like theft and burst pipes that can be financially devastating. HO3 insurance can spare you this expense and provide you peace of mind—which is priceless. 

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What Is HO5 Insurance?

So, you get the gist of HO3 insurance. Now it’s time to dive into HO5 insurance. HO5 insurance is fairly straightforward: it’s just a step up in coverage from HO3 insurance. In fact, its coverage is almost identical except for the key difference of open versus named perils for your personal property. 

Let’s unpack that. 

In an HO5 insurance policy, your dwelling is covered under open perils and so is your personal property. This means that unless a peril is specifically listed as an exclusion in your policy, you are covered for it.

Difference Between HO3 and HO5 Insurance

The main difference between these two types of insurance policies is the coverage for personal property. HO5 insurance gives you much more comprehensive coverage, while still also covering everything HO3 insurance protects. 

For personal property, HO3 insurance only covers you for named perils, while HO5 insurance covers you for open perils. This can be a game-changing, life-altering difference if damage occurs to your personal property. 

Another key difference is the reimbursement of personal property. HO3 insurance usually covers you for the actual cash value of the property. This means that you’d be reimbursed for the current value of that item, factoring in any depreciation since you purchased it. 

But HO5 insurance covers the replacement value of the property, meaning what it would cost to buy a similar item new. Insurance coverage for personal property also has dollar limits built-in for certain categories like jewelry and electronics, and HO5 dollar limits are generally much higher than those of HO3 insurance. 

Because HO5 insurance covers more than HO3 insurance, it typically costs more too. But if you have valuable personal property, it can be worth the extra amount to protect your belongings. 

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Getting HO3 vs HO5 Insurance

Once you’ve decided which is right for you—HO3 vs. HO5 insurance—it’s time to actually choose and apply for coverage. It’s important to note that HO5 insurance isn’t as easy to get as HO3 insurance is. The reason is simple: because the coverage is more comprehensive in an HO5 policy, the application can be more thorough and restrictive. 

You can be denied HO5 insurance if you have a history of frequent insurance claims or if you have a poor credit score. For most providers, you need a higher-than-average credit score to qualify for an HO5 insurance policy. 

Luckily, you can still qualify for HO3 insurance and purchase add-ons to your policy for more coverage. You can also try to upgrade from an HO3 to an HO5 policy down the line.

Final Thoughts On HO3 vs HO5 Insurance

The differences between HO3 vs. HO5 insurance are subtle, but they can add up significantly for you in terms of financial compensation should anything occur. It’s worthwhile to take stock of your personal property and determine if the higher coverage in an HO5 policy makes more sense for you, given the higher premiums. 

Regardless of which policy you choose, ensuring you have a form of insurance that covers your home, your personal property and your personal liability is important. Even smaller events like smoke damage, theft, or hail (compared to a flood or fire) can be financially devastating if you have to pay 100% out of pocket. 

But having a solid policy in place will give you peace of mind and the coverage you need should the worst happen. 

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HO3 insurance is a homeowners insurance policy that covers your dwellings, personal property, and personal liability in the case of events like theft, storms, injury, damage, and more.
HO5 insurance can make more financial sense if you have higher-value personal property that you want to protect. The premiums for HO5 insurance are higher than HO3 insurance, but the coverage is more comprehensive, so it can make sense to pay more for more protection of your personal property.

The main difference between the two types of policies is the coverage for personal property. In HO3 insurance, personal property is only covered for named perils, or events specifically listed in the policy. In HO5 insurance, it’s covered for open perils, meaning any events that occur unless specifically excluded in the policy terms.


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