2 Basic Types of Home Policies – HO3 & HO5

Home is where your heart is.  And for most of us it’s the most important investment we will ever make.  That’s why it’s important to make sure it’s protected with a homeowners insurance policy.

There are basically two main types of policies – HO3 and HO5.

What is the difference?  The primary difference lies in the protection you get for your personal property.  Simply defined, personal property is everything that would fall out if you turned your home upside down.

Under an HO3 policy, you get what’s called Named Perils Coverage (a.k.a. Broad Coverage) for your personal property.  Peril is “insurance speak” for a specific danger that could cause damage to your property.  With named perils coverage, the insurance company gives you a specific list of perils (dangers) that are covered.  Anything not on the list is not covered.  The burden of proof when submitting a claim is on the claimant, who must show that the loss was caused by a listed peril.  Policies can vary by company, but a standard HO3 policy typically includes the following 16 named perils:

1. Fire or Lightning
2. Windstorm or Hail
3. Explosion
4. Riot or Civil Commotion
5. Aircraft
6. Vehicles
7. Smoke
8. Vandalism or Malicious Mischief
9. Theft
10. Volcanic Eruption
11. Falling Objects
12. Weight of Ice, Snow, or Sleet
13. Accidental Discharge or Overflow of Water or Stream
14. Sudden & Accidental Tearing Apart, Cracking, Burning, or Bulging
15. Freezing
16. Sudden & Accidental Damage from Artificially Generated Electric Current

Under an HO5 policy, you get what’s called Open Perils Coverage (a.k.a. Special Coverage) for your personal property.  Open Perils coverage means that the insurance company gives you a specific list of perils that are excluded.  Anything not on the exclusion list is covered.  The burden of proof to deny a claim is on the insurance company, who must show that the loss was caused by a listed exclusion.  Policies can vary by company, but a standard HO5 policy typically includes the following exclusions:

1. Earth Movement (most companies offer this by endorsement)
2. Ordinance or Law (most companies will give you a limited amount of coverage)
3. Water Damage – Flood, Water Backup Through Sewers & Drains, Sump Pump Failure (most companies offer water backup & sump pump failure coverage by endorsement;  a flood insurance policy can be purchased separately)
4. Power Failure
5. Neglect
6. War
7. Nuclear Hazard
8. Intentional Loss
9. Governmental Action
10. Theft In or To Dwelling Under Construction
11. Vandalism or Malicious Mischief (when home has been vacant for a certain # of days)
12. Mold, Fungus, or Wet Rot (some companies will give you a limited amount of coverage)
13. Wear & Tear, Deterioration
14. Mechanical Breakdown (some companies are offer this by endorsement)
15. Smog, Rust & Corrosion
16. Smoke From Agricultural Smudging & Industrial Operations
17. Discharge, Dispersal, Seepage of Pollutants
18. Settling, Shrinking, Bulging, or Expanding
19. Birds, Vermin, Rodents, Insects
20. Animals Owned By Insured

Which policy should I choose?

If your home qualifies for an HO5 policy, then I highly recommend you purchase it.  The price difference between an HO3 and HO5 policy is relatively small and in my opinion well worth the better protection.  Your insurance agent should help you to clearly understand the differences and choose the policy that is right for you and your family.  The decision is ultimately up to you.

Please feel free to contact me if you have any questions.