What is the difference between a HO3 and HO5 home insurance policy?
The HO3 and HO5 both cover your house on an open peril basis. Where the HO5 is different than the HO3 is how it covers your personal property (aka your stuff):
|Your House||Open Peril||Open Peril|
|Your Personal Property||Named Peril||Open Peril|
|Personal Property||Actual Cash Value||Replacement Cost|
An HO3 policy only covers your personal stuff on a Named Peril's basis whereas an HO5 policy provides coverage on an Open Peril basis. In addition, HO3 policies do not include Replacement Cost Coverage on your personal property by default (however this can usually be purchased as an add-on to an HO3).
Open Peril vs Named Peril
Named Peril is a fancy way to say you have coverage for only perils that are specifically written in your policy documents. So if your home insurance policy lists "fire" as a type of covered peril, but not "smoke", then smoke damage would not be covered in a named peril policy (unless it was caused by fire). How can you have smoke damage without a fire? Imagine you forget to turn off the oven before running out and it overcooks Mr. Turkey to a crisp. While no fire is started, you return to a kitchen filled with smoke. The smoke has seeped into your walls, causing permanent damage. Smoke damage is nasty, but in this example, would not be covered.
Open Peril is a fancy way to say you have coverage for all perils everything EXCEPT those specifically written as EXCLUDED in your home insurance policy documents. This means if your policy documents only list exclusions for flood, mold, and earthquake, as long as the damage caused to your personal property was not from a flood, mold, or eathquake, you would be covered.
A Chart Comparing HO2 vs HO3 vs HO5 Coverage
The graphic below shows the difference between an ISO standard HO2, HO3, and HO5 policy.
Hope that helps!
At your service,