HO-5 Insurance Policy: What It Is and How It Works

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All homeowners insurance provides financial protection if something happens to your belongings or the structure of your home. But not all policies cover the same things.

An HO-5 policy form, or a comprehensive form policy, offers the most protection of any option available.

Here’s what you need to know about how an HO-5 policy works and how to decide if it’s right for you:

What is an HO-5 insurance policy?

An HO-5 insurance policy is one of several types of homeowners insurance you can purchase to protect your home and belongings. They are:

  • HO-1 — Provides minimal liability coverage, and is no longer widely available.
  • HO-2 — The basic policy that covers 16 named perils.
  • HO-3 — The most common homeowners policy type that covers everything unless it’s specifically excluded in the policy.
  • HO-4 — Insurance coverage for renters
  • HO-5 — Covers virtually everything, unless excluded, plus generally pays replacement cost, rather than actual value, and has higher coverage limits.

Many factors will influence which type of homeowners policy you choose, but if you want the most protection available, consider an HO-5 policy.

Good to know: Homeowners policies may offer two types of reimbursement — actual value vs. replacement value. Actual value is the value of the property minus depreciation based on age or use. Replacement value pays the amount needed to repair or replace the property at today’s prices — and doesn’t factor in depreciation.

What does an HO-5 insurance policy cover?

Because HO-5 policies are open-peril policies, they offer broader coverage than other homeowners insurance options.

HO-5 insurance offers protection against damage to your home and other structures on your property, as well as damage to or theft of your personal belongings, loss of use, and more. On top of that, you’ll also get personal liability and medical payments coverage, which can protect you financially in the event that someone is injured on your property.

Something else that sets HO-5 policies apart is that they provide replacement cost coverage, which means if you need to file a claim, you’ll receive the amount required to replace lost items with new ones. In contrast, actual-cash value policies offer coverage based on the depreciated value of the damaged or stolen item — and that may not be enough to pay for a replacement.

Learn More: What Does Homeowners Insurance Cover?

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What isn’t covered by HO-5 insurance?

HO-5 policies provide more protection than any other homeowners insurance option. But that doesn’t mean they cover everything. While policy terms can vary from one insurance carrier to another, these policies typically won’t provide coverage if the loss was caused by one of the following perils:

  • Intentional loss: You intentionally damaged your home or possessions.
  • Ordinance or law: A local or state government requires you to make home improvements, like bringing the electrical wiring in your house up to code.
  • Water damage from flood, sewer backup, or water seepage
  • Earth movement: Earthquake, sinkhole or other type of natural shifting of the earth
  • Power failure
  • War
  • Nuclear hazard
  • Government action
  • Collapse
  • Theft to a dwelling under construction, or vandalism or malicious mischief if vacant more than 60 days
  • Mold, fungus or wet rot
  • Neglect, wear and tear and deterioration
  • Mechanical breakdown
  • Smog, rust or corrosion
  • Smoke from agricultural smudging and industrial operations
  • Discharge, dispersal or seepage of pollutants
  • Settling, shrinking, bulging or expanding of your home’s foundation
  • Infestation of birds, vermin, rodents or insects
  • Animals owned by insured

You may also run into limitations with certain items, such as jewelry, firearms, fine art, and computers, but you can purchase additional personal property coverage to bridge the gap. As you compare HO-5 policies, make sure to read the insurance declaration page to understand limitations and exclusions for each policy.

How much does HO-5 insurance cost?

On average, an HO-5 policy costs $1,412 per year, according to a report by the National Association of Insurance Commissioners (NAIC). However, many different factors can influence the cost of your homeowners insurance policy, including:

  • Insurance provider
  • Location of the property
  • Value of the home
  • Age and condition of the home
  • Security and safety features
  • Coverage types and amounts
  • Deductibles
  • Your credit history
Keep in mind: You can often secure a discount on your HO-5 policy if you bundle your coverage with another type of insurance, such as auto or life insurance, with the same carrier.

How does an HO-5 policy differ from other policies?

HO-5 insurance offers more comprehensive coverage than other types of homeowners insurance. You’ll also typically get higher coverage limits, giving you more peace of mind in the event of a loss.

More specifically:

  • HO-5 policies offer payment based on the cost to replace or rebuild items with a new, similar item. Others typically offer actual-cash value basis, which takes depreciation into account, giving you less value.
  • Valuable items such as electronics, jewelry, and silverware get higher coverage limits.
  • Losses are covered unless they’re explicitly excluded in the policy terms.

HO-3 vs. HO-5 home insurance policies

HO-3 policies are the most common form of homeowners insurance. Almost 78% of all home insurance policies are HO-3 form, compared to just over 14% for HO-5 form, according to the NAIC report.

For the most part, the two policy types are similar. But here are some key differences to keep in mind when comparing them:

  • Dwelling coverage is on an open-perils basis for both policy types, but HO-3 insurance includes named perils for personal property coverage.
  • HO-3 policies use actual-cash value basis for payments, while HO-5 policies use replacement cost.
  • If you want scheduled personal property coverage for valuable items, you’ll need to pay extra for each one with an HO-3 policy. With an HO-5 policy, coverage is built in, though you can pay for more if you want.

While the average premium for an HO-5 policy is $1,412, you’ll pay an average of $1,272 for an HO-3 policy, a difference of less than $12 per month.

Learn More: Types of Homeowners Insurance Policies

Why do you need HO-5 insurance coverage?

HO-5 insurance coverage is typically available if you have a newer or more valuable home, and live in an area with relatively low risk of loss due to natural disasters, crime, and other perils.

HO-5 coverage may be worth considering if the value of your home is high compared to other properties where you live and you want the additional peace of mind comprehensive coverage can provide.

Take your time to compare HO-5 and HO-3 policies to determine how much extra you’d need to pay for more coverage and whether it’s worth the cost for you.

Learn More: How to Buy Homeowners Insurance

How much HO-5 insurance do you need?

If something happens to your home, not having enough coverage can be financially devastating. So, you’ll want to make sure you have enough protection to avoid that.

If you have a mortgage loan, your lender will require you to have a certain amount of coverage. But it may be worth it to buy more, particularly when it comes to liability coverage. At the same time, you’ll want to balance your coverage types and amounts with the monthly cost.

It may be worth it to consult with an insurance agent to get expert advice on how much you should get. You can also compare homeowners insurance policies to see what the cost differences might be based on how much insurance you buy.

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