All Homeowners policies are not the same

Many homeowners assume that all homeowners insurance is the same. As long as the coverage limits match, a policy or quote comparison is "apples to apples." But homeowners policies differ substantially even though they may appear to be identical. One major difference between homeowners policies is whether coverage is provided on an HO3 or HO5 form.

The HO3 is the most widely available policy form and often meets a lender's minimum coverage requirements. It covers a broad range of property types, but offers a more limited coverage for your personal belongings:

	HO3		HO5
Dwelling Coverage	Open Perils		Open Perils
Contents Coverage	Named Perils		Open Perils

   Open Perils - Insures against all causes of loss that are not specifically excluded
   Named Perils - Insures against a list of specified causes of loss

These are the named perils that limit the personal property coverage on a HO3:

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

The HO5 Difference

Many coverages that are available only by endorsement on the HO3 are automatically included on the HO5. For example, the HO5 automatically includes replacement cost coverage on contents. 

Another great benefit of the HO5 is that you no longer have to prove that the damage to your property was caused by one of the named perils. This can take a lot of the uncertainty and headache out of adjusting a loss.  Say a family was away on vacation, and raccoons, after entering the crawl space from an open access door, somehow make their way into the house. While foraging for food and shelter, they proceed to destroy things in the living room and kitchen including cabinets, furniture, and some small appliances. This loss would be fully covered under the homeowners HO5. An HO3 would have had this homeowner paying out of pocket to repair and replace the damage. While this is an unlikely scenario, it illustrates that there are countless, unimaginable ways your personal belongings could be damaged by things other than the named perils.

Because the HO5 provides broader coverage, the underwriting guidelines can be more restrictive. Generally insurance providers limit HO5 coverage to new(er) and/or well cared for homes that are in an area protected by a fire department.

Which should you choose?

Assuming that you qualify for both forms, the HO5 is the form of choice. The HO5 not only provides broader coverage, but can also simplify the claims process. While the initial price tag of the HO5 may be higher than the HO3, the total long run costs of an HO5 are generally lower.

The HO3-HO5 difference is one of many differences you could find between seemingly identical quotes or policies. It's important that you know the differences between good, bad, and average policies. Don't wait until you have a claim to learn about your coverage.