Locations: Florham Park, NJ and Marysville, PA

THE BASIC DIFFERENCE BETWEEN HO3 AND HO5 POLICIES

Standard homeowner’s insurance offers coverage for the named perils only. The insured would only receive compensation if it is proved that the property damages or losses took place as a result of the named perils.
• A HO-3 policy is a combination of an open peril and a named peril policy.
• A HO-5 policy is an open peril policy.

To understand them better, you must know about open peril and named peril policies.

What is an open peril policy?
Insurance policy which offers coverage against almost all forms of risks that can cause damage to a property. Certain exclusions are however mentioned even in an open perils policy, which are not covered.

What is a named peril policy?
In a named peril policy, specific risks are mentioned against which the insurer provides coverage. If the property damages occur due to any other peril other than those mentioned in the policy, the insurers deny paying for the loss.

HO-3 – HOW IT ACT LIKES A COMBINATION OF OPEN PERIL AND NAMED PERIL POLICY
The HO3 policy acts like an open perils policy when it offers coverage against the property structure. This means the insurer will compensate for the damages to the structure of the insured building or residence, under any circumstances. However, if the damage is caused by any of the excluded peril, the insurers are not liable to pay for it.

The HO3 policy acts like a named peril policy when it offers coverage for the contents of the insured property. Loss or damages to the personal belongings of the homeowner and the home content will only be covered, if those have been caused by the specific perils as pointed out in the policy.

HO5 – HOW IT ACTS LIKE AN OPEN PERILS POLICY?
HO5 policy acts like an open perils policy, and doesn’t discriminate between the home content and structure. Thus, no matter what kind of damage affects the insured property, this form of homeowner’s insurance will offer protection. Coverage will only be denied if the cause behind the loss or damage is any one of the excluded perils, specifically mentioned in the policy.

NAMED PERILS FOR HO3 POLICY.
A standard HO3 policy offers coverage for 16 named perils as mentioned below:

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.

EXCLUDED PERILS FOR BOTH HO3 AND HO5 POLICY
The exclusions are more or less same for both HO3 and HO5 insurance policies as mentioned below:
1. Power failure
2. Industrial pollution or smoke
3. Earth movement (earthquake)
4. Water damage due to flood
5. Intentional loss
6. War
7. Nuclear Accidents
8. Pets and other animals, insects and pests
9. Settling, wear and tear
10. Act of negligence
11. Actions taken by government and other associations
12. Legal action due to lack of proper permits, defective construction, design or maintenance
13. Theft or Damage from vandalism in vacant dwellings or in dwellings under construction
14. Deterioration due to weather conditions, that aggravates other excluded causes of loss

WHICH IS BETTER?
HO3 and HO5 policies can be compared on the basis of certain parameters as mentioned below:

• Coverage – A HO5 policy is considered better than a HO3 insurance policy as far as coverage is concerned. It is so, since the former ensures wider coverage for both the structure and the contents of the insured home.
• Cost – A HO5 Policy is more expensive than a HO3 insurance policy. For those who are looking for an affordable coverage, HO3 policy seems to be the better choice.
• Popularity – HO3 insurance policies are apparently more popular with the homeowners. It is economical and offers coverage against most of the common perils.

The limitations of the HO3 can be overcome, if additional endorsements are added on to the basic coverage. However, that will raise the costs.

If you’ve to pick between a HO3 and a HO5 policy, the latter ensures the better coverage. An open perils policy is evidently a better choice than a named perils policy.

All said and done, your preference between the two forms of policy will essentially be influenced by your financial limits and the extent of coverage that you need.