HO3, HO4, HO5 or HO6: are you lost in the insurance jargon, confused about what to do next, and left asking yourself “what policy is right for me and my situation?” If so, you’re not alone. Read on to learn how you can navigate this complicated issue.
In the insurance world, there are a number of different types of homeowners insurance policies designed to fit a variety of needs.
Well it wouldn’t make much sense if you owned a half-million dollar home to insure your house on a renters policy, right? And likewise, if you’re living in an apartment, you probably wouldn’t want to use the same policy as the $500,000 homeowner simply because of the increased cost.
For this reason, the insurance industry has seven different policy forms that can be used, but in reality, only four are actually routinely available. And these forms all have their own number, and own specific use:
- HO3 (HO stands for Home Owners, and 3 designates the type of form)
Real quickly, an HO4 policy is also referred to as a Renters or Tenant Policy. The HO4 policy is designed for the specific needs of those renting, whether it’s an apartment, condo or home that you’re renting.
Learn more about an HO4.
For the purposes of this article, we’re going to focus on the differences between the HO3 (also known as the Homeowners Policy Special Form) and the HO5 (referred to as the Homeowners Policy Comprehensive Form).
Both of these policies are primarily designed to protect one-family homes that are owner-occupied (meaning it’s not a house that you rent out to someone else – this type of situation would require a Dwelling Fire or Rental Dwelling policy).
We’ll start with how the HO3 and the HO5 are similar.
- Both policies provide coverage for the structure (your house). This is referred to as Coverage A in your policy
- Coverage is also provided for private structures on your premises (such as a detached garage), referred to as Coverage B in your policy
- Your personal property (everything inside your house – furniture, clothes, electronics, etc.) is covered while located on your premises. This is Coverage C in your policy
- Loss of Use, which reimburses you for increased living expenses (examples include hotel room costs, meals, etc.) you incur as a result of a covered loss. Referred to as Coverage D in your policy
- Personal Liability (Coverage E) and Medical Payments (Coverage F) protect you for claims alleging you caused bodily injury or property damage to someone else
How They Differ
The types of coverage (your home, other structures, personal property, loss of use and liability) provided by the HO3 and the HO5 are the same. Where they differ is the types of claims each policy will cover with respect to your contents.
Here’s how it breaks down – The HO3 is a Named Perils policy, which means you’re covered ONLY IF the loss you have is specifically named in your policy. There are 16 named perils in the HO3:
- Fire or Lightning
- Windstorm or Hail
- Riot or Civil Commotion
- Vandalism or Malicious Mischief
- Falling Objects
- Weight of Ice, Snow or Sleet
- Accidental Discharge or Overflow of Water or Steam
- Sudden and Accidental Tearing Apart, Cracking, Burning or Bulging
- Sudden and Accidental Damage from Artificially Generated Electrical Current
- Volcanic Eruption
While that list seems exhaustive, there are claims that occur on a daily basis that would not be covered by the HO3 policy.
A good example of a claim that actually happened to one of our clients was a deer that smashed through their picture window in the middle of the night. After the homeowners calmed down from nearly having a heart attack, they began the process of trying to get the deer out of their house. After what felt like hours of work, they were successful. BUT, not before the deer destroyed the interior of their home.
If this client would have been insured on an HO3, since “deer jumping through window” is not a named peril, they would not have been covered.
One very important point to keep in mind: with the HO3, you (the insured) have the burden of proving that your claim is covered. This means in the event of a loss, you must be able to prove to your insurance company that the loss was a direct result of one of the 16 named perils listed above. If you can’t, your insurance company is not responsible for paying your claim.
Why Consider an HO5?
For the broadest homeowners coverage, you need the HO5. This policy covers your contents on an Open Form, which means your HO5 policy will cover you for all losses EXCEPT those that are specifically excluded. Standard exclusions include home maintenance types of claims (often referred to as ‘normal wear & tear’), flood, earthquake, nuclear hazards, war, etc.
Here’s the most important benefit with an HO5, in addition to the broader coverage: in the event of a claim, the burden of proof is on your insurance company to prove that your claim is not covered because of one of the exclusions in your policy. If the insurance company can’t point to a specific exclusion in your policy, no matter how obscure the claim may be (such as a deer jumping through your picture window and running through your entire house destroying everything), your policy will cover you.
Since the HO5 is the broadest homeowners policy available, not all insurance companies are willing to offer this option to their insureds. Some companies make the HO5 available only to certain types of insureds, such as those that have a newer, impeccably maintained home.
The bottom line is: if you’re eligible for an HO5, get it. There are countless claims our clients have suffered that would not have been covered with an HO3, but because the claim was not specifically excluded in their HO5, they did have coverage. Some of the claims were small, but some were large enough that if not covered, could have caused a financial catastrophe for our clients.
If you’d like to learn more, contact one of our Licensed Advisors . We’re here to help.