If the title of this article surprised you, we don’t blame you. Many homeowners are often uninformed of the fact that home insurance is actually an umbrella term that encompasses different types of home insurance policies. Though the basic idea is to protect your property and insure it against damage, each policy provides a different type of coverage and it requires some research to know which one is the right one for you.
Today, we discuss the HO-5 home insurance policy, second in popularity only to its cousin, the HO-3 policy.
The HO-5 Home Insurance Policy Explained
Providing coverage for your home as well as your personal property (contents of your home), the HO-5 home insurance policy is deemed one of the best home insurance policies in the United States. This policy is an “open perils” policy, which means that it insures your home, detached structures, and personal property against all types of damage and danger unless it specifically excludes one in its purview. Thus, it specifies the perils that your house and property are not protected against. Due to this, the HO-5 policy provides the most extensive coverage there is, making it better than a standard HO-3 policy.
What Coverage Is Excluded In the HO-5?
As we mentioned earlier, the HO-5 policy is an “open perils” policy, therefore, it lists the perils or potential dangers to your house and personal property that it doesn’t cover, such as:
- Law or ordinance
- Coverage of earthquakes
- Water damage, unless it is sudden and accidental in which case it is included already
- Neglect of house or property
- Power failure
- Coverage of war and its effects
- Nuclear hazard
- Any action of the government
- The collapse of the house or property
- Theft, if it occurs in a dwelling or structure that is insured but still under construction
- The effects of:
- Vandalism in a house that has been vacant for more than 60 days
- Wet rot, mold, and fungus, though this may sometimes be covered
- Rust, corrosion, and smog
- Rodents, insects, birds, and vermin infestations
- Seepage, discharge, or dispersal of pollutants
- Wear and tear or deterioration of the house and property
- Mechanical breakdown in the house or property
- Any animals that the insured party owns
Though the HO-5 doesn’t cover water damage, earthquake damage, effects of the law, mold, fungus, wet rot, and collapse, some of them can be “endorsed” or added to your policy, such as water damage, earthquake damage, and the effects of the law. The effects of mold, fungus, wet rot, and collapse may sometimes be included in your policy; if not, they can be endorsed as well.
HO-3 vs HO-5
The HO-5 is highly similar to the HO-3 policy, with the latter being the most commonly purchased policy in the United States. However, not all policies are created equal and therefore, there are differences between the two.
The main difference is the type of coverage that both provide. The HO-3 is a hybrid policy and is thus, a combination of both “open perils” and “named perils” policies. Your house is covered on an “open perils” basis, whereas your personal property is covered on a “named perils” basis (where only the perils specified by the policy are provided coverage for). The HO-5 policy, on the other hand, covers both your house and personal property on an “open perils” basis, with only a few exclusions. This makes it a more extensively covering policy with fewer endorsements.
Another advantage of the HO-5 policy is that you don’t have to prove that damage to your property was due to a named peril; instead, the onus lies on the insurance company. It also includes a much simpler claims process than the HO-3. Thus, this is a less stressful policy!
However, due to the extensive nature of the HO-5 policy, some of its rules and guidelines may be stricter than the HO-3, such as HO-5 policy coverage being granted to newer or well-maintained homes that are in close proximity to a fire department.
Cons Of the HO-5 Policy
Nothing is perfect, a fact that holds true for the HO-5 policy as well. Though it may be a better policy than the HO-3, it falls short on the following counts:
Damage by water
The policy only includes coverage of sudden and accidental water damage. However, some insurers may sometimes offer coverage for foundation damage due to water, water backup (when water flows into your drains instead of out), and any damage from water leaks, so ensure that you check with your insurance company.
Like most other policies, HO-5 policies don’t insure against flooding and sadly, can’t even be endorsed into the policy. You will need to get flood insurance coverage to cover this peril.