Comprehensive Guide to HO-5 Home Insurance Policies

When you purchase homeowners insurance, you have several coverage options. An HO-5 policy is the premium choice, as it provides much more protection than an HO-1, HO-2, or HO-3 policy. Learn more about this type of homeowners insurance to determine if it’s right for you.

Decoding HO-5 Home Insurance

Also known as the comprehensive form, HO-5 home insurance provides all-risk coverage for single-family homes. This means that it protects you against all risks of physical loss that aren’t specifically excluded from your policy.^[1] Another name for all-risk coverage is open-perils coverage.

HO-5 coverage is different from other homeowners insurance policies because it’s extremely comprehensive. It covers the structure of your home and the belongings inside, giving you the greatest amount of protection available. HO-5 insurance also has higher coverage limits than other policies.

In-Depth Coverage Analysis

HO-5 insurance bundles six types of coverage into one policy.

Coverage A: Dwelling

Coverage A covers the structure of your home. This includes the roof, walls, foundation, and frame. It also covers the structures attached to your home, such as built-in appliances, electrical systems, and central air-conditioning systems. This type of insurance is also known as dwelling coverage.

Coverage A protects you against a variety of risks, from fires to vandalism. Note that homeowners insurance only covers accidental damage. It won’t cover claims related to poor maintenance or normal wear and tear.

Coverage B: Other Structures

Coverage B protects structures that aren’t attached to your home. It may cover the following:

• Sheds
• Detached garages
• Barns
• Gazebos
• Detached patios
• Fences
• Mailboxes

Steve Glass, a longtime homeowners claims manager, says, “Most insurers determine if an item is considered an “other structure” based on whether it is permanently attached to or otherwise forms a part of the realty.”

Insurance companies calculate your coverage B limit as a percentage of your coverage A limit. For example, if you have $300,000 in dwelling coverage, your insurer may set your coverage B limit at 10% of that, or $30,000.

Coverage C: Personal Property

Coverage C, also known as personal property coverage, protects the contents of your home. This includes furniture, clothing, books, DVDs, and linens. Coverage C also covers property losses that occur away from home as long as the loss arises from a covered peril.

Coverage D: Loss of Use

If your home requires extensive repairs, you may have to stay elsewhere while contractors finish the work. Coverage D pays your additional living expenses while you’re away. Note that it only covers living expenses beyond what’s normal for your household.

Coverage E: Liability Coverage

Coverage E protects you from lawsuits arising from accidents that take place in or around your home. For example, if someone trips over a loose step, falls, and breaks their nose, they could sue you for medical expenses, pain and suffering, and other damages. Liability insurance also covers things such as dog bites, burns, and accidental property damage.

Coverage F: Medical Payments

Coverage F pays reasonable medical expenses for guests injured on your property.

Understanding Policy Exclusions and Limitations

Although your HO-5 policy is comprehensive, it doesn’t cover every possible scenario. There are some standard exclusions, along with special considerations for expensive items.

Standard Exclusions

HO-5 insurance generally doesn’t cover damage caused by flooding, earth movement, or changes in local laws and ordinances. The National Flood Insurance Program defines flooding as “an excess of water on land that is normally dry”^[3]. This excess water must affect at least 2 acres or two homes to qualify as a flood. Although your HO-5 policy doesn’t include flood coverage, it’s possible to purchase a supplementary flood policy.

Earth movement is a broad term used to describe earthquakes, sinkholes, and mudslides. If you live in an earthquake-prone area, you can buy a supplemental earthquake policy or an endorsement specifically for earthquakes and other types of earth movement.

From time to time, local officials establish new laws and ordinances designed to protect community members from certain hazards. For example, city officials may change the building code to prohibit the use of certain materials. If your home sustains damage due to a covered peril, it may cost a significant amount of money to bring it up to code during the repair process. Law/ordinance coverage covers these additional costs ^[4].

The liability portion of your HO-5 policy may have additional exclusions. For example, your insurance company likely won’t protect you from lawsuits arising from intentional acts. Additionally, you may not be covered if the damage occurs due to the use of a motor vehicle or because you’re performing certain business activities in your home.

Special Considerations

Your HO-5 policy may have low coverage limits for high-value items. For example, your insurer may only cover up to $1,500 worth of jewelry. If you have more than $1,500 worth of jewelry, it may be wise to purchase an endorsement. Also known as a scheduled personal property rider, an endorsement gives you extra coverage for jewelry, artwork, collectibles, and other high-value items.

Another option is to purchase a personal articles policy. This is different from an endorsement because it’s a separate policy rather than an extension of your HO-5 policy.

Financial Aspects of HO-5 Policies

HO-5 is one of the most expensive types of homeowners insurance, so it’s important to understand the financial aspects of your coverage.

Replacement Value vs. Actual Cash Value

What really sets HO-5 coverage apart from other types of homeowners insurance is that it covers the replacement value of your dwelling and personal property. Some policies only give you the actual cash value, which subtracts depreciation from the amount of money it would take to repair/replace damaged or stolen items.

Replacement value doesn’t subtract anything for depreciation, so it’s how much money you’d need to repair or replace your property at today’s prices. Here’s why that matters.

Assume your home sustains damage caused by a covered peril. A contractor gives you a repair estimate for $4,000. If your policy covered the ACV of the property, your insurer would subtract a certain amount of money for depreciation. 

Assuming that amount was 10%, you’d end up with $3,600, which isn’t quite enough to cover the full cost of repairs. An HO-5 policy covers the replacement value of the damaged property, so you’d receive the full $4,000. 

Note that your insurer is likely to pay the ACV until you complete the required repairs. Once your contractor finishes the repairs, you’d receive a separate payment of $400 to account for the depreciation withheld from the first payment.

Cost Determinants and Savings

Many factors affect the cost of homeowners insurance, including your location, your credit score, and the value of your home. Your insurance company also has access to the Comprehensive Loss Underwriting Exchange, which maintains a record of the claims you’ve filed during the previous 7 years ^[5]. The information in your CLUE report also affects your premium.

Many insurance companies offer a discount for installing a home security system. You can also reduce your premium by choosing a higher deductible.

Policy Selection: HO-5 vs. Alternatives

An HO-3 policy costs less than an HO-5 policy, so it’s a viable alternative for budget-conscious consumers. The reason it’s less expensive is because it only insures the contents of your home against named perils. In contrast, an HO-5 policy offers all-risk coverage for the property inside your home.

When choosing a policy, be sure to match your coverage to your circumstances. If you can afford the higher premium, you may want the extra peace of mind offered by HO-5 coverage. If cutting costs is a concern, an HO-3 policy may be a better fit.

Protect Yourself With Comprehensive Coverage

HO-5 coverage is helpful if you have many valuable items and need all-risk coverage for your personal belongings. If you’re comfortable with a named-perils policy, HO-3 coverage may be a better fit for your needs. For expert insight into the intricacies of homeowners insurance, contact a licensed professional.

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Reviewed by Steve Glass

Steve Glass is a retired insurance professional with over 34 years of experience in the property and casualty insurance industry. Over the course of his career, Steve led teams that handled property and casualty claims, auto medical claims, auto bodily injury claims, catastrophe claims and insurance subrogation recovery efforts. He also has experience as an Insurance Subrogation Arbitrator.