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Real Estate Tips

What is an HO5 Insurance Policy?

An HO5 policy is a total coverage insurance policy option. If you are a homewoner is worth looking into so you can evaluate all your insurance options.

Having insurance on your home is a necessity. Your home is a major investment for you and having it protected is a top priority. There are a lot of options when it comes to what kind of insurance you can take out on your home though. One that is not a common, but still a very good choice, is an HO5 policy.

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HO5 Policy

The most distinctive aspect of an HO5 policy is that it covers all damages to your home and personal property within your home, that is not listed as an exception. This is often referred to as an “open-peril” policy. Meaning that all perils, or damages to your property, are covered by insurance. Similar to other policies though, there can be exceptions to this seemingly total coverage. Due to this it is important to read the fine print and know exactly what you are covered for.

When claiming from an HO5 policy you do not have to name how your personal property was damaged. This is due to the “open-peril” policy nature. All perils are covered, therefore you do not need to specify how the damage occurred. For example, let’s say that a stray cat gets into your home because your kids left the door open on the way to the grocery store. The cat tears up all your furniture in the living room, knocks down and breaks some of your precious belongings and decides to have kittens on your favorite rug. Completely crazy and quite unlucky, but possible. In this situation all of your damaged belongings would be covered under an HO5 policy.

HO5 vs. HO3

The main difference between an HO5 and HO3 policy is how much is covered. In an HO3, the most common insurance policy, only the structure of the home itself is covered by specified perils. It is considered a “named-peril” policy. Only damages caused by explicitly named perils to your property will be covered. This policy is often significantly less expensive than an HO5.

You need to evaluate how much your belongings are worth and if the additional cost of an HO5 policy is worth it. An HO5 policy takes the hassle of dealing with claims your insurance company does not want to cover out of the equation. This is obviously an amazing quality of a policy to have, all you need to do now is decide if it is worth the cost.

Questions to Ask

When buying any insurance policy you want to know exactly what you are getting. Here are a couple questions you might want to ask:

What are the exemptions? Even with an HO5 policy, there can be unexpected exemptions in the fine print. You will want to know what those are, if there are any.

Will I receive cash value or replacement value if an item is damaged? Replacement value means you will get the total amount to replace the item. Whereas cash value means you will get what the item was worth when it was damaged.

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Bottom Line

An HO5 policy is extensive and is for people who want to be covered for every possible situation. This policy will be more expensive than a normal HO3 policy. Most people are covered as much as needed with an HO3 policy. If you have amazing credit though, and the cost difference between the two policies is not outstanding, then it is worth reviewing the HO5 comprehensive form. Talk to your agent about your specific situation and get their opinion on what policy could be the best fit for you.

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