For homeowners who want basic protection, an H03 policy will suffice. But for homeowners looking for the most protection and the highest coverage limits, a premium H05 policy is the best bet.

With most home insurance, such as an H03 policy, you are required to prove that your personal property claim happened due to one of the named perils listed on your policy. However, with a premium policy, such as an H05, the only way you won't get reimbursed for personal property damages is if the peril is specifically exempted from your policy.

Peril is "insurance speak" for specific dangers that could cause damage to your property. For instance, a burst pipe, fire, hurricanes or tornadoes are all perils. Named perils mean the perils you are covered for that are specifically mentioned in your insurance policy. If you are covered for all perils except those mentioned as exemptions, you are getting an open perils policy.

Key Takeaways

  • The difference between the basic H03 policy and the premium H05 policy for homeowners is what perils or dangers to your home are covered; for most people, H03 policies are sufficient.
  • A basic policy covers all risks to the building structure, including the outside of the building, while personal property, including everything in your home, is only covered if it falls under named perils in the policy.
  • With a premium policy, all risks to the building structure are covered, but all personal property, or everything in your home, is also covered unless it falls under the list of perils that you have chosen specifically to exclude.
  • H03 or basic policies are less costly than H05 or premium policies because they cover less.

Basic H03 Policy vs. Premium HO5 Policy

The most common policy, HO3, regards all risk to the actual building structure of your home, meaning you'd be insured for any peril that could happen to the outside of your home. All risk is also called "open peril," because unless a specific peril is excluded you are covered. However, your personal property, the contents of your home, i.e. your stereo, computer, and furniture, are only covered by named perils in an H03 policy.

In an HO5 policy, both personal property and your home are covered under an open perils policy. Thus, if you have a claim due to anything that causes damage to your personal property within your home, you wouldn't have to prove that it happened because of a named peril. For instance, if your roof develops a water leak and your property is damaged, you do not have to prove that it happened based on a reason covered by your policy, such as hail. If the peril is not specifically excluded, you are covered.

Perils Covered With an H03 Policy

There are 16 named perils that are generally insured against in a typical H03 (traditional) policy. This covers most incidents that can happen and is good enough that most people end up with this policy in order to avoid higher insurance premiums. Some of the perils that may be included in H03 are vandalism, damage from thawing ice, mold, theft and volcanic eruption.

Reasons to Get an HO5 Policy

If you have fantastic credit and the difference in price is relatively small, HO5 policies give you no fuss, no muss insurance, because the burden of proof for any personal property claim lies with the insurance company.

The benefit of having an HO5 policy is that you are covered in additional circumstances for damage to your personal property. So, whether the extra cash is worth it or not is a matter of how much your stuff is worth. Go around your home with a pad and paper and write down everything you own. Make sure to include serial numbers because you will need this for your insurance company if you ever have items stolen from your home.

Write down what you think each item is worth. Then go online to find replacement values if you bought the same item new. Total the values and now that you know what your stuff is worth, you can decide whether you need an HO5 policy.

The name for a policy can vary from state to state, so if you are looking for an HO5 policy, explain to the insurance agents or brokers that you are looking for a policy that includes all risks or open peril coverage for personal property.

Questions to Ask About Any Policy

No matter whether you choose an HO3 or an HO5 homeowner's policy, you should ask your agent or broker these questions:

What are the exemptions? Even if you have an HO5 policy, you could have exemptions – items not covered in your policy – for a few items.

Is replacement value or cash value covered? If you are covered for replacement value instead of cash value, you are paid enough to buy the item new instead of what the item is worth at the time it is damaged.

The Bottom Line

HO5 policies protect you from your insurance company not reimbursing for certain types of personal property damage. However, choosing this policy depends on how much your possessions are worth, and if you can afford the additional premium. No matter what insurance policy you choose, ask specific questions about what items are not covered. You don't want to shell out the extra cash for an HO5 policy and then discover that what damages your property is the one thing that is not covered.