Hawaii Insurance Adjuster License Practice Exam

How does coverage differ between an HO-3 and an HO-5 policy?

1. HO-3 covers personal property on an open peril basis.

2. HO-5 provides coverage for dwelling only.

3. HO-3 covers personal property on a named peril basis, while HO-5 covers on an open peril basis.

4. HO-5 is generally cheaper than HO-3.

The correct answer is: HO-3 covers personal property on a named peril basis, while HO-5 covers on an open peril basis.

The distinction between an HO-3 and an HO-5 policy lies primarily in how they cover personal property. The HO-3 policy provides coverage for personal property on a named peril basis. This means it covers specific risks that are explicitly listed in the policy. If a risk is not on the list, it is not covered. In contrast, the HO-5 policy takes a more comprehensive approach by covering personal property on an open peril basis. This means that it includes coverage for any risk unless it is specifically excluded in the policy. As a result, the HO-5 offers broader protection for personal belongings, which can be more beneficial for homeowners who want to ensure their belongings are covered against various unforeseen events. This clear difference is why option C accurately describes the coverage provided by both types of policies. The level of detail and the nature of coverage they provide is essential for homeowners when selecting their insurance policy, affecting their overall risk management strategy.