We are buying a new home and shopping around for insurance. Although we've been through the process before (we currently own a home), I never realized that there were different tiers of Home Owner's insurance. The 2 core tiers are HO3 and HO5, with 5 being the more comprehensive. We've always had HO5, and have changed insurance companies twice in this home because of finding better rates. I've never even been offered HO3 before, but now 50% of the quotes I'm receiving are HO3.

HO3 rates are, understandably, less expensive than HO5. I'm wondering if we should start with HO3 to get through closing, at which time we're required to put down a full year's premium, and then upgrade to HO5 later. I'm not even sure that it will make a difference, but I thought I'd ask around.

  1. Am I right in thinking that it would be cheaper at closing to go with HO3, or will we just have to pay the difference in premium as soon as we switch to HO5 anyways? (Maybe this is bank/escrow dependent?)
  2. Will we be negatively impacted by signing up for HO3 with insurance company A and then ditching them for company B's HO5 plan later?

For anyone else not familiar with HO3 vs HO5

  • Are you financing? Is there an HOA? Your mortgage holder or HOA may have a say in what type you should have
    – littleadv
    Aug 11, 2016 at 2:27
  • @littleadv - yes, and yes. HO3 is acceptable as the minimum option across the board.
    – BobbyScon
    Aug 11, 2016 at 2:39

1 Answer 1


Unless you have a specific need to cover your personal possessions against all types of loss, go with the HO3 policy. Generally, insurance carriers will offer some sort of upgrade coverage option for your personal possessions anyway (such as replacement cost coverage instead of the default actual cash value).

The point of escrow is make sure that the taxes and insurance get paid. If you upgrade later, you'll either have a deficit in your escrow, or you'll be asked to pay up front for the difference, and this can feel like you're paying for your insurance twice, when that's not what's really happening.

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