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An HO-2 policy is an insurance policy available to homeowners. In addition to providing dwelling coverage, this policy form covers detached structures and personal items. Unlike an HO-3 policy – the most common policy type – that provides open perils coverage on your home, an HO-2 policy provides coverage for named perils listed in your policy.y. However, there are advantages of an HO-2 policy, depending on your needs. Bankrate’s insurance editorial team breaks down what an HO-2 policy is and what it covers to help homeowners determine if this policy is right for them.
Key takeaways
- An HO-2 policy is a type of homeowners insurance that only covers damages caused by perils specifically named in your policy.
- An HO-2 typically covers 16 named perils, including damage from fire and lightning, windstorms and hail, and theft.
- HO-2 policies may be cheaper since they offer less coverage, but you may be opening yourself up to extra risk.
What is HO-2 insurance?
Generally, property and casualty insurers offer eight different types of coverage, also called “policy forms,” for homeowners, condo owners and renters. Some are specific to the type of home in which you live. An HO-5 policy, for example, is a robust open peril policy that may be beneficial for high-value homes. HO-4 policies exist just for renters, while HO-6 policies are for condo owners and HO-7 insurance is designed to protect those who own mobile and manufactured homes.
If you own a traditional home, there are several homeowners policy options. An HO-1 policy offers the fewest levels of protection. On the other end of the spectrum is the HO-5 policy, which gives you the most robust protection of the various coverage forms. However, either policy type typically comes with requirements your home has to meet.
HO-2 policies are a step up from HO-1 policies, but they do not offer as much coverage as an HO-3, which is the most common type of homeowners insurance policy.
Like other home insurance policies, HO-2 insurance is comprised of several standard coverage types, including:
- Dwelling coverage, for the home’s structure, such as the roof, walls, foundation and any attached items, like a deck or garage.
- Other structures coverage, for detached structures like sheds, fences, detached garages and in-ground swimming pools
- Personal property coverage, for your belongings, such as clothes, furniture and electronics
- Liability coverage, for financial protection if you are found at fault for injuries or damage to someone’s belongings that occurs on your property
- Additional living expenses coverage, which provides temporary living coverage in case your home is not liveable due to a covered loss
Named perils vs. open perils
The various components of home insurance policies are covered either on a named perils basis or an open perils basis. In general, named perils will cover only the specifically named perils, such as fire or wind, listed in the policy. An open perils policy protects you against any loss unless the peril is explicitly listed as an exclusion, such as damage caused by flooding or earthquakes.
An HO-2 insurance policy covers homeowners on a named perils basis. This means that your policy will only cover damage to your home, detached structures and personal property caused by a peril that is specifically listed in the policy. If your home is damaged by an occurrence that is not specifically listed, it will likely not be covered.
HO-2 vs. HO-3 policies
Before choosing a homeowners insurance policy, you should understand the difference between how an HO-2 policy and an HO-3 policy covers your home’s structure and personal belongings. Below is a table showing how HO-2 policies and HO-3 policies cover losses.
| HO-2 coverage type | HO-3 coverage type | |
|---|---|---|
| Dwelling | Named perils | Open perils |
| Other structures | Named perils | Open perils |
| Contents | Named perils | Named perils |
HO-2 coverage
Now that you know that an HO-2 policy only covers specifically named losses, you may be wondering what those losses are.
What do HO-2 policies cover?
An HO-2 policy typically lists 16 named perils. They are:
- Fire and lightning
- Windstorm and hail
- Explosions
- Riot and civil commotion
- Damage caused by aircraft
- Damage caused by vehicles
- Smoke
- Vandalism
- Theft
- Volcanic eruption
- Falling objects
- Damage caused by the weight of ice, snow or sleet
- Accidental discharge of water or steam from a household appliance or a plumbing, heating, air conditioning or sprinkler system
- Sudden and accidental tearing apart, cracking, burning or bulging of a steam or hot water heating system, air conditioner or sprinkler system
- Freezing of a household appliance or plumbing, heating, air conditioner or sprinkler system
- Sudden and accidental damage from an artificially generated electrical current
What do HO-2 policies exclude?
Like most home policies, HO-2 insurance typically does not cover flood and earthquake coverage. Other exclusions may include:
- Water damage caused by sewer or drain backups
- Nuclear accidents
- War
- Mudslides and landslides
- Sinkholes
- Mold
- Pests like rodents or termites
- Power failure
- Damage as a result of neglected maintenance
Some homeowners insurance providers offer the ability to add optional coverage types to your policy with riders, also called endorsements. You might be able to add a rider to cover mold damage or sewer backup damage, for example. Coverage for flood and earthquake damage could also be added as endorsements, if offered, or you may need to purchase separate policies for these damages.
Frequently asked questions
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Some home insurance providers offer HO-2 insurance, although most companies typically only offer HO-3 policies. If you are looking for an HO-2 policy or want to compare policy options, you can start by getting quotes from multiple home insurance providers.
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Like all home insurance policies, the amount you will pay for HO-2 insurance depends on the specific features of your house, where you live, how common natural disasters are in your area and more.
The best way to find a policy to fit your budget is to obtain quotes from several companies. Comparing your quotes with the average home insurance costs in your state may help you decide if a policy is the right fit for you.
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Generally, policies that offer less protection — like HO-1 and HO-2 insurance — are cheaper than policies with more expansive coverage options. You may pay less, but you will also be exposed to more risk.
If you are unsure how much coverage you need, talking to an insurance professional may be a good idea. An agent can help you evaluate your specific needs and guide you to a policy that best protects your unique situation.
Learn more: Affordable home insurance companies
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There are several perils not named on an HO-2 policy that are also excluded on an HO-3 policy. Perils that are typically not covered by either policy include earthquakes, floods, mudslides, war and owner neglect. If you want these perils covered, you may need to purchase additional coverage.
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