HO-2 Homeowners Insurance: Detailed Guide to HO-2 Insurance Policies

The HO-2 homeowner’s policy is an insurance policy that provides a basic degree of protective insurance for homeowners. HO-2 homeowner’s policies are among the least popular types of home insurance because insurance companies are defaulting to the HO-3 and HO-5 policies, whereas the barebones version of HO-1 home insurance is still more popular. HO-2 insurance is a “named perils” insurance policy which means it insures homeowners for a specific number of perils.

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HO-2 policies cover homeowners for up to 16 “named perils” – 6 more perils than HO-1 policies. HO-2 plans protect the home against the most common forms of damage and some policies include extras such as personal liability and medical coverage. HO-2 policies should only be considered if you need less coverage than a standard HO-3 policy but aren’t satisfied with the minimal coverage provided by an HO-1 policy.

HO-2 Homeowners Insurance: What Makes It Different?

According to the National Association of Insurance Commissioners, only 5% of homeowners in the US are insured under an HO-2 insurance policy. HO-2 insurance was more popular in the past decades, but recently major insurance companies have started offering two basic insurance types: HO-3 and HO-5. If your insurance company is offering an HO-2 plan, this guide will help you understand the coverage it provides you and how it compares to an HO-3 plan (the most popular homeowner insurance policy).

HO-2 insurance plans tend to include 16 basic perils. These perils are the only forms of damage you can file a claim on for your property. If the perils are not listed on the “named perils” policy, this means you won’t receive compensation. Open-peril policies such as HO-3 cover homeowners for all possible perils including earthquakes, nuclear war, wear and tear, and rare forms of damage not included in HO-2 plans.

What HO-2 Homeowner Policies Cover: 16 Perils

Insurance companies offering HO-2 home insurance plans cover a standard 16 perils. Below we’ll have a look at the 16 perils included in a standard HO-2 policy. If you live in an area where the only possible damage to the home could occur from one of these 16 perils, you should consider purchasing an HO-2 policy.

The following are the standard 16 perils covered under every HO-2 policy, the first 10 are covered by HO-1 policy as well:

  • Fire damage (lightning included too)
  • Storm damage (wind or hail)
  • Aircraft damage
  • Explosion damage
  • Civil disturbance/riots/protest damage
  • Smoke damage
  • Vehicle damage (as long as the homeowner is not at fault)
  • Robbery and theft damage
  • Vandalism damage
  • Volcanic eruption damage

The following are 6 extra perils are covered by HO-2 plans, but are not included in HO-1 policies:

  • Falling object damage (trees, birds, electric poles, etc)
  • Snow damage (caused by the weight of snow or ice)
  • Water damage (caused by HVAC systems, heating, or plumbing)
  • Water heater damage
  • Electrical current damage
  • Pipe damage (caused by freezing conditions)

Pro Tip: Make your decision based on whether the named perils provide sufficient coverage for your home. If your home is in close proximity to water, you should consider opting for a more advanced plan that will cover flood damage as well.

What HO-2 Homeowners Policies Do NOT Cover

HO-2 homeowner’s policies protect against the most common perils, but there are few things you should keep in mind before choosing an HO-2 policy over an HO-3 policy. For instance, while an HO-2 policy will cover basic water damage caused by plumbing/HVAC system leakages, it won’t cover water damage caused by floods of sewer backups. This could be a major downside for people looking for complete coverage for their home. The following is a list of perils not covered by HO-2 homeowners policies:

  • Earth movement. Any damage caused by earthquakes will not be covered.
  • Flood damage. Home flooding caused by sewer backups, water seeping from the ground, or storms will not be covered.
  • Power failures. Accidental power failures will not be covered under HO-2 policies.
  • Construction theft. If the home is stolen from while it’s under construction, the damage won’t be covered.
  • Absentee vandalism. If the home is vacant for more than 60 days, vandalism and mischief damages are not covered.
  • Mold or fungus. Any structural damage to the home not caused by an overflow of water is not covered.
  • Rust or corrosion. Structural damage to the metal structures of the home is not covered.
  • Structural changes. Any bulging, expanding, shrinking, or settling parts of the structure of the home are not covered.
  • Animal damage. Any damages caused by animals such as house pets, birds, or rodents are not covered.

How To Take Out An HO-2 Policy

The insurance company will present you with an HO-2 policy document to review and sign. This document is a legally-binding document that explains what the insurance company is covering in their HO-2 policy. It lays out basic information such as the premiums, coverage amount, and deductible. Most insurance companies will base their HO-2 plans on the Insurance Service Office policy (ISO) form.

HO-2 Vs. HO-1 Homeowners Policy

The main difference between HO-1 and HO-2 homeowners insurance is that HO-2 plans provide coverage for 6 additional perils: falling objects, water damage, snow damage, heater damage, electric current damage, and pipe damage. They’re both similar in the sense that they’re ‘named-perils’ policies which means you’re only insured for the perils listed on your policy. Losses that occur outside the list of perils are not covered by the insurance company.

HO-2 Vs. HO-3 Homeowners Policy

HO-3 policies (used by 80% of US households) are different than HO-2 policies because they provide “open peril” coverage as opposed to “named peril” coverage. Open peril means that the company will insure your home against all possible damage. This is irrespective of whether the damage was caused by theft/vandalism or natural causes. 

Open peril policies are all-encompassing and protect your home against all possible perils. HO-3 policies are the default for insurance companies and they are superior to HO-2 policies, but if your home doesn’t require additional peril insurance, then an HO-2 policy should serve you for all your insurance needs.

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