What is an HO-2 policy?

An HO-2 policy is a type of home insurance that is written on a named-perils basis. This means it only covers damage to your property that’s caused by one of the perils identified in the policy. Some HO-2 policies also cover your personal property and personal liability.

HO-2 policies all of the common coverage parts, including:

• Coverage A, which protects the structure of your home.
• Coverage B, protects other structures like detached garages and sheds.
• Coverage C, protects your personal property like clothing or electronics (even while they’re not in your house).
• Coverage D, which protects against loss of use.
• Coverage E, which guards against personal liability stemming from injuries or accidents that occur on your property.
• Coverage F, which covers third-party medical payments in the event of an accident on your property.

What do homeowners need to know about HO-2 policies?

Most homeowners insurance policies are written on standardized forms. These forms make it easier for states to regulate insurance. HO-2 is simply one of those forms.

HO-2 is sometimes called the broad form. This is because it covers the same 10 perils, or events, as HO-1 plus a few extras. In total, an HO-2 policy covers these 16 perils:

• Fire or smoke
• Lightning, hail, and windstorms
• Explosions
• Riots and civil commotion
• Damage from aircrafts
• Damage from vehicles
• Smoke
• Vandalism
• Theft
• Volcanic eruptions
• Falling objects
• Weight of ice, snow, or sleet
• Accidental discharge or overflow of water or steam
• Sudden and accidental tearing apart, cracking, burning, or bulging of pipes and certain household systems
• Freezing of household systems
• Sudden and accidental damage from artificially generated electrical current

Because HO-2 is a named-perils policy, it only pays for damage caused by one of these events. If anything else causes the damage, you must pay for the repairs.

HO-2 usually includes personal property coverage and personal liability coverage, too. For example, let’s say you experience a kitchen fire. Your HO-2 policy may help pay for repairs to the structure of your house and cover the cost of damaged appliances and other personal belongings. And if a fire originates in your house and spreads to your neighbor’s home, your personal liability protection may help pay for repairs you’re liable for.

While HO-2 does offer broader coverage than HO-1, it still excludes some common risks you may face. For instance, HO-2 includes sudden and accidental discharge of water and steam but usually omits sewer backup and slow leaks.

HO-2 policies also typically exclude coverage for:

• Earth movement.
• Water damage from flood, sewer backups, or water that seeps up from the ground.
• Power failure.
• Neglect.
• War.
• Nuclear hazard.
• Intentional loss.
• Government action.
• Theft to a dwelling under construction.
• Damage to a vacant home caused by vandalism or malicious mischief.
• Mold, fungus, or wet rot – except if it resulted from an accidental discharge or overflow of water.
• Wear and tear.
• Mechanical breakdown.
• Smog, rust, or other corrosion.
• Smoke from agricultural smudging and industrial operations.
• Discharge, dispersal, and seepage of pollutants.
• Settling, shrinking, bulging, or expanding structural parts, like your foundation or walls.
• Damage is caused by vermin, rodents, birds, or insects.
• Animals owned by the insured.

Homeowners who face these risks may want to consider additional insurance.

Finally, you can get an HO-2 policy that insures your property’s replacement cost or actual cash value (ACV). Replacement cost coverage pays the cost of replacing or repairing your home minus your deductible. Actual cash value coverage means your insurer considers depreciation when it settles your claim. With ACV, your settlement may not be enough to replace your property.

Is an HO-2 policy enough insurance for my home?

HO-2 insurance is considered a middle-of-the-road policy. It offers more protection than an HO-1 policy, but HO-3 and HO-5 offer even more. However, an HO-2 policy can still be the right one for you. Here are three questions to think about before you decide:

• Is my home likely to suffer other kinds of damage? The 16 perils covered by HO-2 represent some of the more common risks homeowners face. However, the list leaves out other risks that can cause significant damage, like sewer backup, foundation leaks, and power failures.
• What does my mortgage lender require? Most lenders require insurance for structures and real estate. An HO-2 policy usually satisfies this requirement while also adding coverage for your liability and personal property.
• How much premium can I afford to pay? More protection almost always costs more money, so you need to consider your finances before you decide to upgrade. Take some time to comparison shop to see if you can find a better deal.

Getting the appropriate insurance for your home means striking a balance between your risks and your budget. Do your research and compare your options before you buy.