Those who own a residence need homeowner’s insurance. There are several types of homeowners insurance policies. We are going to cover HO-2 policies and talk about what kind of coverage and benefits they offer homeowners.
What Is an HO-2 Policy?
In a nutshell, an HO-2 policy plan is a tier of homeowner’s insurance policies. HO-2 plans are written on a named-perils basis, meaning that they only cover damage that is directly caused by one of the dangers listed in the policy. HO-2 policies offer more coverage than HO-1 policies, HO-8 policies, and HOA policies, but they still have some gaps in their coverage that can be cause for concern.
What Do HO-2 Policies Cover?
In general, HO-2 policies will cover the following named perils:
- Fire or lightning
- Hail or windstorms
- Riots or civil commotion
- Aircraft damage
- Smoke damage
- Theft of possessions
- Volcano eruptions
- Ice, snow, or sleet damage
- Water discharge
- Large falling objects (e.g boulders, trees, etc.)
- Cracking, burning, or bulging of household systems (e.g. plumbing)
- Electrical damage
If your home is damaged by any one of these named perils then an HO-2 policy will cover the damage. If your home is damaged by something else, such as negligence, then you will have to pay for the damages out of pocket. Any other peril that is not named on the list will not be covered.
HO-2 policies generally offer some modicum of personal property coverage. So for example, if your house explodes and some appliances are damaged, then an HO-2 policy will cover the cost of replacing the appliances. Personal property includes things like your TV, wardrobe, paintings, memorabilia, and other possessions. Most of the time, insurance policies have sub-limits for specific types of items. For instance, most HO-2 policies will only insure jewelry up to $1,500 and only in the case of theft, not damage from catastrophic events. The exact sub-limits vary depending on your specific policy and insurance provider but common sub-limits might be:
- Firearms: $2,500
- Silverware: $2,500
- Money/coins: $200
- Electronics: Varies
HO-2 property insurance can be written as a replacement value or actual cash value policy. A replacement policy just means that the insurance company will replace lost or damaged items with an identical item for its current market price. This essentially amounts to getting something identical.
Actual cash value policies reimburse owners for lost or damaged property at its current cash value. Actual cash value policies factor in the depreciation of the item in question to determine a payout. That means that actual cash value policies typically get you less than what you originally paid for the item.
Most HO-2 plans also have some liability coverage. So for instance, If your house explodes and affects your neighbor’s house, then an HO-2 policy would likely cover any of their damages that you are liable for. Normally, there is an upper limit to how much liability your insurance will cover.
Additional Living Expenses
HO-2 policies will also usually cover any extra living expenses you incur from damages. If your house is rendered uninhabitable by a named-peril, then the policy will cover your costs to live elsewhere. Usually, additional living expenses coverage is limited by duration and total monetary amount.
For example, if you are put out of your home due to a fire, then your insurance will cover the cost of a hotel, food, and other additional expenses.
Medical Payments to Others
In the case that a non-resident is injured while in your home HO-2 coverage will pay for any of their medical expenses up to a certain limit. Medical costs covered by these insurance plans often include:
- Medical bills
- Surgical costs
- Diagnostic procedures (X-ray, MRI, etc.)
- Lab work
- Ambulance fees
- Dental procedures
HO-1 vs HO-2
HO-2 homeowner’s policies offer more coverage than HO-2 policies. HO-1 policies only cover catastrophic structural damage to the house and usually only include 11 named perils. HO-1 policies also do not offer liability coverage or personal property coverage. So if you have an HO-1 plan and your property or your neighbor’s property is damaged in an explosion, only your house will be covered. Your personal property and your neighbor’s property damages won’t be covered.
HO-2 policies, in contrast, cover more named-perils than HO-2 policies and offer some kind of liability and property coverage. That means you get more comprehensive coverage that extends to more than just structural damage to your home. HO-2 policies still leave some notable gaps in coverage though.
What Do HO-2 Policies Not Cover?
Although they are more comprehensive and offer more coverage than HO-1 plans, HO-2 plans are relatively uncommon. This is because they do not offer protection from some pretty obvious perils like floods or earthquakes. Other things generally not covered by an HO-2 policy include:
- Wear and tear
- Pet damage
- Government actions
- Intentional destruction
- Enforcement of building codes
Some policies may allow you to buy supplemental insurance for these kinds of perils not listed on the normal policy. For example, if you live in a state like California or Florida then you may have to purchase separate supplemental earthquake or hurricane insurance.
Should I Get an HO-2 Policy?
Given that HO-2 policies are still relatively limited, HO-2 policies are not that common among homeowners. In general, the top homeowner insurance companies will suggest that you buy a plan with more comprehensive coverage such as an HO-3 policy or HO-5 plan. The issue many people have with HO-2 policies is that they do not give coverage for some perils that would be fairly common in some places of the world, such as earthquakes, ice dams, or hurricanes.
As is the case with HO-1 policies, your insurance provider may require you to purchase an HO-2 policy if the estimated risk is too high. A lot of times, this happens with older homes which may have more problems than more modern homes. Sometimes, mortgage providers will not accept an HO-2 policy and will require to purchase a higher-tier plan.
Otherwise, you should avoid an HO-2 policy if you can get another policy. An HO-3 or HO-5 policy is normally the standard for new homeowners. If you are a renter, just stick with the HO-4 renters policy.
Conclusion: Is an HO-2 Policy Right for Me?
HO-2 policies are not as common as more comprehensive plans because they leave notable gaps in their coverage. The main problem is that HO-2 plans are still “named-peril” plans which means that the only things covered are the things explicitly listed. If something happens that is not on the list, then no matter if it’s your fault or not then your policy won’t cover it.
In contrast to “named peril” plans there are “open-peril” plans which cover anything that is not explicitly excluded. Most homeowners in the US ensure their primary residence with open-peril style plans.
If you are shopping around for homeowner’s insurance, consider using our homeowner’s insurance comparison tool. You can compare and contrast insurance quotes so which plan works for you.
Frequently Asked Questions
What does a HO-2 policy cover?
In a nutshell, an HO-2 policy plan is a tier of homeowner’s insurance policies. HO-2 plans are written on a named-perils basis, meaning that they only cover damage that is directly caused by one of the dangers listed in the policy.
What does an HO-2 policy NOT cover?
They do not offer protection from some pretty obvious perils like floods or earthquakes. Other things generally not covered by an HO-2 policy include: wear and tear, pet damage, hurricane, and mold.
Should I purchase an HO-2 policy?
You should probably avoid an HO-2 policy if you can get another policy. An HO-3 or HO-5 policy is normally the standard for new homeowners. If you are a renter, just stick with the HO-4 renters policy.