What Is an HO-2 Insurance Policy

HO-2 insurance, also known as a “Broad Form Homeowners Policy”, is a type of homeowners insurance that provides coverage for specific perils listed in the policy. It is considered a “named perils” policy, meaning that it only covers losses resulting from events specifically named in the policy. This type of insurance is typically less comprehensive than other types of homeowners insurance, such as an HO-3 policy, which is an open perils policy. Since it does not offer as much coverage as other polices it is not as popular and only comprises 6.41% of the total homeowners insurance market according to the National Association of Insurance Commissioners (NAIC), 

What does an HO-2 policy cover?

HO-2 insurance, like other home insurance policies, is designed to provide financial protection for homeowners in the event of certain covered perils. It is composed of several standard coverage types, including:

• Dwelling coverage: This coverage provides protection for the physical structure of the home, including the walls, roof, and any attached structures such as a garage or deck. It covers damages resulting from any of the perils specified in the policy, such as fire or windstorm. The coverage limit is usually set at the cost to rebuild the home, not the market value.
• Other structures coverage: This coverage provides protection for structures on the property that are not attached to the main dwelling, such as a detached garage or shed. It covers damages resulting from any of the perils specified in the policy and is typically set at 10% of the dwelling coverage limit.
• Personal property coverage: This coverage provides protection for personal belongings such as furniture, clothing, and electronics. It covers damages resulting from any of the perils specified in the policy, as well as loss or damage due to theft. The coverage limit is usually set at 50-70% of the dwelling coverage limit.
• Liability coverage: This coverage provides protection for the policyholder in case they are found legally liable for damages or injuries to others. It covers costs such as legal fees, settlements, and medical expenses. The coverage limit is usually set at $100,000 to $500,000.
• Additional living expenses coverage: This coverage provides financial assistance for additional living expenses if the home becomes uninhabitable due to a covered loss. It covers costs such as temporary housing, meals, and transportation expenses. The coverage limit is usually set at 20% of the dwelling coverage limit.
• Medical payments to others: This coverage provides financial assistance for medical expenses of others if they are injured on the policyholder’s property. It covers costs such as medical bills and transportation expenses. The coverage limit is usually set at $1,000 to $5,000.

What does an HO-2 policy not cover?

An HO-2 policy, also known as a named perils policy, typically does not cover all types of damages that may occur to a home or personal property. Some common exclusions include:

• Floods: Damage caused by floods is typically not covered by an HO-2 policy and requires separate flood insurance.
• Earthquakes: Damage caused by earthquakes is typically not covered by an HO-2 policy and requires separate earthquake insurance.
• Wear and tear: Damage caused by normal wear and tear is typically not covered by an HO-2 policy. This includes things like a broken water heater due to age or a worn out roof.
• Mold: Damage caused by mold is typically not covered by an HO-2 policy, unless it is the result of a covered peril such as a burst pipe.
• Pests: Damage caused by pests such as termites is typically not covered by an HO-2 policy.
• Nuclear hazards: Damage caused by nuclear hazards is typically not covered by an HO-2 policy.
• Power failure: Damage caused by power failure is typically not covered by an HO-2 policy.
• War and civil unrest: Damage caused by war, civil unrest, and related events is typically not covered by an HO-2 policy.
• Intentional acts: Damage caused by intentional acts, such as setting a fire or vandalizing your own property, is typically not covered by an HO-2 policy.

Named perils vs. open perils

Named perils policies like HO-2 list specific perils that are covered by the policy, while open perils policies, also known as all-risk policies, cover all risks except those specifically excluded in the policy. Open policies like HO-3 policy tend to be more expensive but offer a broader coverage.

An HO-2 policy typically covers losses resulting from 16 names perils which are::

• Fire or lightning: This peril covers damages resulting from a fire or lightning strike to the home or other structures on the property.
• Windstorm or hail: This peril covers damages resulting from high winds or hail, such as broken windows or damage to the roof.
• Explosion: This peril covers damages resulting from an explosion damaging your home or other structures on the property.
• Riots: This peril covers damages resulting from a riot damaging your home or other structures on the property.
• Aircraft: This peril covers damages resulting from an aircraft crash into the home or other structures on the property.
• Vehicles: This peril covers damages resulting from a vehicle crashing into the home or other structures on the property.
• Smoke: This peril covers damages resulting from smoke damage to the home or personal property.
• Vandalism: This peril covers damages resulting from vandalism, such as broken windows or graffiti.
• Theft: This peril covers damages resulting from theft, such as stolen personal property or damage caused during a break-in.
• Falling objects: This peril covers damages resulting from falling objects, such as a tree limb falling on the home.
• Weight of ice, snow, or sleet: This peril covers damages resulting from the weight of ice, snow, or sleet, such as a collapsed roof.
• Accidental discharge or overflow of water or steam: This peril covers damages resulting from an accidental discharge or overflow of water or steam, such as a burst pipe.
• Sudden and accidental tearing, cracking, burning, or bulging: This peril covers damages resulting from sudden and accidental tearing, cracking, burning, or bulging of a heating or air conditioning system, a water heater, or other home systems.
• Freezing: This peril covers damages resulting from freezing, such as a burst pipe.
• Sudden and accidental damage due to short circuiting: This peril covers damages resulting from sudden and accidental damage due to short-circuiting, such as a fire caused by an electrical malfunction.
• Volcanic Eruption: This peril covers damages resulting from volcanic eruptions, such as ash damage or ground movement.

How much does an HO-2 policy cost?

According to the National Association of Insurance Commissioners (NAIC), The average cost of an HO-2 policy is $1,175 per year, or $98 per month. However, the cost of an HO-2 policy can vary depending on a number of factors, including the location of the property, the value of the property, and the coverage limits selected as seen in the table below.

It’s important to note that the cost of an HO-2 policy may be higher than other types of homeowners insurance due to its limited coverage.

Difference between HO-2 and HO-3 policies

HO-3 policies, also known as “Special Form Homeowners Policy,” is a more comprehensive type of homeowners insurance that covers both named and open perils. Unlike an HO-2 policy which only covers specific perils, an HO-3 policy provides coverage for all risks except those specifically excluded in the policy. It also tends to be more expensive than an HO-2 policy.

Difference between HO-1 and HO-2 policies

HO-1 policies, also known as “Basic Form Homeowners Policy,” provide the most basic level of coverage and only cover specific perils such as fire, lightning, and windstorm. In contrast, an HO-2 policy provides more coverage than an HO-1 policy, including protection against theft and vandalism and other named perils.

How to choose a homeowners insurance

When choosing a homeowners insurance policy, it’s important to consider the type of coverage you need, the cost of the policy, and the financial stability of the insurance company. It’s also a good idea to review the policy’s exclusions and limitations to ensure that you understand what is and isn’t covered.

FAQ

Where can I buy HO-2 insurance?

HO-2 insurance is typically available through insurance agents and brokers. It’s also possible to purchase it online or directly from an insurance company.

Which type of homeowners insurance should I get?

The type of homeowners insurance you should get depends on your individual needs and budget. An HO-2 policy may be a good choice if you’re looking for basic coverage at a relatively low cost, while an HO-3 policy may be a better option if you want more comprehensive coverage.

What perils are not covered by HO-2 or HO-3 policies?

Both HO-2 and HO-3 policies typically exclude coverage for certain types of damage such as floods, earthquakes, and damage caused by wear and tear, mold or insects. Additionally, both policies may exclude coverage for certain types of personal property, such as jewelry or fine art, unless specific coverage is added. It’s important to review the policy’s exclusions and limitations to ensure that you understand what is and isn’t covered.