Breaking Down the HO-2 Insurance Policy and How It Works

• Published Feb 5, 2024 • Reviewed and Fact Checked Our content is reviewed and fact-checked by unbiased insurance professionals to ensure the accuracy, quality and reliability of the information we provide. by Stephanie A. Makowski • 4 cited sources

An HO-2 policy, also known as broad-form policy, is a type of homeowner’s insurance that offers basic coverage for specific perils listed on the policy’s declaration page. Positioned between less extensive HO-1 policies and more comprehensive HO-3 policies, it offers an appealing blend of affordability and coverage. In this article, we’ll take a closer look at what HO-2 insurance policies entail and how to choose the right policy. 

Key Facts

  • HO-2 policies offer more coverage for personal property and liability needs than HO-1 policies, and they’re generally more affordable than HO-3 policies. 
  • An HO-2 insurance policy covers 16 named perils, including damage caused by fire, theft, and lightning. 
  • On average, HO-2 policies cost $1,175 per year.

What Is an HO-2 Policy?

Most buyers need insurance when purchasing a primary residence. Put simply, homeowner’s insurance covers the cost of unforeseen damage to your residence. Typically, traditional homeowners choose between four policies: HO-1, HO-2, HO-3, AND HO-5. 

As mentioned earlier, HO-2 policies fall in the middle when it comes to coverage and costs. They cover the same perils as HO-1 policies, plus a few extras. These include damage caused by fire, weather events, theft, and vandalism. In addition, they offer the same coverage that’s listed on the declarations page for your personal belongings. In some cases, they may also cover liability and living expenses.  Note that HO-1 policies don’t cover personal belongings, liability, or living expenses. 

On the other hand, HO-2 policies don’t provide as much coverage as HO-3 and HO-5 policies. For example, they don’t cover water damage caused by burst pipes, sewer back-ups, or accidental discharge. Before choosing a policy, it’s important to perform a thorough risk assessment so you know which areas need coverage. 

What Does an HO-2 Policy Cover?

HO-2 policies cover the following 10 named perils found in HO-1 policies: 

  • Fire or lightning
  • Theft
  • Vandalism
  • Windstorms and hail
  • Smoke
  • Civil commotion, such as protests and riots
  • Damage caused by aircraft
  • Damage caused by vehicles
  • Explosions
  • Volcanic eruption [1]

HO-2 policies also cover these additional six perils: 

  • Falling objects, such as trees or branches
  • Accidental discharge or overflowing water
  • Damage from electrical currents
  • Freezing of air conditioner, heating, or plumbing system
  • Damage caused by the weight of snow, ice, or sleet
  • Sudden burning, cracking, or tearing of air conditioner, water heating system, or sprinkler system

In total, an HO-2 policy covers 16 named perils. Moving up from HO-1 to HO-2 is also the first time personal property is listed on the coverage form. Listed as Coverage C, the policy defines what’s covered and how it’s covered, with set dollar amounts for things like watches, money, and electronic devices. 

While they’re much more extensive than HO-1 policies, HO-2 policies aren’t all-encompassing. For example, earthquakes and floods aren’t covered under any HO form and will require a separate policy.

It’s also important to note that every insurance company has its own variations. To ensure you’re selecting the best plan for your needs, Stephanie Makowski—an underwriter in the insurance industry—recommends consulting a licensed insurance agent to review the differences between various policies.

What Does an HO-2 Policy Not Cover?

In most cases, an HO-2 policy won’t cover the following events: 

  • Water damage due to a flood
  • Damage caused by earthquakes
  • Damage to personal belongings that exceeds a certain dollar amount 
  • War
  • Nuclear accidents
  • Landslides and mudslides
  • Mold
  • Pests
  • Power failure
  • Damage due to neglect
  • Sinkholes

If you’re concerned about any of these perils, you can add optional coverage to your policy (known as a rider) or purchase a separate policy. For example, say your policy offers up to $500 in coverage for damaged electronic equipment. You can add optional coverage or schedule your equipment for a higher amount.

How Much Does HO-2 Insurance Cost?

While HO-2 insurance policies may not offer the additional coverage found in HO-3 and HO-5 policies, they’re more affordable. On average, an HO-2 policy costs about $1,175 per year. The exact cost can vary depending on the following factors:

  • Location: Homes in areas with high crime rates or intense weather events may have higher monthly insurance premiums. 
  • Your property value: Valuable properties are more expensive to cover. 
  • Replacement cost: In addition to assessing property value, insurance companies will consider the cost of replacing or repairing home elements. 
  • Your claims history: If you’ve submitted several insurance claims in the past, companies may consider you a risky client. 
  • Your credit score: Companies also consider low credit scores to be a risk. 
  • Your insurance carrier: Premium rates and coverage vary between different insurance carriers. 
  • Your deductible: Your deductible is the amount of money you must contribute before your insurance company provides coverage. Generally, higher deductibles mean lower premiums (and vice versa). 
  • Home’s size, age, and condition: Homes that are larger, older, or in poor condition typically have higher premiums. 
  • Home’s risk of damage: Insurance companies may assess your home’s damage risk before deciding your premiums. 
  • Whether you add on riders or an additional policy: Incorporating an additional policy (such as flood insurance) will increase costs. 

Comparing quotes from different insurers can help you find a competitively priced, comprehensive HO-2 policy. It’s worth noting that many insurance companies enhance their policies to appeal to buyers, so be sure to carefully review the policy language. 

Who Typically Needs an HO-2 Insurance Policy?

Because HO-2 policies don’t offer thorough coverage, they’re not the right choice for everyone. They’re generally suitable for the following types of homeowners: 

  • First-time homeowners: An HO-2 policy may be beneficial for first-time homeowners who don’t need or can’t afford comprehensive coverage but still want protection.
  • Budget-conscious homeowners: HO-2 policies are some of the most affordable options. 
  • Homeowners with homes that are difficult to insure: Some homeowners can’t purchase more extensive coverage due to factors such as an old home or precarious structural elements. 
  • Homeowners who’ve paid off their homes: Once you’ve paid off your home, you enjoy increased flexibility and can switch to more basic coverage [2]. 

On the other hand, an HO-2 policy may not suffice if you have high-value items, live in an area prone to natural disasters, or are concerned about flooding. 

Alternatives to HO-2 Policies

If you don’t think an HO-2 policy will provide adequate coverage, consider an HO-3 policy or an HO-5 policy. HO-3 policies provide “all-risk” coverage for homes, which means all perils are covered unless specifically excluded. However, only named perils are covered for personal belongings. 

HO-5 policies are the most comprehensive option, as they offer all-risk coverage for both the dwelling and personal property. 

HO-3 Insurance for Standard Coverage

You might choose an HO-3 insurance policy over an HO-2 policy for several reasons:

  • Increased coverage: HO-3 policies cover a wider range of perils, including accidental damage or discharge of water.
  • Compensation: HO-3 policies often offer replacement cost coverage, which means they reimburse homeowners for the current cost of repairing or replacing personal property or structural elements. HO-2 policies, meanwhile, provide cash value coverage that takes depreciation into account [3].
  • Personal liability: HO-3 policies usually include personal liability coverage, which can be crucial if accidents or injuries occur on the insured property. Not all HO-2 policies guarantee liability coverage. 

Overall, HO-3 insurance policies offer enhanced coverage, protecting you from a wider range of risks and potential financial losses.

HO-5 Insurance for Comprehensive Coverage

Compared to both HO-2 and HO-3 policies, HO-5 insurance provides broader coverage. You may prefer this policy for the following reasons: 

  • Protected belongings: In addition to protecting your home’s structure, HO-5 insurance offers extensive coverage for personal belongings. 
  • Higher coverage limits: HO-5 policies typically provide higher financial compensation, including additional living expenses, in case you need to temporarily leave your home. 
  • Replacement cost coverage: HO-5 policies automatically have replacement cost coverage [4].

Ultimately, HO-5 insurance policies ensure the most comprehensive coverage, giving you unmatched protection and peace of mind. However, they can be expensive.

To determine the best policy, consider both your budget and your coverage needs. Consulting an insurance agent can also help you make the right decision. 

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Reviewed by Stephanie A. Makowski

Stephanie A. Makowski has over 20 years of experience in the insurance industry. She began her insurance career working for a large independent retail agency within their personal lines department. She then crossed over to the commercial lines department working with the construction and agriculture sectors.