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What is an HO-2 insurance policy?

Fact-checked with HomeInsurance.com

Buying a home is exciting, but before you can apply for a mortgage, it’s necessary to obtain home insurance. Many new homeowners don’t realize that not all home insurance is created equal. So before you purchase insurance, it’s important to understand the different types of policies that are available. Spoiler alert—some are a better fit than others.

If you’re looking to keep your home insurance cost low, you might consider looking into an HO-2 policy. This type of policy tends to be cost-effective, but the tradeoff is significantly less coverage. In this article, we’ll take a deep dive into HO-2 policies and help you determine if this type of insurance is right for you.

What is HO-2 insurance?

HO-2 insurance is a type of homeowners insurance that covers the physical structure of your home, your personal property, personal liability, medical payments and additional living expenses. HO-2 policies are named peril policies, meaning they protect your assets exclusively from specific damages that are listed in your policy. Examples of common perils include fire, wind, accidental water damage, freezing, theft, and vandalism. 

It’s important to note that HO-2 insurance is very uncommon, and it’s difficult to find. Compared to other types of home insurance, HO-2 policies offer very little coverage. Usually, a home insurance provider will not sell you an HO-2 policy unless there are certain limitations that would prevent you from getting a higher-level policy.

The most common homeowners insurance policy is HO-3, which has the same coverage types as HO-2, but covers your home from any loss that is not explicitly excluded in your policy. Insurance companies also sell HO-4 policies (renters insurance) and HO-8 policies (insurance for older, unique, or historically significant homes).

Who needs HO-2 insurance?

Generally speaking, not many people need HO-2 insurance. In fact, you can’t simply call up an insurance provider and request an HO-2 policy. Usually, homeowners are given an HO-2 policy because their insurance provider feels that insuring their home with a higher-level policy is too risky. This is especially true for significantly older homes.

If you own an old home, you can look into an HO-2 policy—but only if you’re struggling to get a higher-level tier of insurance. Even then, you might be encouraged to purchase an HO-8 insurance policy, which is specifically designed for older homes. To figure out if HO-2 insurance is right for you, it’s best to get a recommendation from your insurance provider.

What does HO-2 insurance cover?

If you’re thinking about purchasing HO-2 insurance, it’s important to know which types of coverage are included. HO-2 insurance policies offer very basic coverage, including the following, only in the event of damage from a named peril:

Dwelling

HO-2 insurance covers your dwelling, or the physical structure of your home. This also includes attached structures, like a garage, porch or deck. Large appliances that are built into your home, like a water heater, are usually also covered by dwelling insurance. 

Personal property

Your personal belongings, such as clothing, furniture, small appliances or electronics, are covered by personal property insurance. HO-2 policies also cover personal property that is located in your yard, in your garage, and in your car. Keep in mind that certain items, like jewelry or other valuables, are subject to a specific (usually low) coverage limit. 

Liability

Liability insurance covers your legal fees if you accidentally damage someone’s property, or if someone gets injured on your property, and you get sued. HO-2 liability insurance might also cover dog bites, depending on whether or not it is specified in the policy. 

Medical payments

If a guest sustains an injury in your home, medical payments coverage will help pay for their medical expenses. This type of coverage applies regardless of who is at-fault for the injury. Medical payments insurance will cover everything from ambulance rides, to surgery and rehab costs.

Additional living expenses

Additional living expenses will pay for expenses such as your hotel and food bills if your home is damaged by a named peril and you have to temporarily move out. This type of coverage is also referred to as loss of use coverage.

What does HO-2 insurance not cover?

The biggest drawback of HO-2 insurance is that it offers significantly less coverage than higher-level insurance policies. Before you decide to purchase an HO-2 policy, it’s important to know what isn’t covered under this type of insurance. Here are a few of the common claims that aren’t covered by HO-2 insurance.

Neglect

Neglect is never covered by HO-2 insurance policies. If you fail to make repairs or perform maintenance on your home, and it leads to an insurance claim, you can expect the claim to get denied.

Wear and tear

Your home will start to develop wear and tear over time—that’s normal. However, you can’t file a homeowners insurance claim for wear and tear with an HO-2 policy. Examples of wear and tear include chipped paint, dirty windows and loose wallpaper.

Earthquakes

Earthquake damage is excluded in standard home insurance policies, including HO-2 policies; it must be purchased separately. If you live in a high-risk area that is prone to earthquakes, it’s worth purchasing a separate earthquake insurance policy.

Floods

Like earthquakes, HO-2 policies don’t cover flood damage. People who live in areas that have a high risk of flooding can purchase a flood insurance policy. Private insurance companies sell flood insurance, or you can get it through the National Flood Insurance Program

How much HO-2 insurance do I need?

To determine how much HO-2 insurance you need, there are a few things you’ll want to consider. Every homeowner will need a different amount of insurance based on personalized factors. Here are some aspects you should keep in when determining how much coverage to select:

  • The replacement value of your home: The higher your home’s replacement value is, the more dwelling coverage you’ll need to protect it. 
  • The value of your personal belongings: You should have enough personal property coverage to account for the replacement cost of family belongings.
  • Where you live: If you live in an area that is prone to weather risks or theft, it’s a good idea to purchase more dwelling and personal property coverage.
  • The risks you face as a homeowner: If you often have guests at your home or have a dog, ensure you have enough liability coverage to protect yourself.

Choosing an HO-2 insurance policy

All things considered, shopping for an HO-2 insurance policy is unlike shopping for a standard HO-3 home insurance policy. In fact, you might be hard pressed to find an insurance provider that even offers HO-2 insurance or advises it for your situation.

If you think an HO-2 policy is the best option for you, do some research to find a few insurance companies that offer this type of coverage, and ask for a quote. Comparison-shopping is the best way to determine which company can give you the coverage you need for the lowest price.

The takeaway

  • HO-2 insurance policies cover your home and belongings exclusively on a named peril basis.
  • This insurance also covers liability, medical payments, and additional living expenses.
  • HO-2 insurance is very uncommon, and it can be difficult to find a provider offering it.
  • HO-2 insurance is best for homeowners whose home is older, or risky to insure.

If you’re shopping for homeowners insurance, an HO-2 policy likely won’t be your first choice. In fact, most insurance companies have stopped selling this type of insurance altogether in favor of the more comprehensive HO-3 insurance. 

The only reason why someone would need HO-2 insurance is if their home is older or otherwise considered risky to insure. This type of policy might be cheaper, but it leaves enormous gaps in coverage which can be costly in the long run.

Elizabeth Rivelli

Elizabeth is an insurance writer for coverage.com, where she covers insurance providers and reviews policies to help consumers find comprehensive and affordable coverage for every area of their life. She has more than three years of writing experience for top online insurance and finance publications.

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