What Is the Difference Between HO2 and HO5 Homeowners Policies?

Homeowners insurance provides financial protection for individuals who own residential property. This type of policy safeguards against unexpected events that can damage a home and its contents, also offering liability coverage for accidents occurring on the property. Protecting this significant investment through insurance helps homeowners mitigate potential financial losses from various perils.

HO2 Homeowners Policy Coverage

An HO2 homeowners policy, often referred to as a “broad form” policy, offers coverage based on a “named perils” approach. This means the policy explicitly lists the specific events, or perils, for which damage to the dwelling and personal property will be covered. If a cause of loss is not specifically itemized in the policy, it is generally not covered.

Common perils typically included in an HO2 policy number around 16 and encompass a range of incidents. These include:
Fire or lightning
Windstorm or hail
Explosions
Riot or civil commotion
Damage from aircraft or vehicles
Smoke
Vandalism
Theft

Further perils covered under an HO2 policy include:
Falling objects
Weight of ice, snow, or sleet
Accidental discharge or overflow of water or steam from plumbing or heating systems
Sudden tearing apart, cracking, burning, or bulging of heating systems
Freezing of plumbing
Sudden and accidental damage from artificially generated electrical current

Under an HO2 policy, both the dwelling structure and personal property within the home are covered against these named perils. This means that if a fire, a listed peril, damages the home and its contents, the policy would respond. However, if damage occurs from an unlisted event, such as an earthquake or flood, coverage would not typically apply without specific endorsements.

HO5 Homeowners Policy Coverage

In contrast to an HO2, an HO5 homeowners policy is recognized for its “open perils” or “all-risk” coverage. This comprehensive approach means that the policy covers damage from all causes unless a specific peril is explicitly excluded within the policy language. This provides a broader scope of protection for both the dwelling and personal property.

The fundamental difference lies in the burden of proof for a claim. With an HO5 policy, the insurer must demonstrate that the damage resulted from an excluded peril for coverage to be denied. This contrasts with named perils policies, where the homeowner must prove the damage was caused by one of the specifically listed events.

While HO5 policies offer extensive coverage, they do contain a list of exclusions. Common exclusions include earth movement (like earthquakes or sinkholes), flood damage, and losses due to war or nuclear hazard. Other typical exclusions involve intentional loss, neglect, normal wear and tear, and damage from animals owned by the policyholder. Additional exclusions may include mechanical breakdown, power failure, governmental action, and vandalism if the home has been vacant for an extended period, often 60 days. Damage from mold, fungus, rot, or from birds, vermin, rodents, or insects is also commonly excluded.

Comparing HO2 and HO5 Policy Coverage

The core distinction between HO2 and HO5 policies lies in their approach to covered perils. HO2 policies cover only specifically named perils, offering a defined but limited scope. HO5 policies, conversely, cover all causes of loss unless explicitly excluded, providing broader protection.

This difference in peril coverage directly impacts the burden of proof during a claim. With an HO2 policy, a homeowner must demonstrate the damage resulted from a named peril. For example, accidental paint spillage on a carpet would typically not be covered by an HO2 policy. Under an HO5 policy, however, the insurer must prove the cause of damage falls under a specific exclusion for the claim to be denied. This shifts responsibility to the insurer and provides broader coverage for unforeseen incidents, such as accidental damage to personal property or the dwelling, assuming no exclusion applies.

For instance, an HO2 policy might not cover damage from a pet chewing through electrical wiring, as “pet damage” is not a named peril. An HO5 policy, however, would likely cover this unless “damage caused by the policyholder’s animals” is an explicit exclusion. This highlights that while HO5 is more comprehensive, certain common scenarios might still be excluded.

The personal property coverage also differs significantly. An HO2 policy covers personal belongings only for named perils. This means if a valuable item is accidentally dropped and broken, it would not be covered unless “falling objects” specifically applied to personal property damage in that context, which is typically not the case for accidental breakage. An HO5 policy, however, extends open perils coverage to personal property, protecting belongings against a much wider array of incidents, including accidental damage, unless specifically excluded.

Regarding claim payouts, HO5 policies often include replacement cost coverage for both the dwelling and personal property. This means the policy pays for the cost to replace damaged items with new ones of similar kind and quality, without deducting for depreciation. Conversely, HO2 policies typically cover the dwelling at replacement cost, but personal property might default to actual cash value, which accounts for depreciation, unless an endorsement is purchased to upgrade to replacement cost coverage. The broader coverage and increased scope of protection offered by an HO5 policy generally result in a higher premium compared to an HO2 policy.