Homeowners Insurance

What is home insurance?

Homeowners insurance is an agreement between you and your insurance company to protect your home after a covered loss up to your policy limits. Homeowners insurance is specific to a private property that you own — not a rented home, condo, or apartment. Let's get into the finer details of home insurance to help you protect your investment.

Homeowners insurance basics — table of contents

1. Home insurance coverage — defined
2. Average cost of homeowners insurance
3. Top home insurance companies
4. Frequently asked questions

What does home insurance cover?

A homeowners insurance policy is typically broken down into six parts:

• Coverage A - Dwelling: A house and any attached structures, such as a garage.
• Coverage B - Other structures: Any stand-alone structures — like a carport or tool shed — not attached to the home. 
• Coverage C - Personal property: This covers repair or replacement of belongings or property stolen or damaged in a covered loss anywhere in the world.
• Coverage D - Additional living expenses: Sometimes called a loss-of-use clause, this helps to cover the cost of temporary relocation in the event the home is unliveable due to repair work.
• Coverage E - Personal liability: This covers the costs of another party's injuries on the insured party's property (or offsite).
• Coverage F - Medical payments: Covers medical costs incurred on the property by those not listed as residents of the household, regardless of fault.

Understanding homeowners insurance policy types: HO-2, HO-3, HO-5

The kind of coverage you will have with a home insurance policy will depend on the type of policy. There are two main ways you can have coverage in your homeowner's insurance: open and named peril. A peril is an action that causes damage to you, your home, or your belongings. Below are the definitions for the two.

• Named peril: all the hazards and threats to your property that will be covered will be explicitly listed on your policy.
• Open peril: all the hazards that are not covered will be listed. This is a much broader form of coverage.

An HO-2 policy is a very bare-bones form of homeowner's insurance. It only covers your personal property and your dwelling structures for named perils. A named peril HO-2 policy covers:

• Fire
• Lightning
• Theft
• Vandalism
• Windstorms and hail
• Damage caused by vehicles
• Damage from aircraft
• Weight of ice, snow, and sleet
• Freezing of household systems
• Riots
• Explosions
• Falling objects
• Volcanic eruptions
• Water damage: overflow or discharge
• Damage from artificially-generated electrical current
• Sudden tearing, cracking or bulging of home

The next policy is an HO-3 policy — the most common policy in the US. It will cover your dwelling and other structures on an open-peril home insurance policy but your contents on a named peril coverage.

The next tier of home insurance coverage is HO-5. This coverage level includes coverage of both dwellings and personal property on an open-peril basis. Most insurance companies won’t insure against natural disasters like flooding, earthquakes, and landslides, and also occurrences of mold, infestations, wear-and-tear, nuclear hazards, or government actions, regardless of homeowners insurance policy type.

Additional home insurance coverage types explained

It may surprise you to discover that homeowners insurance can cover some seemingly unexpected things in addition to the above perils. Your home insurance follows you even while you're not at home — so if you lose your luggage while traveling, your personal property coverage can help replace your lost items. It can even cover your kid's stuff while they're away at college — typically only while they're living in on-campus housing — and your parents' belongings if they're dependent on you while living in a nursing home or assisted living facility.

Other things your homeowners insurance may cover — depending on your policy — include property and liability coverage for tombstones or cemetery plots of loved ones and coverage for trees, plants, and shrubs in your garden.

What does home insurance not cover?

There are always exclusions in what homeowners insurance will cover — which is another reason why it's important to understand how to read your homeowners policy. The below perils are commonly excluded are home insurance coverage, but could be amended by adding a policy endorsement.

• Freezing pipes and systems in vacant dwellings
• Damage to foundations or pavements from ice and water weight
• Theft from a dwelling under construction
• Vandalism to vacant dwellings
• Latent defects, corrosion, industrial smoke, pollution
• Settling, wear and tear
• Pets, other animals, and pests
• Weather conditions that aggravate other excluded causes of loss
• Government and association actions
• Defective construction, design, and maintenance

Whether you have an open peril or named peril policy, damage from the below are never covered by homeowners insurance:

• Enforcement of building codes and similar laws
• Earthquakes*
• Flooding*
• Power failures
• Neglect (failure to take reasonable steps to protect your property)
• War
• Nuclear hazard
• Intentional acts

*Insurance options for these natural disasters may be available separately.

How much homeowners insurance do I need?

Here are the key questions you'll need to answer when determining how much insurance you need. Use these questions as a home insurance calculator so you know just how much coverage you need prior to shopping:

• How much will it cost to rebuild my home, including detached structures (at the current rate for labor and materials)?
• How much will it cost to replace my personal property and belongings?
• What is the value of my personal assets in case someone sues me?

The amount you spend on home insurance coverage depends on the replacement cost of your home, which your insurance company will usually help you determine. Consider that replacement cost and market value are not synonymous. Replacement value is how much it would cost an insurance company to rebuild your home and replace your belongings, whereas market value depends on the real estate market and other variables.

Because the purpose of insurance is to restore the insured asset — your home and property, in this case — to its original state, insurance companies use replacement cost rather than market value to determine the actual dollar value of coverage.

Other aspects to consider include the amount of coverage you'll need for your personal property and liability protection. If you have significant assets or a good number of valuables, conducting a home inventory will come in handy if you ever need to file a claim. It will also serve the purpose of determining whether or not you need additional coverage for certain valuables, like jewelry, firearms, and electronics — which come with their own sub-limits. Coverage limits for these items can be extended with endorsements, also known as riders or floaters.

When considering the personal liability insurance portion of your homeowners policy, make sure the coverage limit is high enough to protect your assets. A good method of determining how much liability coverage you need is to ensure it's equal to or greater than your net income. If you're ever sued with a liability claim and your limit is exhausted, you risk facing financial setbacks if you're forced to forfeit your assets.

COMMON HOME INSURANCE COVERAGE LIMITS

Deductibles and home insurance

There are some major differences between car insurance deductibles and home insurance deductibles. With home insurance, your deductible is deducted from your claim payout. If your kitchen catches on fire and sustains $5,000 worth of property damages and your deductible is $1,000, you would receive $4,000 and be responsible for covering the remaining amount.

Car and home deductibles are inversely related to the cost of premium — if you raise your deductible, your monthly costs should decrease.

Percentage versus dollar-based home insurance deductibles

Homeowners insurance deductibles can be dollar- or percentage-based. The above example of a kitchen fire would be considered a dollar-based deductible. For a percentage-based deductible, however, the monetary value is derived from a percentage of your dwelling coverage. For example, if your dwelling is valued at $367,000 and your wind and hail deductible is 1%, your deductible would be $3,670.

Actual cash value vs. replacement cost value

Most insurance companies will reimburse you for personal property claims via the actual cash value (ACV). Replacement cost would give you the amount needed to replace your lost or damaged item for its current market value. ACV is the amount of money it would cost to replace an item, accounting for depreciation. This valuation process is usually handled by an insurance company's claims department, through its claims adjusters.

To ensure you have the most comprehensive home insurance, we recommend insuring your home and contents under a replacement cost coverage plan. For more information, feel free to read our in-depth article further explaining replacement cost and actual cash value.

You can change your policy to reimburse you based on a replacement cost value of your personal belongings with an endorsement. We'll explain homeowners endorsements below.

Additional home insurance coverages

Endorsements and floaters

Homeowners insurance companies offer products called “floaters,” “riders,” or “endorsements.” An endorsement is any change to your insurance policy — whether that be adding something or removing it. A good example of the use of endorsements relates to your personal property. Most insurance companies will place special limitations on valuable personal property. If you want to increase your coverage level for these items, you would need to add an endorsement. Below are the items that are typically subject to specific insurance sub-limits.

• $200 limit on money, gold, coins
• $1,500 limit on jewelry, watches, furs
• $1,500 limit on watercraft, trailers
• $2,500 limit on firearms
• $2,500 limit on silverware
• $2,500 limit for on-premises business property
• Variable limit on electronics

If you have anything in the list above that exceeds the policy limit, you should consider adding an endorsement to your home policy. If you own expensive personal items, consider a scheduled endorsement. A scheduled endorsement requires the item to be appraised but gives you substantially more coverage. This is common practice for engagement and wedding rings.

See more in-depth information on homeowners insurance endorsement options.

Identity theft coverage and homeowners insurance

Although basic home policies don't guard against identity theft, most companies offer endorsements to cover these circumstances. While details of these endorsements may vary substantially from company to company, coverage ranges from $15,000 to $30,000 at a cost of $25 to $65 per year. Learn more about how homeowners insurance covers identity theft.

Flood insurance

Flood damage is not covered in any standard homeowner’s policy. Typically, flood insurance is provided separately through FEMA or a private flood insurance company. Depending on your location, your mortgage company may require you to purchase flood insurance.

Earthquake insurance

Earthquake damage is not covered by a typical insurance policy. Unlike flood insurance, some insurance companies offer separate policies or endorsement for earthquake protection. If you live in an earthquake-prone area, consult your insurance company about homeowners insurance earthquake coverage.

Wind and hail deductibles

Some insurance companies assign additional deductibles for wind and hail damage, plus a deductible for other covered perils. This additional flexibility is designed to keep your homeowners policy affordable.

Is homeowners insurance required?

Unlike auto insurance, having home insurance is not legally mandated or required. If your home is financed through a lender, they will require homeowners insurance at their discretion as a stipulation for the mortgage. Because your lender actually owns the home, they will require it's insured to protect their investment. Even if you own your home, it's a good idea to maintain homeowners insurance. Compared to the value of a home, your homeowners insurance is a considerably cheaper expenditure. Without it, you would have no financial support if your home is damaged or destroyed.

Homeowners insurance tips and advice

If you’re shopping for home insurance, or if you have it but want to make the most of your policy, consider some simple steps to ensure you’re properly covered and not overpaying.

Take a home inventory of all your items

Go through all of your belongings, big and small, to determine your coverage needs before getting a home insurance quote. In the event of a claim, you'll be able to quickly determine what is missing and calculate its value.

Update your homeowners policy after making major purchases

Pay attention to coverage limits for specific items. If you purchase a new item that exceeds your policy’s limit, you run the risk of having insufficient coverage. Consider additional endorsements and floaters with any newly purchased high-value item.

Double-check your homeowners policy for any policy discounts

While discounts vary per insurance company, typical home insurance discounts include multi-policy (home and auto), new roof, claims-free, non-smoker, and new home discounts. Look closely at your policy to see if you qualify for any possible discounts. Learn more about common homeowners insurance discounts.

Maintain your home

Insurance companies see things like old roofs, mold, and general disrepair as liabilities and will charge you accordingly for them. It is important to maintain the structural integrity of your home to ensure your premiums don’t increase unnecessarily.

The average cost of homeowners insurance

Using the methodology outlined here, we gathered average homeowners insurance rates. 

AVERAGE U.S. HOMEOWNERS INSURANCE COSTS IN 2020

AVERAGE HOMEOWNERS INSURANCE PRICES BY STATE

What are the top homeowners insurance companies?

If you're feeling a little overwhelmed by your options, a good place to start is by assessing the companies you're interested in. Look for ratings on customer satisfaction and financial strength to gauge how well a company treats its customers. Start by consulting The Zebra's insurance company reviews, written by experts.

The table below is a list of the top 10 providers of home insurance by market share. Click on each company to jump to more information.

To see more information on the best homeowners insurance companies, take a look at our comprehensive list.

1. State Farm

Commanding 17.97% of market share, State Farm also dominates the auto insurance market. With positive ratings across the board in customer satisfaction and financial strength, State Farm also has the added benefit of providing personalized service through insurance agents available all across the country.

2. Allstate

Allstate is another recognizable name in insurance with agents stationed nationwide and has just over 8% of market share in home insurance. However, its ratings are middling, with average customer satisfaction and complaint scores.

3. USAA

Providing insurance and financial services for military members and their families, USAA consistently scores highly in customer satisfaction. Keep in mind that you must first be eligible for USAA coverage, so not everyone will qualify.

4. Liberty Mutual

Liberty Mutual's market share in homeowners insurance is slightly larger than in the car insurance market. J.D. Power and the NAIC have determined this company to be below average in terms of customer service.

5. Farmers

With agents to provide personalized assistance to policyholders, Farmers has a firm presence in home insurance and decent ratings. It's also the fifth most popular home insurance country in the US.

6. Travelers

Travelers was rated positively by the NAIC, but their home insurance offering was rated as below-average according to J.D. Power. Their financials — which directly correlate to a company's ability to pay out claims — indicate Travelers is in a very stable position though it has just over 4% of market share.

7. American Family

American Family has very average ratings but is slightly more popular nationally for homeowners insurance than auto insurance. Compared to other top providers, its financial outlook may not be the most robust.

8. Nationwide

Its customer satisfaction rating may not be the best, but Nationwide has received favorable ratings by the NAIC and A.M. Best for their homeowners insurance. With just over 3% market share, it's the eighth most popular provider of home insurance.

9. Chubb

Catering primarily to homeowners of high-value properties, Chubb is the ninth most popular home insurance company. Chubb offers some extra benefits and coverage options that set it apart from many competitors.

10. Erie

A prominent regional insurance company serving select eastern states, Erie was highly regarded by J.D. Power and A.M. Best. Erie's customer complaint score — as logged by the NAIC — was also better than average.

Home insurance FAQs

Homeowners insurance is complicated. Below are a few answers to frequently asked questions about how much home insurance is necessary, what homeowners insurance covers, and some other common terminology. 

Who does homeowners insurance cover?

Home insurance covers your family members who live in your household. Depending on your insurer, they may prefer that you explicitly name every household member on the policy. So if your spouse, children, relatives, or even the family pet causes damage to someone else's property, the liability portion of your homeowners insurance would extend to the liable family member. Typically, it also extends to cover family members who may be away from home — like your child who's heading off to college. Some insurance companies may only provide coverage if your student is living in on-campus housing — the rules may vary slightly from insurer to insurer. If your child is living in off-campus housing, they should look into getting their own renters insurance.

Home warranty insurance vs. homeowners insurance: what's the difference?

The key difference is that home warranty insurance protects internal appliances and systems for heating/cooling, electric, and plumbing from a number of damages that are usually excluded from a homeowners insurance policy. It covers specific appliances while home insurance covers the structure of your home in addition to your personal property. If you want your HVAC or kitchen appliances covered from wear-and-tear, consider a home warranty. Home warranty insurance is typically a separate policy you'll need to procure to protect appliances beyond the manufacturers' provided warranty.

Appliance and mechanical systems repairs can get extremely costly; home warranty insurance will shield you from potential financial losses if systems like HVAC fails and needs repairs or replacement.

Does homeowners insurance cover mold?

Most homeowners policies will not cover mold unless it can be proved it was caused by a covered loss. If your policy provides no mold protection, you can add it back with a mold/fungi endorsement. This coverage is relatively limited.

Learn more about home insurance and mold.

How much home insurance do I need?

The coverage for your dwelling (i.e., the physical structure of your home) needs to be equal to the rebuild cost of your home. For your liability coverage, you should have enough coverage to protect your personal assets. See more information on how to determine the amount of insurance you need here.

Is homeowners insurance tax-deductible?

You can only deduct your homeowner’s insurance paid on a rental property, i.e., a home you own and rent out to a tenant. Aside from this circumstance, you may deduct premium payments to your private mortgage insurance. It’s important to note this isn’t your actual homeowner’s insurance but your mortgage insurance. If you’re unable to make the 20% required downpayment on your mortgage and thus have private mortgage insurance (PMI), you can deduct this, though additional restrictions apply.

How does home insurance work?

Insurance customers pay premiums to a home insurance company in return for the assurance that the insurance company will provide compensation — up to coverage limits — in the event of a total loss. As long as the homeowner — or their escrow — continues to pay and the cause of loss is considered a covered peril, the insurance company will honor repayment for damages.

Detailed homeowners insurance rates by state: