Home insurance: what to know
Homeowners insurance is a policy that protects your home in the event of a variety of circumstances. Homeowners insurance applies to a private property that you own — not a rental unit, condo or mobile home.
Read on to learn more about homeowners insurance.
- Key takeaways
- Homeowners insurance covers much more than your home itself.
- It is not required by law to have homeowners insurance but those with a mortgage must enroll in a policy.
- Rates vary by individual factors, but homeowners insurance premiums can cost up to $2,000 per year.
What home insurance covers
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) as well as claims against an insured for property damage.
- Coverage F - Medical payments: Covers medical costs incurred on the property by those not listed as residents of the household, regardless of fault.
COMMON LIMITS PER COVERAGE TYPE
| Coverage Type | Typical Limit of Coverage |
|---|---|
| Dwelling | Varies |
| Other structures | 10% of Dwelling Coverage |
| Personal Property | 50% of Dwelling Coverage Limit |
| Loss of Use | 20% of Dwelling Coverage Limit |
| Medical Payments | Varies |
| Personal Liability | Varies |
Common 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.
What does a named-peril HO-2 policy cover?
An HO-2 policy is a basic form of homeowners insurance. It only covers personal property and insured structures in the event of named perils, including the following:
- 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 HO-3 policy type is the most common in the U.S., covering a dwelling and other structures on an open-peril home insurance policy and the contents of the property on 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.
| Name | Property Coverage | Personal Property Coverage |
| HO-2 Broad Form | Named Perils | Named Perils |
| HO-3 Special Form | Open Perils | Named Perils |
| HO-5 Comprehensive Form | Open Perils | Open Perils |
Learn more about how to read your homeowners insurance policy.
Additional home insurance coverage types
Homeowners insurance may cover some seemingly unexpected things in addition to the above perils. Homeowners insurance follows you even while you're not at home: if you lose your luggage while traveling, your personal property coverage can help replace your lost items.
Home insurance may even cover the belongings of a child away at college — typically only if they reside in on-campus housing — and your parents' belongings if they depend 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 home insurance does not cover
There are always exclusions in what homeowners insurance will cover: another reason it's important to understand how to read a homeowners insurance 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 sold separately.
Learn more about home warranties, which differ from homeowners insurance in some important ways.
Why should I get homeowners insurance?
Surprisingly, homeowners insurance is not required by law. However, if you have a mortgage or are borrowing from a lending association, you will likely be required to hold homeowners insurance. More reasons to hold homeowners insurance include:
- Statistics prove that having home insurance is prudent.
Houses have a higher possibility of incurring a loss due to a natural disaster or accident than an apartment within a building. Read more about homeowners statistics:
- Home insurance policies cover more than just your house
- Personal belongings are covered anywhere in the world
- Trees and plants in your garden
- Belongings of your child while they are away at college or dependent parents in a nursing home
- Homeowners insurance is an affordable way to protect your assets
- Comparing homeowners insurance quotes from multiple companies is the best way to find the best value for your next policy
- Home losses can cost much more out of pocket than a policy premium if you’re not covered. Homeowners insurance certifies that if a loss does occur, you are only responsible to pay the deductible and not the entire price tag.
For homes in high-risk areas, insurance policies are essential. Homeowners insurance protects the house itself, your belongings, your yard and other structures on the property, as well as personal liability, medical payments to others and loss of use coverage. Having a homeowners insurance policy won’t stop a disaster from occurring, but it will provide a financial safety net in case you do experience a loss. Shop around with different companies in order to make sure you have the proper coverage at the best rate.
Make an informed decision: compare insurance rates today.
How much homeowners insurance do I need?
Your insurance needs will be specific to you, but there are a number of key questions you can answer that will help guide you toward the appropriate coverage levels. Along with determining how much coverage you need, these questions can also help you get a more accurate home insurance estimate when it comes time to shop. Ask yourself the following questions to help determine exactly how much homeowners insurance you will need:
- 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 via a home inspection. Remember: 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 home insurance is to restore your property to its original state, insurance companies calculate the actual value of coverage by replacement cost rather than market value.
Other considerations include the amount of coverage you'll need for your personal property and liability protection. If you own costly items or valuables, conducting a home inventory and taking photos of the contents of each room in your house 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, all of which come with their own sub-limits.
Coverage limits for these items can be extended with endorsements, also known as riders or floaters.
Zebra tip: Personal liability limits should be equal to or greater than net income
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.
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) though a number of companies do offer property coverage at full replacement cost. 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.
Endorsements and floaters
Homeowners insurance companies offer products called “floaters,” “riders,” or “endorsements.” An endorsement is any change to an insurance policy — whether adding something or removing it.
A good example of the use of endorsements relates to 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 damage and homeowners insurance
Flood damage is usually not covered by a standard homeowners policy. Flood insurance may be provided separately through FEMA or a private flood insurance company. Depending on your location, your mortgage company may require you to purchase flood insurance.
- Earthquakes and home 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 for home insurance
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 homeowners policies affordable.
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
Go through all of your belongings, big and small, to take a full home inventory and 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.
Check your homeowners policy for 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.
The average cost of homeowners insurance
We surveyed thousands of home insurance rates to gather a comprehensive guide to homeowners insurance costs.
These rates may provide a good example of averages across the U.S. Your homeowners insurance premiums may vary depending on a number of factors, including where you live, the cost of building materials, the square footage of your home, and even your credit score.
AVERAGE U.S. HOMEOWNERS INSURANCE COSTS IN 2021
| Insurance Provider | Average Annual Premium | Monthly Cost |
| Allstate | $1,594 | $133 |
| Farmers | $1,455 | $121 |
| Liberty Mutual | $1,830 | $153 |
| Nationwide | $1,236 | $103 |
| Progressive | $1,355 | $113 |
| State Farm | $1,356 | $113 |
| Travelers | $1,444 | $120 |
| USAA | $1,231 | $103 |
AVERAGE HOMEOWNERS INSURANCE RATES BY STATE
Homeowners insurance data methodology
The homeowners insurance rates published in this guide are based on The Zebra's analysis of the cost of home insurance in every U.S. ZIP code. These rates are based on a sample user profile: a 45-year-old married homeowner living in a 2,500-square-foot single-story home built in 2011 with these coverage levels:
- $200,000 for the dwelling
- $20,000 for other structures
- $100,000 for personal property
- $100,000 for personal liability
- $1,000 deductible
To generate pricing for particular rating factors, we adjusted the homeowner profile based on common pricing factors used by major home insurance companies. These factors include location, coverage limits, claims record and others.
Compare home insurance quotes.
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.
| Insurance Company | J.D. Power Customer Satisfaction Rating | A.M. Best Financial Strength Rating | NAIC Customer Complaint Score |
|---|---|---|---|
| State Farm | 4/5 | A++ | Very Good |
| Allstate | 3/5 | A+ | Good |
| USAA | 5/5 | A++ | Very Good |
| Liberty Mutual | 2/5 | A | Below Average |
| Farmers | 3/5 | A | Good |
| Travelers | 2/5 | A++ | Good |
| American Family | 3/5 | A | Good |
| Nationwide | 2/5 | A+ | Very Good |
| Chubb | 2/5 | A++ | Very Good |
| Erie | 5/5 | A+ | Very Good |
To see more information on the best homeowners insurance companies, take a look at our comprehensive list.
- State Farm
Commanding 17% of the home insurance market, State Farm earns positive ratings across the board in customer satisfaction and financial strength. The company boasts the added benefit of providing personalized service through insurance agents available across the country.
- 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.
- 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.
- 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.
- 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.
- 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 claims just over 4% of the market.
- 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.
- Nationwide
Its customer satisfaction rating may not be the best, but Nationwide has received favorable ratings by the NAIC and A.M. Best for its homeowners insurance product. With just over 3% market share, it's the eighth most popular provider of home insurance.
- 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.
- 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.
How to shop for homeowners insurance
Our first recommendation is to get homeowners insurance quotes. Only by comparing rates from as many companies as possible can you ensure you get the best coverage at the cheapest price. We first recommend shopping with the company with which you insure your car. Keep in mind, this company won't always be your cheapest option.
Information needed to get an accurate homeowners quote are as follows:
- Number of full-time residents in the home
- Is the home your primary, seasonal, or secondary residence
- Year built
- Square footage
- Number of stories and bathrooms
- Presence of detached structures like a shed or garage
- Roof and exterior wall materials
- Presence of wood stoves or fireplaces
- Pet information
- History of home insurance claims
- Renovations or updates
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.
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About The Zebra
The Zebra is not an insurance company. We publish data-backed, expert-reviewed resources to help consumers make more informed insurance decisions.
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The Zebra’s insurance content is written and reviewed for accuracy by licensed insurance agents.
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The Zebra’s insurance content is not subject to review or alteration by insurance companies or partners.
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The Zebra’s editorial team operates independently of the company’s partnerships and commercialization interests, publishing unbiased information for consumer benefit.
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The auto insurance rates published on The Zebra’s pages are based on a comprehensive analysis of car insurance pricing data, evaluating more than 83 million insurance rates from across the United States.