Home Insurance

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What is home insurance?

If you're among the 65% of Americans who own a home, you understand the immense financial investment that is homeownership. It is often the end result of years of saving, work, and sacrifice. After all this effort, you need to make sure your investment is thoroughly protected. That's where we come in. Let's get into the finer details of home insurance to help you protect your investment.

 

Homeowners insurance basics:

  1. What does home insurance cover?
  2. How much homeowners coverage do I need?
  3. What's a deductible and why does it matter?
  4. What is actual cash value?
  5. What is hazard insurance?
  6. What are some additional homeowners coverages?
  7. What should a first-time homeowner know?
  8. Is homeowners insurance required?
  9. Average premiums for homeowners insurance

 

 


 

What does home insurance cover?

A home 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.

 

Policies: HO-2, HO-3, HO-5

The kind of coverage you will have with a homeowner's 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 will cover you for:

  • 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 - this is the most company policy in the US. It will cover your dwelling and other structures on an open-peril policy but your content's 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 flooding, earthquake, landslides, mold, infestations, wear and tear, nuclear hazards, or government actions, regardless of homeowners insurance policy type.

NameProperty CoveragePersonal Property Coverage
HO-2 Broad FormNamed PerilsNamed Perils
HO-3 Special FormOpen PerilsNamed Perils
HO-5 Comprehensive FormOpen PerilsOpen Perils

 

 


 

How much home insurance coverage do I need?

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.

Outside of this, there are typical limits of coverage you can expect from many insurance providers. However, this can be flexible. Many insurance companies have their own tiers of coverage you can explore.

Common home insurance coverage limits
Coverage TypeTypical Limit of Coverage
DwellingVaries
Other structures10% of Dwelling Coverage
Personal Property50% of Dwelling Coverage Limit
Loss of Use20% of Dwelling Coverage Limit
Medical PaymentsVaries
Personal LiabilityVaries

 

 


 

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

Deductibles can be dollar-based 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

Most insurance companies will reimburse you for personal property claims via the actual cash value (ACV). 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.

You can change your policy to reimburse you based on a replacement cost value of your personal belongings with an endorsement. Which we will explain in the second section.

 

 


 

Homeowners insurance vs. hazard insurance

Like mortgage insurance (also known as private mortgage insurance, or PMI), hazard insurance is usually required by your lender when you buy a home. But unlike PMI, hazard insurance is not a separate insurance policy — to put it simply, it refers to the part of your homeowners policy that protects the structure of your home from certain perils like fire, lightning, and wind. Because of the financial stake the financial lender has in your new home, it is in their interest that the property is safeguarded against potential damage or destruction.

Coverage for the dwelling and structure of your home is a cornerstone of a typical homeowners policy. So if you have home insurance, you've already fulfilled your lender's requirement of having hazard insurance.

 

 


 

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 big example of the use of endorsement relates to your personal property. Most insurance companies will place special limitations on valuable personal property. If you want to increase the coverage for these items, you would need to add an endorsement. Below are the items that are typically limited.

  • $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 on Business property on premises
  • $500 Business property on premises
  • Varies - Electronics

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

 

Identity theft coverage

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.

 

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 earthquake coverage.

 

Wind and hail deductible

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 may require homeowners insurance at their discretion as a stipulation for the mortgage. It's in both the homeowner's and mortgage company's interest to have this coverage — until the home is paid off, your lender has a financial interest in the wellbeing of the home you purchased. Having homeowners insurance protects your investment from unforeseen damage or accidents and the lender's interest in maintaining the value of the home.

 


 

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.

 

Make an inventory of all your items

Go through all of your belongings, big and small, to determine your coverage needs. In the event of a claim, you can quickly determine what is missing and calculate its value.

 

Update your policy after making pricey 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 homeowner's policy for any policy discounts

While discounts vary per insurance company, typical homeowners policy 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.

 

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.

 

 


 

Average cost of homeowners insurance

Using a methodology outlined here, we discovered some average rates for homeowner's insurance. 

Insurance ProviderAverage Annual Premium
Allstate$1,635
Farmers$2,027
Liberty Mutual$1,830
Nationwide$1,737
State Farm$1,501
Travelers$1,709
USAA$1,736

The home insurance providers listed above provide a very standard experience. Hippo, another home insurance providers, offers an automated insurance experience. They advertise their methods cut down on overhead costs and can reduce your premiums by 25%. If you're interested in getting a quote from Hippo, click here.

If you're not interested in an online shopping experience and would rather speak to a licensed agent regarding your home insurance needs and concerns, call us at 888-444-2833 or click below.

 


Get Quotes for Home Insurance

 

Average cost of home insurance by state
StateAverage Premium
Alaska$1,103
Alabama$2,328
Arkansas$2,405
Arizona$1,283
California$1,031
Colorado$2,412
Connecticut$1,481
Washington DC$1,035
Delaware$880
Florida$2,133
Georgia$1,619
Hawaii$442
Iowa$1,583
Idaho$982
Illinois$1,443
Indiana$1,395
Kansas$3,535
Kentucky$2,053
Louisiana$2,193
Massachusetts$1,203
Maryland$1,211
Maine$961
Michigan$1,176
Minnesota$1,773
Missouri$2,377
Mississippi$2,530
Montana$2,042
North Carolina$1,794
North Dakota$2,128
Nebraska$3,547
New Hampshire$876
New Jersey$934
New Mexico$1,661
Nevada$975
New York$1,262
Ohio$1,265
Oklahoma$4,053
Oregon$840
Pennsylvania$851
Rhode Island$1,388
South Carolina$2,196
South Dakota$2,288
Tennessee$2,033
Texas$3,087
Utah$784
Virginia$1,100
Vermont$733
Washington$1,133
Wisconsin$1,084
West Virginia$1,366
Wyoming$1,171

 

 


 

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. 

 

What is a home warranty?

A home warranty protects your appliances and systems a number of damages that are usually excluded from a homeowners insurance policy. If you want your HVAC or kitchen appliances covered from wear and tear, consider a home warranty.

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.

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.

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, you can deduct this (additional restrictions apply).

 


 

View homeowners insurance rates by state:

AlaskaAlabamaArkansasArizonaCalifornia
ColoradoConnecticutWashington, D.C.DelawareFlorida
GeorgiaHawaiiIowaIdahoIllinois
IndianaKansasKentuckyLouisianaMassachusetts
MarylandMaineMichiganMinnesotaMissouri
MississippiMontanaNorth CarolinaNorth DakotaNebraska
New HampshireNew JerseyNew MexicoNevadaNew York
OhioOklahomaOregonPennsylvaniaRhode Island
South CarolinaSouth DakotaTennesseeTexasUtah
VirginiaVermontWashingtonWisconsinWest Virginia
Wyoming

 

 

 


Recent Questions:

Home Insurance

Will I still be able to get insurance if I have made three home insurance claims?

Previous claims can affect your ability to get homeowners insurance. Particularly, it will affect your rates.

Is property that was stolen from the alley just outside of your house covered with homeowners insurance?

Thanks for your question. Whether or not your property is covered really depends on your homeowners insurance company.

Our son-in-law is a USAA member (Navy). Can we join also?

Parents are not eligible for USAA. I believe USAA eligibility flows "downstream" — so descendants, i.e.

Is the type of siding on a house, like vinyl, a rating factor for insurance premiums?

There is no straight-forward answer to what building materials you use for your house and the homeowners insurance rate you will end up with. Here's a tip to keep in mind that may help you make a decision: brick, stucco, and concrete are preferred by most insurers because they tend to be flame-retardant so the risk of losing the whole building decreases.