Homeowners Insurance

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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. 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.

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

 

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.

 


 

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
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

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 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 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 to safeguard the property 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.

 


 

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 Homeowners Premium
 
AVERAGE U.S. HOMEOWNERS INSURANCE COSTS IN 2020
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

 

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AVERAGE HOMEOWNERS INSURANCE PRICES 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. 

 

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:

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

 

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Recent Questions:

Home Insurance

How do I get a false claim off my insurance report?

I would call my prior insurance company (your renters provider) showing the false claim and see how they have it marked. I would also have them send confirmation that the claim was dropped and not paid out.

If I'm on the deed but not the mortgage, can I still be on the homeowners insurance?

Thanks for the question. I see no issue with you being on the insurance if you are on the deed to the property.

Is it possible to bundle three lines of insurance?

It is challenging to say which insurer would be the best for bundling multiple lines of insurance. Most companies would likely give you multiple policies to cover your vehicles, RV, and homes.

Is it legal to change homeowners insurance policies without the approval of all parties on the deed?

As long as you're on the deed, you do not need permission from all parties to change your homeowners insurance if it is in your name. Anyone with a vested interest could also insure the property how they see fit. If you have any questions, don't hesitate to ask.

Ava Lynch LinkedIn

Based in Austin, TX, Ava has been in the insurance industry as a licensed agent for 4-plus years. Ava is currently one of The Zebra’s resident property insurance experts and has been featured in publications such as US News Report, GasBuddy, and Yahoo! Finance.