Homeowners Insurance

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.

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 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.

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:

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.

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.

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. The following questions can be used as a sort of home insurance calculator 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.

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.

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.

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.

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

AVERAGE HOMEOWNERS INSURANCE RATES 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.

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 the people who reside in a household. Some insurance companies require every member of the household be named on the policy.

If the insured's partner, child, relative or pet damages someone else's property, the liability portion of the homeowners insurance policy would extend to cover the liable family member. Typically, it also extends to cover family members who may be away from home — like a child heading off to college. Some insurance companies may only provide coverage if the student is living in on-campus housing — the rules may vary slightly from insurer to insurer.

If a child is living in off-campus housing, they should look into getting their own renters insurance policy.

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?

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.

Is homeowners insurance tax-deductible?

You can only deduct homeowner’s insurance paid on a rental property, i.e., a home you own and rent out to a tenant. Outside of 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.

Check out our page on tax deductions and homeowners insurance for more information.

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.