A homeowners insurance policy can protect you from paying expensive, out-of-pocket costs on damage to your house and personal belongings. For as low as $100 per month, homeowners insurance can prevent you from having to cover damage caused by unexpected events, like fire, theft, and falling objects.
In this guide, we’ll discuss what homeowners insurance is, what it covers, how much it costs, and how to find the best homeowners insurance policy for your home.
What Is Homeowners Insurance?
Homeowners insurance is a form of property insurance that protects your home and personal belongings in the event of a fire, theft, or other unexpected events.
Homeowners insurance policies are considered “package policies,” which means that they cover damage to your property and protect you if you, your family, or your pets cause any injuries or property damage to others.
Types of Homeowners Insurance Policies
Home insurance policies come in several types, called policy forms.
Though coverage details may differ by state and insurance company, the following eight types of homeowners insurance are pretty standard:
- HO-1—This is the most basic form of homeowners insurance and covers 10 covered perils instead of the standard 16. An HO-1 policy doesn’t provide coverage for liability, personal belongings, or additional living expenses, only providing coverage for the dwelling itself.
- HO-2—This is a broad form policy and only protects your home from the named perils listed in your policy.
- HO-3—One of the most common types of home insurance policies, this special form policy is open-peril, which means that every event is covered except for events explicitly listed as “not covered.” These policies are best for single-family homes, multi-family homes, and townhomes.
- HO-4—Also known as renters insurance, an HO-4 policy protects renters against damages to their personal property. It also provides liability and medical payment coverage.
- HO-5—Sometimes called the comprehensive form, this insurance policy is an open-peril policy that covers damage to your home and personal belongings by perils not listed as exclusions in your policy. HO-5 policies are usually only available from select companies for well-maintained homes in low-risk areas.
- HO-6—This is the condo form for condominium owners or owners of co-ops and protects against 16 covered perils.
- HO-7—This named-peril policy protects your mobile home from listed events. It is a modified version of an HO-2 policy.
- HO-8—Called the modified coverage form, an HO-8 policy protects older homes under an actual cash value (ACV) basis. This means that your home is protected based on its depreciated value—not its new value.
What Does Homeowners Insurance Cover?
Home insurance policies typically offer six areas of coverage for 16 different events or “perils”.
Homeowners Insurance Coverage Areas
A homeowners insurance policy typically includes coverage for six areas:
- Dwelling—Dwelling coverage protects the structure of your home and includes coverage for the foundation, exterior walls, interior walls, cabinetry, plumbing, and anything else built within the home. Most dwelling coverage is considered replacement cost, which means that you’ll purchase the exact amount needed to rebuild your home as new.
- Other structures—This coverage protects any structures that are on your property and detached from your home, and may include protection for a garage, fence, shed, or gazebo. This usually comprises 10% of your dwelling coverage.
- Personal property—This part of a homeowners insurance policy covers the cost of replacing the personal belongings in your home when a covered event damages them. Personal property coverage is typically 50% of your dwelling coverage, so be sure to accurately determine the cost of rebuilding your home by using an insurance provider estimator, talking to a local appraiser, or estimating it yourself.
- Loss of use/additional living expenses—Loss of use coverage reimburses you when you have to live somewhere else during repairs. It typically covers the cost of a hotel room or temporary rental, the cost of meals, and the cost of doing laundry. This is usually 20% of your dwelling coverage.
- Liability—If you’re responsible for an accident that causes bodily injury to someone or property damage to their belongings, this part of your policy will pay for the medical bills or replacement costs. It will also cover legal fees if you’re sued. Most insurance providers recommend purchasing $300,000 worth of personal liability coverage.
- Medical payments to others—If a guest is injured in your home, your policy will cover a certain amount of their medical bills. The standard amount of coverage for this is $1,000 per person.
Note: In addition to these six areas of coverage, your insurance provider will likely offer endorsements, or floaters, that allow you to extend your insurance coverage to other uncovered areas or items. Popular endorsements include identity theft protection, water backup, jewelry, and earthquakes. Visit your provider’s website or talk to an insurance agent to discuss your endorsement options.
A standard homeowners insurance policy will cover damage caused by the following 16 events:
- Fire and lightning
- Windstorm and hail
- Riot or civil commotion
- Falling objects
- Weight of snow, sleet, or ice
- Accidental discharge or overflow of water or steam
- Frozen plumbing
- Sudden and accidental tearing apart, cracking, burning, or bulging
- Volcanic eruption
- Sudden and accidental damage from an artificially generated electrical current
Learn More: What Homeowners Insurance Covers
What Is Not Covered Under Homeowners Insurance?
These events aren’t typically covered under a home insurance policy:
- Ordinance or law
- Nuclear hazard
- Intentional loss
- Governmental action
- Mischievous acts
- Birds, vermin, rodents, or insects
- Mold, fungus, or wet rot, unless it’s hidden within the walls, ceilings, or floors and is a result of plumbing failure
- Earth movements like earthquakes, landslides, mudslides, subsidence, and sinkholes
- Water damage from flooding
- Power failure
Is Homeowners Insurance Necessary?
Homeowners insurance isn’t required by law, but the institution that you got a loan from to purchase your home may require homeowners insurance.
Regardless of the lending institutions requirements, we recommend purchasing a policy for the following benefits:
- Financial Protection—While a homeowners insurance policy may be more expensive than auto insurance or renters insurance, it could save you money in the long run and prevent you from paying for expensive damage to your home or belongings.
- Coverage for most events—Damage from almost all events are covered under a standard homeowners insurance policy. The only major events that likely won’t be covered are natural disasters, which can be protected with an endorsement.
- Coverage away from home—If your items are damaged or lost while traveling, your policy will pay to replace them. It also covers items that are damaged when they’re in a car, someone else’s home, or another building.
Learn More: Is Homeowners Insurance Required?
How Much Homeowners Insurance Do I Need?
In southern states like North Carolina, South Carolina, and Alabama, the average 2,000-square-foot home will cost $200,000 to rebuild.
Based on that information, here’s what a sample policy for that home may look like:
|Type of Coverage||Amount of Coverage|
|Type of Coverage||Amount of Coverage|
|Loss of use||$40,000|
|Medical payments to others||$1,000 per person|
Learn More: How Much Homeowners Insurance Do I Need?
How Much Does Homeowners Insurance Cost?
According to the Insurance Information Institute, the average cost of homeowners insurance across the nation in 2018 was $1,249 per year.
While there are many factors that could affect the cost of your policy, here are a few that will increase it:
- Ownership of aggressive dogs breeds, especially ones with a history of destruction or damage
- A low credit score of 649 or below
- History of filing a lot of insurance claims
- Living in a state that is susceptible to natural disasters
- Living farther than 1,000 feet from a fire hydrant or five miles from a fire station
Ways To Save On Homeowners Insurance
In the case of a disaster, homeowners insurance can save you thousands of dollars. Many homeowners can save money on their home insurance by taking a few extra steps.
Here are a few ways to bring your monthly premiums down:
- Raise your deductible—If you can save enough money to cover a larger deductible, increasing your deductible can drastically reduce your monthly premium.
- Fortify your home—Many home insurance providers give discounts for security and safety measures. Improve your home by installing automatic sprinklers, smoke detectors, alarms, and security systems, and you can receive a discount on your monthly payment.
- Renovate—Not only can renovations increase the value of your home, they can save you money on homeowners insurance. Many providers offer discounts for homes with impact resistant roofing or upgraded home systems.
- Multi-policy discounts—Many homeowners insurance providers also offer other types of insurance. Bundling home insurance with auto, life, or motorcycle insurance can lower your payment.
Learn More: How To Lower Your Home Insurance Premiums
How to Find the Best Homeowners Insurance Policy
Before starting your search for home insurance, read the following tips:
1. Determine how much dwelling coverage you’ll need
You have three options to determine the replacement cost of your home. When you start the quote process with an insurance provider, you’ll be asked questions about your property, and the provider will automatically generate a dwelling amount based on the information you give. You can choose this amount or go with your second option, which is to talk to a local appraiser to have them estimate the value.
Your last option is to calculate the dwelling coverage amount yourself. As a rule of thumb, aim for $100 to $155 worth of protection per square foot. Homes in the South will cost less than homes in the Northeast, so go with $100 if you live in a southern state and $155 if you live in a northeastern state.
2. Determine the type of policy that fits your needs
There are eight types of home insurance policies. If you’re looking for minimal coverage, an HO-1 or HO-2 may work best. If you want standard coverage, choose an HO-3 policy, and if you want as much coverage as possible, choose an HO-5 policy.
3. Start with your auto insurance provider
Most insurance companies will offer you a discount for bundling more than one insurance policy, allowing you to save money and get home insurance from a company that you know and trust. Request a quote from your car insurance provider before looking at other home insurance companies to discuss possible discounts.
4. Compare Homeowners Insurance In Your State
For more detailed information on how homeowners insurance companies compare in your location, check out your state below:
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- West Virginia
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