Guide to homeowners insurance

Choosing the right coverage for your home is key. Bankrate’s insurance editorial team includes three licensed agents with nearly 50 years of combined industry experience. We’re passing our home insurance knowledge on to you so you can feel confident in making coverage decisions that fit your needs.

What is homeowners insurance?

Homeowners insurance exists to help cover one of your largest investments. At its most basic level, home insurance provides financial protection against various perils or damaging events that may affect your home, such as theft, fire, storms and incidents that happen on your property. Taken further, it also covers your personal belongings, additional living expenses in certain situations, and even legal fees if a guest was hurt in your home or you damaged someone else’s property.

If you have a mortgage, your lender will require you to carry homeowners insurance. When you purchase a homeowners insurance policy, you pay either a monthly or annual fee. While it might seem like homeowners insurance is very costly, there are a wide variety of affordable options for every coverage need and budget.

Homeowners insurance coverage types

According to rates gathered from Quadrant Information Services, the average annual cost of homeowners insurance in the U.S. is $1,428 based on a home with a dwelling coverage limit of $250,000. Several types of coverage are included in most standard policies to ensure your home insurance financially protects you in certain situations:

• Dwelling coverage, also known as home structure coverage, protects your home’s physical structure as well as attached structures like a garage.
• Personal property coverage makes up a large portion of your homeowners insurance and is designed to replace your home’s contents, including clothing, furniture, appliances and more. Standard personal property coverage may not offer enough coverage for particularly valuable items, however, so you may want to consider adding scheduled personal property insurance to your policy for high-value items.
• Personal liability coverage helps financially protect you against potential legal fees from someone getting injured on your property.
• Medical payments coverage operates similarly to personal liability but specifically covers the medical bills of someone injured on or in your property, regardless of fault.
• Additional living expenses (ALE), also known as loss of use coverage, helps cover food and temporary living expenses when you are displaced due to a covered peril. Covered expenses could include hotel, restaurant and laundry expenses.
• Other structures coverage can help cover the costs associated with repairing or replacing structures on your property other than your home that were damaged during a covered peril such as a detached garage, storage shed, gazebo or fence.

Types of home insurance policies

There are several types of home insurance policies available, including:

• HO-1 policies provide bare-bones coverage for a home for perils such as fire, theft and vandalism. This kind of policy only covers specifically named perils and excludes liability coverage.
• HO-2 policies provide slightly more coverage than HO-1 policies and include some liability protection. HO-2 policies will cover detached structures, personal belongings and additional living expenses, but only from perils named in the policy.
• HO-3 policies are the most common homeowners insurance policy type and include all the basic coverage types. The key difference between HO-3 and HO-2 policies is that an HO-3 policy covers the physical structure of your home from open perils or any that are not explicitly excluded from your policy.
• HO-4 policies are designed for renters rather than homeowners. Like renters insurance, HO-4s typically include many of the same coverage selections such as theft, explosions and additional living expenses, but coverage is limited to your personal property and does not include the actual structure since you do not own it.
• HO-5 policies are the most robust homeowners insurance policies available and cover open perils for both your dwelling and personal property. As noted, coverage for open perils means any peril not specifically excluded, and your insurance company will provide a list of perils that are not covered, such as damage due to neglect.
• HO-6 policies provide coverage for condominiums and have specific distinctions to account for what is covered — and not covered — by HOA policies. These policies, also known as condo insurance, typically cover the interior of your unit, personal property, personal liability, guest medical payments and loss of use.

Flood insurance for homes

Damage from floods is not covered under standard homeowner’s insurance policies, but flood insurance is available through the National Flood Insurance Program (NFIP) and some private insurers. Flooding can cause costly damage to your home and belongings and could happen at any time. If you live in an area prone to flooding, your lender may require you to purchase flood insurance. On average, U.S. homeowners spend $700 per year on flood insurance, although, like any insurance policy, your actual rates will vary. Flood policies usually require payment in full, so it is a good idea to research any area you plan to move to so you know in advance if flood insurance will be necessary.

Other types of home insurance coverage

Other coverage types are usually excluded from a standard homeowners insurance policy or may be more limited. In these situations, homeowners may be able to purchase a separate standalone policy or add an endorsement to their existing homeowners policy. These can include:

• Earthquakes and earth movements, like landslides and mudflows, are not covered in the standard homeowners policy. In most states, homeowners living in high or moderate risk zones may be able to purchase an addendum to their existing homeowners policy to cover for earthquakes. In California, homeowners must purchase a separate standalone policy from either a private insurer or the California Earthquake Authority.
• High-value items like jewelry, art and collectibles are covered up to a certain dollar amount in the standard homeowners insurance policy. To ensure these valuable items are each covered for their full replacement value, homeowners can purchase scheduled personal property coverage.

How much does homeowners insurance cost?

For a homeowners policy containing $250,000 in dwelling coverage, the average cost is $1,428 per year. Individual rates may vary depending on the location, size and age of the home, coverage selections and many other factors.

Factors that affect homeowners insurance rates

Where you live, the condition of your home and the cost to replace it plays the most significant role in determining your home insurance premium, but certain personal and financial factors, such as your marital status and claims history, may also influence your rate. The insurance company’s goal is to collect information that helps determine risk to calculate your premium. When you start looking for a home insurance policy, it may help to do some research to determine your home’s replacement cost and the total value of your personal belongings to calculate how much coverage you will need. You might want to speak with a licensed insurance agent to determine what you actually need and what coverage options are available.

How much homeowners insurance do I need?

Typically, insurance experts recommend purchasing enough coverage to rebuild your home and replace the value of the assets inside if it is destroyed. By doing so, you reduce the chance of being left with costly out-of-pocket expenses and allow yourself to recoup your losses more quickly. It is important to note that the cost to rebuild your home is not the same as your home’s market value.

To get a rough estimate of how much homeowners insurance you may need, consider the square footage of your home, as well as the monetary value of your belongings and furniture. This can provide a starting basis for the dwelling and personal property coverage amounts for your homeowners policy.

What does home insurance not cover?

Although each available homeowners policy provides different coverage, a standard HO-3 policy covers a variety of named perils except for losses that are specifically excluded. The following types of damage are typically excluded from a standard homeowners policy:

• Earthquakes, sinkholes or other earth movement
• Flooding
• Wind damage
• Sewer or water back-up
• Nuclear hazards
• Mold
• Insect infestations
• Neglect
• Normal wear and tear or regular maintenance
• Power surges
• Local ordinances or government action

Even though an HO-3 is the most common policy purchased, you may still need coverage for these excluded losses depending on your location and personal needs. If you live in an area prone to floods, hurricanes, or earthquakes, you may need to purchase separate insurance policies for these specific perils. In some cases, you might be able to simply purchase add-ons or endorsements to your existing policy.

How to compare home insurance rates

While the core purpose of homeowners insurance is consistent regardless of the home insurance company you choose, every provider is unique in its policy offerings. Getting quotes from several companies can be a good strategy to compare rates and coverage offerings. To compare home insurance quotes, you may want to:

1. Understand your needs: First, know what you’re looking for in a home insurance policy, so you can choose which companies to get quotes from.
2. Gather quotes: You can get quotes online, by phone or in a local agency, depending on the company you choose.
3. Review the coverage types and limits: Because each company has its own tool to determine the replacement value of your home, you might not be able to get quotes that are exactly the same. Getting the quotes as close as possible though, in terms of what coverage types and limits are included, can help you make a better comparison.
4. Compare company features: Do you want a company with a mobile app? Is it important for you to have online tools? What about 24/7 customer service? Comparing features like this can help you find a company that you feel comfortable working with.
5. Review third-party ratings: Looking at J.D. Power customer satisfaction scores and AM Best financial strength ratings can help you get a more well-rounded view of each carrier.

Homeowners insurance rates by state

Every state has unique factors, such as extreme weather events, that could affect your homeowners insurance premium. To start your home insurance search, it may help to know how your state compares to others in the nation. Afterward, consider looking into the common weather hazards and other factors associated with your ZIP code that may further influence your premium.

Homeowners insurance rates by carrier

Each carrier has a unique underwriting process and coverage offerings, so do not be surprised if you get different quotes from different insurance companies for the same coverage options. That is why it is a good idea to get quotes from multiple carriers so you can see which ones offer you the best coverage for your money. The table below showcases average annual premiums for a home insurance policy with a $250,000 dwelling coverage limit from the top providers in the U.S., listed in order of market share.

Methodology

Bankrate utilizes Quadrant Information Services to analyze 2023 rates for ZIP codes and carriers in all 50 states and Washington, D.C. Rates are weighted based on the population density in each geographic region. Quoted rates are based on 40-year-old male and female homeowners with a clean claim history, good credit and the following coverage limits:

• Coverage A, Dwelling: $250,000
• Coverage B, Other Structures: $25,000
• Coverage C, Personal Property: $125,000
• Coverage D, Loss of Use: $50,000
• Coverage E, Liability: $300,000
• Coverage F, Medical Payments: $1,000

The homeowners also have a $1,000 deductible and a separate wind and hail deductible (if required). These are sample rates and should be used for comparative purposes only. Your quotes will differ.