Guide to homeowners insurance

Buying a home is expensive, and you’ll want to protect your new property to the best you can. If you’re a new homeowner or are looking to purchase your first home, you may be wondering how to protect your assets. A homeowners insurance policy is likely one of the best and most affordable ways to protect your property financially. Understanding the different coverage types, limits and deductibles is important when searching for a company that meets your needs and budget. In this home insurance guide, Bankrate’s insurance editorial team provides research to help homeowners make informed decisions on homeowners insurance.

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 and storms. Taken further, it also typically covers your personal belongings, additional living expenses and perhaps even legal fees if a guest is hurt in your home.

If you have a mortgage, your lender will likely require you to carry homeowners insurance. When you purchase a homeowners insurance policy, you pay either a monthly, quarterly or annual premium. While it might seem like homeowners insurance is very costly, there are typically a wide variety of affordable options for most coverage needs and budgets.

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, dwelling coverage covers your home’s physical structure as well as attached structures like a garage.
• Personal property coverage: This coverage makes up a large portion of your homeowners insurance and is designed to replace your home’s contents after a covered peril, including clothing, furniture and appliances.
• Other structures coverage: This coverage may help cover the costs associated with repairing or replacing structures on your property other than your home that were damaged during a covered peril. Other structures may include a detached garage, storage shed, gazebo or fence.
• Personal liability coverage: This coverage may help financially protect you against potential legal fees from someone getting injured on your property.
• Medical payments coverage: This 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, this helps cover extra temporary living expenses when you are displaced due to a covered peril. Covered expenses may include hotel stays, pet care, restaurant meals and laundry expenses.

Types of home insurance policies

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

• HO-1 policies: These 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: These 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: These 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: These are designed for renters rather than homeowners. HO-4s typically cover 16 named perils, but coverage is limited to your personal property and does not include the actual structure since you do not own it. HO-4 policies also typically include additional living expenses coverage and liability coverage.
• HO-5 policies: These are the most robust homeowners insurance policies available and cover open perils for both your dwelling and personal property. Coverage for open perils means any peril not specifically excluded. Your insurance company will provide a list of perils that are not covered, such as damage due to neglect.
• HO-6 policies: These 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.

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

Home insurance companies will typically calculate insurance rates based on risk. They will look at several factors such as your location, the physical condition of your home, type of building structure, the year your house was built, and the cost to replace it to determine your home insurance premium. Other factors such, both personal and financial, such as your claims history and marital status may also influence your premiums.

To ensure you get the best homeowners insurance rates, you may want to research ahead of time. Look into factors such as your home’s replacement cost, the total value of your personal belongings, and whether there are any enhancements you can make to your home to bring down the cost of coverage. For example, installing security features can bring down the cost of your premium, as many home insurance policies offer security feature discounts on homeowners insurance. Lastly, to understand how much coverage you might need, you may want to speak with a licensed insurance agent.

What does home insurance cover?

A homeowners insurance policy is designed to provide you with financial protection from a variety of damage-causing events, also called perils. Exactly what homeowners insurance covers and which perils are named or excluded on the policy may change based on your policy type and carrier. However, you can generally expect standard home insurance policies to include some kind of financial protection for the following:

• Hurricanes: Most homeowners insurance policies do not cover all aspects of hurricane damage. To be covered for flood and sewer backup-related damage, you may need to purchase additional coverage.
• Tornadoes: The U.S. experiences more tornadoes than any other country in the world. While tornado damage is typically included in home insurance coverage, homeowners who live in areas that experience a high number of tornadoes typically pay higher premiums.
• Theft: Theft coverage relates to personal property, but can also pertain to dwelling and other structures coverages as well, like if someone smashes a window in your home or garage during a break-in.
• Fire: Unless a fire was started intentionally in your home, damage will most likely be covered by your home insurance policy. Homeowners in areas with significant wildfire threat may see higher premiums or have difficulty finding coverage.
• Volcanic eruptions: Volcanic eruption coverage generally includes damage caused by volcano-related dust, ash and smoke in addition to fire.
• Weight from snow and ice: Snow accumulation can cause roof collapse, and the wet snowmelt can leave mold and wood rot in its wake.
• Vandalism: Vandalism coverage may include broken windows, graffiti and other deliberate property destruction.

What does home insurance not cover?

Although each homeowners policy type 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
• Sewer or water back-up
• Nuclear hazards
• Mold, rust and corrosion
• Insect infestations
• Regular tree removal
• Neglect
• Normal wear and tear or regular maintenance
• Power surges
• Local ordinances or government action
• Damage from pets

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. Coverage for these excluded losses may be available as standalone policies or endorsements to your existing policy.

Flood insurance for homes

Damage from floods is not covered under standard homeowners insurance policies, but flood insurance may be available through the National Flood Insurance Program (NFIP) and some private insurers. 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 may be 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 types of damage may be excluded from a standard homeowners insurance policy or coverage may be more limited. Coverage availability for these circumstances may depend on your location and carrier. Popular add-on coverage options include:

• Earthquake insurance: Earthquakes and earth movements are not covered in a standard homeowners policy. In most states, homeowners may be able to purchase an endorsement to cover damage from earthquakes. In California, homeowners may be able to purchase a separate standalone policy from either a private insurer or the California Earthquake Authority.
• Scheduled personal property coverage: High-value items like jewelry, art and collectibles are covered up to a certain dollar amount under a standard homeowners insurance policy. To ensure these valuable items are each covered for their full replacement value, homeowners may be able to purchase scheduled personal property coverage.
• Water backup coverage: This endorsement provides coverage if your home’s sewer or water lines backup into the drain, toilets or showers from issues like clogged pipes or broken drains. These lines are the homeowner’s responsibility if the failure occurs on their property and not at the main line. It may also cover sump pump failures, which could cause water to back up into the basement.
• Identity theft coverage: This endorsement may help pay for the costs of recovering your identity after it’s been stolen. Policy coverage can vary by carrier, but usually includes a dedicated case worker, credit monitoring services, lost wages reimbursement and other restoration costs.

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. Having adequate coverage in place may reduce the chance of being left with costly out-of-pocket expenses following covered damage. 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, you might consider the square footage of your home, any upgraded or specialty construction elements, and the monetary value of your belongings and furniture. This may provide a starting basis for the dwelling and personal property coverage amounts for your homeowners 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 may be a good strategy to compare rates and coverage offerings. To compare home insurance quotes, you may want to:

1. Understand your needs: Knowing what you’re looking for in a home insurance policy may help you narrow down a list of potential companies and help you get a more accurate quote.
2. Gather quotes: You may be able to get quotes online, by phone or through 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, may 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 may 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 may 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. You might also 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 most insurance professionals recommend getting 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. 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.