Homeowners Insurance Guide

If you have questions about homeowners insurance, this guide will help answer them. You’ll find your answers in the detailed sections below, from what homeowners insurance really is to what types exist and who needs one of these policies.

What Is Homeowners Insurance?

A homeowners insurance policy aims to protect you financially in the event your home or property suffers damage by negating the need to pay out of pocket for repairs, replacement, or rebuilding. Your home is one of your most significant assets, so having a homeowners insurance policy to protect it is crucial. In addition, the protection provided against things beyond your control (like an accident, theft, or a natural disaster) is well worth the peace of mind it provides.

That being said, it’s important to understand these policies comprehensively. For example, your average homeowners’ insurance policy does not cover certain events and damages. Additionally, different types of policies cover different things.

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What Does a Homeowners Insurance Policy Cover?

Although different homeowners insurance policies cover different things, there are a few general rules on what’s covered by most policies. However, you must read your policy documents in detail to understand your full coverage, including how much coverage you have if you need to file a claim.

Despite differences, most standard homeowners insurance policies help you repair or replace your home (including its contents) in the event of damage caused by certain events or disasters. Generally, this includes damage caused by:

• Fire
• Smoke
• Theft
• Vandalism
• Lightning
• Wind
• Hail
• Flying debris (in high wind storms)
• Falling trees, including large branches

It’s also important to understand what’s covered, as not every part of your property is. However, the following things are generally covered and eligible for a claim if you need to repair or replace them:

• Heating and cooling systems
• Kitchen appliances, including your fridge, oven, and dishwasher
• Furniture and clothing (up to a predetermined claim amount as defined by your policy)
• Outbuildings, including garages, sheds, and barns
• Outdoor grills, fireplaces, and (sometimes) built-in fire pits
• Fencing around your property
• Exterior home walls
• Swing sets and other play equipment (in most cases)

Liability coverage and coverage for living expenses when your home is unsafe to stay in are also generally covered. Some policies only cover living expenses, so ask an insurance agent to verify if this coverage type if it is essential to you. Liability coverage includes any legal fees or medical expenses if someone who doesn’t live in your home is injured on your property.

What Does a Homeowners Insurance Policy Not Cover?

Some homeowners insurance policies won’t cover your swimming pool or other outdoor recreational equipment unless you’ve purchased higher liability coverage amounts. Additionally, some policies won’t cover any events not explicitly listed in your insurance policy if it’s a “named perils” policy. More open policies may not cover specific events like flooding or earthquake damage. Your insurance agent should discuss this with you before you make a final policy decision.

What Are Common Categories of Homeowners Insurance?

Homeowners’ insurance falls into several categories, some of which can be added if you live in certain areas. For example, supplemental flood or earthquake coverage are categories you can add to your policy if you live in an area prone to flooding or earthquakes. However, most homeowners insurance policies cover four common categories: dwelling, contents, liability, and other structures.

Dwelling Coverage

Dwelling coverage protects your home’s structure and anything attached (like an attached garage). In a disaster, dwelling coverage helps you repair or replace your home’s floors, ceilings, walls, and any built-in appliances.

Additionally, coverage extends to help you rebuild your home up to your policy limit should the building be considered a total loss. A total loss could be due to an unfortunate event, such as a tornado tearing apart the home so it’s no longer salvageable or flood waters washing away the house down to its foundation.

Contents Coverage/Personal Property Coverage

Contents coverage, also sometimes known as personal property coverage, is a category that protects furniture, clothing, and certain other valuables you keep inside your home. Coverage is up to your policy amount, which is why you must create an accurate inventory of your personal items. For example, if you own high-value items like fine art or collectibles, you’ll want to ensure your personal property claim limits reflect that. Otherwise, your potential claim amount could be significantly less than what it costs you to replace your home’s contents.

Liability

Liability is an umbrella category that provides coverage for bodily injury or property damage. Bodily injury coverage covers legal fees and medical expenses if a guest is injured inside your home or somewhere on your property. Additionally, liability provides coverage when you’re away from home. For example, if your child throws a baseball through someone’s window or your pet bites someone, most liability policies cover any associated legal or medical fees.
Property damage covers your property in the event of a covered accident. What’s considered a covered accident can vary from one insurance provider and policy to another, so always read through your homeowners insurance policy in detail.

Other Structures Insurance

This category covers any structures on your property that aren’t attached to your home. Buildings generally covered by other structures insurance include:

• Unattached garages
• Gazebos
• Fences
• Sheds
• Unattached carports
• Barns
• Livestock shelters

If you have unattached structures on your property, you’ll want to insure them, even if that means paying a slightly higher monthly premium. If your policy doesn’t include other structures’ coverage, you could pay out of pocket in the event of an accident or disaster.

What Are the Different Types of Homeowners Insurance?

The different types of homeowners insurance options range from HO-1 to HO-8, each being a better option for specific people or situations. Below, each of these homeowners insurance types is described in detail.

HO-1 Insurance

Also known as basic form homeowners insurance, HO-1 is the most basic option available. Coverage for your home is generally based on its actual cash value, and personal belongings aren’t always covered. This is a named perils insurance type, meaning only damage due to specifically named causes is covered. These named perils are usually:

• Fire
• Lightning
• Windstorm
• Hail
• Explosion
• Riots
• Aircraft
• Vehicles
• Smoke
• Vandalism
• Theft
• Volcanic eruptions

HO-2 Insurance

Also known as broad form insurance, HO-2 policies offer protection from perils additional to those of an HO-1 policy. Coverage for your home is usually based on its replacement cost, and personal property coverage is generally for actual cash value. If you choose an HO-2 policy, you’ll typically be covered in the event of:

• Fire
• Lightning
• Windstorm
• Hail
• Explosion
• Riots
• Aircraft
• Vehicles
• Smoke
• Vandalism
• Theft
• Ice or snow weight causing damage to a structure
• Freezing
• Accidental discharge or overflow of steam or water
• Cracking and bulging caused by a sudden accident
• Power surges and damage from other artificially generated electrical currents
• Falling objects, including trees or branches

HO-3 Insurance

HO-3 insurance is also called special form insurance, and it’s the most common type of homeowners insurance. Under this type of policy, your home is usually covered at replacement cost and your home’s contents at their actual cash value. Instead of being a named perils insurance, an HO-3 policy covers anything that isn’t explicitly named as an incident or accident not covered.

This type of homeowners insurance policy generally covers all accidents and disasters, except the following:

• Earthquakes
• Flooding (either by rain or overflowing water bodies)
• Landslides or mudslides
• Nuclear accidents or acts of war
• Sinkholes
• Homeowner neglect

HO-4 Insurance

Also commonly called renter’s insurance or contents broad form insurance, HO-4 policies are designed for people who rent their home instead of owning it. This can be applied to condos, apartments, or rented houses and usually protects everything except the same named incidences as an HO-3 policy. Renter’s insurance generally covers:

• Personal property, usually (but not always) valued at its replacement cost
• Living expenses if your rented dwelling becomes uninhabitable due to a named peril

If it’s important to you that your personal property be valued at its replacement cost, be sure to read through coverage information before purchasing a policy. Each insurance provider and policy can vary.

HO-5 Insurance

Also known as comprehensive form insurance, HO-5 policies generally provide the highest coverage for single-family homes. This type of policy usually covers your home and its contents at their replacement value. Since personal belongings are typically covered at higher amounts, this is an ideal policy if you own any high-value items.

Both your home and personal belongings are usually protected during any event or disaster except:

• Earthquakes
• Flooding (either by rain or overflowing water bodies)
• Landslides or mudslides
• Nuclear accidents or acts of war
• Sinkholes
• Homeowner neglect

HO-6 Insurance

Also known as unit-owners form insurance, HO-6 policies are best for someone who lives in either a co-op or condominium. The building you live in will generally hold an HOA insurance policy, which usually covers the building and any shared areas. HO-6 insurance provides coverage for your specific unit and personal property, including:

• Any necessary renovations or improvements you’ve made since the purchase
• The interior walls, ceiling, and floor of the unit (but generally not exterior walls)
• Your furniture, clothing, and appliances
• Personal liability if someone is injured in your home
• Living expenses if your unit becomes uninhabitable due to an accident or disaster

HO-7 Insurance

HO-7 policies are also known as mobile home form insurance. They offer everything included in an HO-3 policy, but for a mobile home. However, it’s crucial to understand these coverages only apply while the mobile home is stationary, not if it’s damaged in transit.

HO-8 Insurance

Also called modified form insurance, an HO-8 policy is designed to cover homes that wouldn’t otherwise be eligible for coverage because of their high risk. This policy covers the same named perils as an HO-1 policy and is usually used for:

• Older homes
• Homes with damaged roofs
• Homes constructed with aluminum wiring
• Homes or buildings with seriously outdated plumbing

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Who Needs Homeowners Insurance?

Anyone who owns a home needs homeowners insurance. In fact, many mortgage companies require you to carry this insurance for the duration of your home loan.

Who Doesn’t Need Homeowners Insurance?

In some situations, you might choose not to carry a homeowners insurance policy. For example, if you rent your home, renter’s insurance is similar to homeowners insurance but isn’t exactly the same. Also, if you rent your building to a tenant, landlord policies cover structural damage and injury liability. Finally, if you own your home outright and don’t mind being responsible for repairing damage without assistance, you don’t have to carry a homeowners insurance policy.

How Much Insurance Do You Need for Your Home?

You should have enough insurance coverage to replace your home in a disaster that causes it to be deemed a total loss. You also want to have enough personal property coverage to replace all the items inside your home. To ensure you have enough coverage, take a complete inventory of your belongings and get a home appraisal if you haven’t had one recently.

How Much Does Homeowners Insurance Cost?

According to the 2021 National Association of Insurance Commissioners report, homeowners insurance costs, on average, a little over $100 a month or just over $1,200 annually. Many factors can affect your rates, including your location, home value, and the type of policy.

Where Can You Get a Quote for Homeowners Insurance?

You can get a quote for homeowners insurance online or over the phone. Most major insurance companies (like Geico, Progressive, and State Farm) offer homeowners insurance policies.

Key Takeaways About Homeowners Insurance

Homeowners insurance helps protect your home, property, and belongings in an accident or disaster, and the peace of mind you receive is well worth the costs. Most people need a homeowner’s insurance policy, but there are a few exceptions to this rule. Since different types of homeowners insurance policies cover different things, it’s important to read your insurance documents in detail to understand your true coverage.

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Frequently Asked Questions

What does homeowners insurance cover?

A standard HO-3 homeowners policy covers six main areas: (1) dwelling (the structure of your home), (2) other structures (detached garage, shed, fence), (3) personal property (furniture, electronics, clothing - usually 50-75 percent of dwelling coverage), (4) loss of use / additional living expenses (hotel and meals if your home is uninhabitable), (5) personal liability (lawsuits from accidents on your property), and (6) medical payments (small medical bills for guests injured on your property).

What is NOT covered by homeowners insurance?

Homeowners insurance does NOT cover flood (requires separate NFIP or private flood policy), earthquake (requires separate rider in most states), normal wear and tear, intentional damage, business activities on the property (need a business rider), expensive jewelry above sublimits (need a scheduled personal property endorsement), and damage from pests, mold, or sewer backup (sewer backup is often a cheap optional rider).

How much homeowners insurance do I need?

Your dwelling coverage should equal the REPLACEMENT COST to rebuild your home from scratch at current construction prices, NOT the market value or your mortgage balance. Replacement cost typically ranges from $100 to $300 per square foot depending on region and home style. Personal property coverage is typically 50 to 75 percent of dwelling. Liability coverage of $300,000 to $500,000 is the recommended baseline.

How much does homeowners insurance cost?

The average U.S. premium for $300,000 dwelling coverage is $1,754 per year as of 2024, per the NAIC. Premiums vary widely by state (highest: Florida, Louisiana, Oklahoma; lowest: Hawaii, Vermont, Utah), home age (older homes cost more), construction (brick costs less than frame), distance to coast and fault lines, claims history (one claim can raise rates 10 to 20 percent), and credit score in states that allow credit-based rating.

Does homeowners insurance cover flood damage?

No. Homeowners insurance specifically excludes flood damage (defined as rising water from outside the home). For flood coverage, you need a separate policy through the National Flood Insurance Program (NFIP) or a private flood insurance carrier. Average NFIP premium is $786 per year as of 2024. According to FEMA, about 1 in 4 flood claims occur in low-to-moderate-risk areas.

What is the difference between replacement cost and actual cash value?

Replacement Cost Value (RCV) pays the cost to rebuild or replace damaged property at current prices, without depreciation. Actual Cash Value (ACV) pays replacement cost minus depreciation, which can be 30 to 70 percent less for older items. RCV is significantly more valuable and adds only 5 to 15 percent to premiums. Always choose replacement cost on dwelling and personal property. RCV is the industry standard for HO-3 policies.

How does the deductible work on homeowners insurance?

The deductible is the amount you pay out of pocket before insurance kicks in for a covered loss. Most homeowners policies have a flat deductible ($500 to $5,000) plus a separate windstorm/hurricane deductible in coastal states (often 1 to 5 percent of dwelling coverage). Raising your deductible from $500 to $1,500 typically saves 15 to 25 percent on premiums. Choose a deductible you can comfortably pay in cash.

Will my premiums go up if I file a claim?

Yes, usually. According to industry studies, a single homeowners claim raises premiums by 10 to 20 percent for 3 to 5 years. Multiple claims can result in non-renewal at the next policy term. For small losses (especially under $1,000 above your deductible), it is often financially smarter to pay out of pocket rather than file a claim. Some carriers offer "claims-free discounts" of 10 to 20 percent for 3+ years claim-free.

What is loss of use coverage?

Loss of use coverage (also called Additional Living Expenses or Coverage D) pays the extra costs of living elsewhere while your home is being repaired after a covered loss. This includes hotel bills, restaurant meals, laundry, and pet boarding above and beyond your normal expenses. Typical limit is 20 to 30 percent of dwelling coverage. The coverage applies for as long as it reasonably takes to repair the home.

Do I need homeowners insurance if my home is paid off?

Technically no - homeowners insurance is required by mortgage lenders, not by law. However, going without coverage means you are personally on the hook for the full cost of rebuilding your home if it is destroyed by fire, storm, or other covered peril. For most homeowners, the average $1,754 per year is far better than the $300,000+ replacement cost. Self-insurance only makes sense for very wealthy owners with large liquid reserves.

How can I lower my homeowners insurance premiums?

Effective ways to lower premiums: (1) shop around every 12 to 24 months (rates vary 20 to 40 percent across carriers), (2) bundle with auto insurance for 5 to 25 percent savings, (3) raise the deductible from $500 to $1,500, (4) install a security system or smart-home water/fire monitoring, (5) update the roof, electrical, and plumbing systems (10 to 20 percent savings for major updates), (6) ask about claims-free, retiree, and new-home discounts, (7) maintain good credit in states that allow credit-based rating.

What is the best homeowners insurance company?

The best homeowners carrier depends on home location and risk profile. For overall claims service: USAA (military-affiliated), Amica, and Erie. For competitive rates: Allstate, State Farm, and Travelers. For high-value homes: Chubb, AIG Private Client, and PURE. For coastal Florida and Gulf Coast: Citizens, Heritage, and Universal North America. Always compare 3 to 5 quotes; the rate difference for identical coverage often exceeds $500 per year.