Your Guide to Home Insurance Coverage
Your home is so much more than just a roof over your head—it’s the place where you’ll create memories for a lifetime. Chances are, it’s also your most valuable asset. That’s why homeowner’s insurance coverage is crucial for protecting your investment in the face of disaster.
Ready to find affordable home insurance that you can rely on? We’re here to help you do just that. Stay with us as we cover the basics of homeowners insurance coverage, from what it covers to how much it costs.
What is Homeowners Insurance?
Homeowners insurance, also known as home insurance, helps provide financial protection if an event covered under your policy—such as fire or theft—damages or destroys your home or personal items. Homeowners insurance consists of three main purposes:
- Pays to repair your home, yard, and other structures
- Reimburses you for damaged or stolen personal belongings
- Covers personal liability if you’re held legally responsible for damage or injury to someone else.
In some cases you can get additional policies for events not covered by your regular home insurance, such as flooding. Homeowners insurance coverage isn’t required by law, but if you have a mortgage, your lender will likely require you to insure the home to protect its investment. You don’t even have to own your home to need insurance, as many landlords require their tenants to maintain renter’s insurance coverage. Even if you don’t have a mortgage, home insurance is always a wise investment, since it gives you both property and liability coverage.
What Does Homeowners Insurance Cost?
The cost you should expect to pay for homeowners insurance will depend on a number of factors, from coverage type to the features of your home and the value of your personal belongings. There may also be extra costs for additional coverage or increased coverage limits.
However, the average American pays $1,631 for home insurance each year, with an average monthly rate of $136. But home insurance rates are also largely determined by where you live. For example, Hawaii and Delaware paid the lowest annual rates, at $483 and $747 respectively. Meanwhile, Kansas and Oklahoma paid the highest home insurance rates, at an average of $3,644 and $3,548 per year.
Most insurers will consider the following in order to determine your insurance rate:
- What it would cost to rebuild your home
- Your home’s age and condition
- Your claims history and the claims history of others in your neighborhood
- Your coverages, limits and deductible
- Where you live
- Your city’s fire protection rating
- Items that could pose a major injury risk, such as a pool or trampoline
- Your credit score
What Does Homeowners Insurance Cover?
Standard homeowners insurance policies typically include six distinct types of coverage:
- Dwelling: Covers damage to your home as well as attached structures, such as a porch, garage or deck. This coverage can be set at replacement cost or actual cash value, so review your policy details to make sure you have the right coverage for your needs. Average amount: Enough to rebuild your home
- Other structures: Covers stand-alone structures on your property, such as a driveway, guest house, detached garage, fence, or shed. Average amount: 10% of dwelling coverage
- Personal property: Homeowners insurance doesn’t just help cover damage to your home. It may also pay to repair or replace the belongings within it if they are damaged or destroyed by a covered risk, including clothing, furniture and electronics.Many insurers offer optional coverages that may further help protect the stuff you own. For instance, you may be able to purchase extended coverage for belongings that have values above your personal property coverage limits. Average amount: 50% to 70% of dwelling coverage
- Additional living expenses: Helps pay the temporary expenses of living away from home if you cannot live there due to damage from an insured disaster. This may include hotel bills, restaurant meals and other costs, in addition to your usual living expenses, while your home is being repaired or rebuilt. Average amount: 20% of dwelling coverage
- Liability: This protects you from lawsuits filed by others, and it even includes pets. If a visitor to your home is injured (for example, bit by your dog or hurt during a fall on your property), your insurer will pay the associated medical expenses. You may be able to increase your liability coverage limits by adding a personal umbrella policy. Average amount: $1,000 to $5,000
You may also be able to purchase additional coverages for greater protection. For example, most homeowners insurance policies offer coverage for damage caused by fires, lightning strikes, windstorms and hail. But not all natural disasters—such as floods or earthquakes—are covered by homeowners insurance. By purchasing additional coverage, you’ll be able to help protect your home and belongings against those types of risks.
Types of Homeowners Insurance Coverage
Not all home insurance coverage is created equal. Some types provide more expansive coverage than others, so it’s worthwhile to know the difference. Homeowners insurance in the US comes in several types, called “policy forms.” They are designated HO-1 through HO-8 and offer various levels of protection depending on the needs of the homeowner and the type of residence being covered. There are essentially three levels of coverage.
- Actual cash value: This coverage type pays the cost to repair or replace your damaged property, minus a deduction for depreciation (how much the items are currently worth, not how much you paid for them). A standard policy will use this method not for the house itself, but for the personal belongings within the home.
- Replacement cost: This coverage pays for the actual cash value of your home and belongings without the deduction for depreciation. With this type of insurance, you are able to repair or rebuild your home up to its original value.
- Extended replacement cost value: This coverage will pay out more than the face value of your dwelling coverage, up to a specified limit, if that’s what it takes to fix your home. The limit can be a dollar amount or a percentage, such as 20% above your dwelling coverage amount.
- Guaranteed replacement cost value: The most comprehensive, this coverage pays the full cost to repair or replace your home after a covered loss, even if it’s more than your policy limit. However, not all insurance companies offer this level of coverage.
So which level of coverage will you need? It’s always a good idea to get coverage for more than your home is worth, as long as it’s financially feasible for you to do so. Ideally, every homeowner would have enough insurance to cover not just the value of the home, but enough to rebuild it at current industry prices. In this case, a guaranteed replacement value policy would cover the increased replacement costs and give a financial cushion if construction prices increase.
Free Insurance Quotes for a Policy That Fits Your Needs and Budget
We know how overwhelming it can feel when you’re shopping for home insurance. And that’s why we’re here to make the hunt for home insurance coverage easier than ever. We offer the best possible coverage rates to help you and your family stay safe and healthy—while also saving money for your future. Get your free online insurance quote and rest easy knowing that if disaster strikes, your home is protected.
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Autumn Cafiero Giusti is a licensed life and health insurance broker and award-winning journalist with more than 20 years of experience. She writes extensively about flood, Medicare, home, and life insurance for publications like U.S. News and CBS News.
