Homeowners Insurance Guide

If you own a home, homeowners insurance is a necessity. This is especially true if you have a mortgage, as many home loans require you to carry insurance on your property. However, not everyone has a comprehensive understanding of this necessary insurance.
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Homeowners Insurance Guide

Written by Brian Greenberg

Last updated: November 24th, 2022

Reviewed by Rebecca Thrift

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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