What is homeowners insurance?

A rundown of what homeowners insurance is, how much it costs, how it works, and how to buy a policy that is both affordable and right for your home.

Pat Howard 1600

Pat Howard

Published August 24, 2018

Homeowners insurance provides invaluable financial protection for your home, your personal valuables, and your assets. But homeowners insurance is complex and can raise all sorts of questions. Not sure where to start and feeling overwhelmed? Luckily, you’ve come to the right place.

In this guide:

Understanding homeowners insurance

A standard homeowners insurance policy covers your home and personal possessions in the event of damage or a break-in. In addition, home insurance reimburses you for additional living expenses if a covered loss forces you from your home and you have to live somewhere else temporarily. If a guest accidentally slips and injures themselves in your home and sues you for your entire net worth, that’s covered too.

Whether you own a split-level, a mansion, a condo, or a DIY tiny house, you should buy homeowners insurance to protect your residence and whatever is inside.

As many as 63.9% of homes in the United States are owner-occupied, and 95% of those homes have homeowners insurance, according to the Insurance Information Institute.

Get more homeowners insurance statistics here

How much does homeowners insurance cost?

The average homeowners insurance premium was $1,192 annually (around $100 a month) as of 2016, according to the latest figures provided by the National Association of Insurance Commissioners (NAIC). Here is a state-by-state breakdown:

StateAverage annual home insurance premiumStateAverage annual home insurance premium
Alabama$1,386Montana$1,130
Alaska$974Nebraska$1,402
Arizona$803Nevada$742
Arkansas$1,348New Hampshire$965
California$1,000New Jersey$1,174
Colorado$1,446New Mexico$996
Connecticut$1,455New York$1,309
Delaware$816North Carolina$1,098
D.C.$1,225North Dakota$1,239
Florida$1,918Ohio$850
Georgia$1,200Oklahoma$1,875
Hawaii$1,026Oregon$659
Idaho$703Pennsylvania$927
Illinois$1,042Rhode Island$1,496
Indiana$1,003South Carolina$1,285
Iowa$945South Dakota$1,125
Kansas$1,548Tennessee$1,185
Kentucky$1,085Texas$1,937
Louisiana$1,967Utah$664
Maine$866Vermont$898
Maryland$1,022Virginia$966
Massachusetts$1,451Washington$822
Michigan$952West Virginia$917
Minnesota$1,340Wisconsin$762
Mississippi$1,525Wyoming$1,120
Missouri$1,280

Check out our primer on the cost of homeowners insurance for a deeper dive into what drives your rates

Is homeowners insurance required?

Before closing on your mortgage, most lenders will stipulate that you purchase “hazard insurance” (which is another way of saying homeowners insurance) and that you keep your home insured throughout the duration of the mortgage.

However, homeowners insurance isn’t required by law like car insurance is, so if you’ve paid off your mortgage and you own the home outright, you don’t need to have homeowners insurance (but you should keep your home insured anyway to keep your home and personal belongings protected).

Read more about homeowners insurance requirements here

What are the best homeowners insurance companies?

Take a look at our list of the best homeowners insurance companies of 2019, which we put together based on a number of factors, including, but not limited to:

  • Financial stability
  • Customer service
  • Claims satisfaction
  • Coverage quality
  • Policy value

HOMEOWNERS INSURANCE COMPANIESJ.D. POWER HOMEOWNERS INSURANCE RATINGA.M. BEST RATINGMARKET SHARE
AIG3/5A1.17%
Allstate3/5A+8.37%
Amica5/5A+0.92%
Chubb3/5A++2.87%
Erie5/5A+1.70%
Farmers2/5A5.87%
GeicoN/AA++N/A
Hartford3/5A+1.00%
HippoN/AA-N/A
Kemper PreferredN/AA-N/A
Liberty Mutual3/5A6.74%
Metlife3/5A1.12%
¨C25C3/5A+3.23%
Pacific SpecialtyN/AA-N/A
¨C26CN/AA+1.42%
¨C27C3/5AN/A
State Farm4/5A18.42%
¨C28CN/AA-N/A
¨C29CN/AA-N/A
¨C30CN/AA-N/A
¨C31C3/5A++3.82%
¨C32CN/AA++6.25%
Market share data courtesy of the National Association of Insurance Commissioners.

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The easy way to buy affordable homeowners insurance

Let our experts guide you toward the best homeowners insurance plan for you, your family, and your home.

How do you buy homeowners insurance?

There are numerous paths you can take to get the home insurance coverage you need. But whether you buy online, over the phone, or you make the trip to your local insurance broker’s office, you should do your homework to get the most robust and affordable coverage possible. Taking the following steps will also save you time.

Prior to shopping

Get a replacement cost estimate of your home from a certified appraiser. Whatever rebuild price is calculated will help set your home’s dwelling coverage limit, which is the core of your home insurance policy. (Keep in mind that the home’s replacement cost isn’t the same as its market value or the amount it cost to build 20 years ago; your dwelling limit should reflect the rebuild cost at current prices for construction materials and labor.) Additionally, be sure to make an inventory of your personal belongings, paying special attention to expensive or rare valuables — you may need additional coverage for those. Lastly, combine your total assets to determine how much liability coverage you’ll need.

Be sure to shop around

Make sure you’re getting home insurance quotes from multiple companies and comparing everything they have to offer — from cost to coverage quality to whether they offer certain high-value discounts like a home and auto insurance bundle. You’ll also need to determine whether you need any additional protection not included in a standard policy, like flood or earthquake coverage.

Don’t automatically sign on the dotted line

Make sure you dot the I’s and cross the T’s first. You’re doing your part by paying premiums and deductibles, so you’ll want to make sure the company follows through and does theirs as well. Research the company’s business holdings and financial liquidity and check out those customer reviews as well. If the company isn’t the most financially stable and has bad customer service ratings, they may be more likely to deny your insurance claim when you need it most.

Check for discounts

This can be as easy as taking a higher deductible and lowering your premiums or informing your agent about your home’s security system or weather repellent windows. Having good credit and belonging to a homeowners association is another way to make your home insurance more affordable.

Sign up!

Once all the boxes are checked and you find a plan that works for you, sign on that dotted line, pay your first premium, and relish in the comfort of knowing you and your stuff are covered.

Check out our full homeowners insurance shopping guide here

What does homeowners insurance cover?

Homeowners insurance covers your house, personal property, and liability; it also reimburses you for additional living expenses if you’re forced to move out of your house while it’s being repaired. Keep in mind that you’ll only be covered if the cause of damage is a covered peril in your policy. Common perils that are covered by homeowners insurance are lightning damage, house fires, wind damage, and theft.

There are two basic types of home insurance that determine how comprehensive your coverage is.

  • Named peril policies - Only covers hazards that are specifically named in your policy. The two most minimal types of home insurance — HO-1 and HO-2 policies — are named peril homeowners insurance. Additionally, your personal property in a standard HO-3 policy is only covered by named perils
  • Open peril policies - Covers everything except the hazards specifically listed in your policy. Dwelling coverage in a standard HO-3 policy (which account for most homeowners policies) has open peril protection

In addition to covering your personal belongings, your home insurance also covers the belongings of your spouse or any blood relatives who live with you. If an unmarried partner moves in, you’ll need to talk to your insurer and see if they’ll add an additional insured to your policy. If you’re having a hard time finding a multi-person policy, talk to a licensed agent at Policygenius who can point you in the right direction.

Read more about what is covered by homeowners insurance here

What does homeowners insurance not cover?

There are certain perils that a standard homeowners insurance policy won’t cover unless you add additional coverage to your policy or get a separate standalone policy. Examples of perils that aren’t covered include:

Need flood insurance but don’t know where to begin? Read our handy flood insurance explainer here

What components make up a homeowners insurance policy?

Curious about all the different ways you’re covered? We’ve broken down the core components of a homeowners insurance policy.

Dwelling coverage

  • Covers your home if it’s damaged or destroyed by a covered peril
  • Your coverage limit should be enough to cover a full rebuild

Other structures coverage

  • Covers any structures that aren’t the house itself, like garden sheds and garages
  • Typically 10% of your dwelling coverage amount

Personal property coverage

  • Protects your personal belongings if they’re stolen or damaged by a covered peril
  • Covers items that you borrow if they’re stolen or damaged by a covered peril
  • Typically 50% of your dwelling coverage amount

Loss-of-use coverage

  • Covers your additional living expenses while your home is being repaired or replaced due to damage by a covered peril
  • Covers relocation costs, temporary living costs, increased food costs and a number of other expenses you incur while on the road
  • Typically 20% of your dwelling coverage amount

Liability coverage

  • Covers your liability expenses if you’re held legally responsible for someone else’s injuries or personal property damage
  • Your liability coverage amounts should be enough to cover all of your assets
  • You can generally choose anywhere from $100,000 to $500,000 in coverage

Medical payments coverage

  • Pays for guests’ medical expenses if they’re injured in your home
  • This coverage is often used as a goodwill gesture to deter the injured party from suing
  • You can generally choose anywhere from $1,000 to $10,000 in coverage

Additional coverages

  • Also known as coverage endorsements, these are additional coverages that you can add on to your homeowners policy
  • Common coverages include water backup coverage, personal property replacement cost coverage, scheduled personal property coverage, ordinance or law coverage, earthquake coverage, and more

Curious what’s included in a homeowners insurance policy? Look no further than this handy guide

How do you file a homeowners insurance claim?

In the event of storm damage, theft, or a natural disaster, it's important to understand the proper procedures and what you need to do when submitting a home insurance claim.

Report any crime to the police

If you were the victim of theft or your house was vandalized, report it to the police immediately. Get a police report and names of every officer you spoke with – this will be helpful for your insurer and move your claim process along smoothly.

Call your insurer immediately

Call your agent or claims department of your insurance company and use the opportunity to ask questions. See if you’re covered, if your claim will exceed your deductible (if this is the case, you probably don’t want to file the claim), if it’s worth filing a claim, how long it will take for it to be processed, and if there are any estimates you should obtain for repairs to structural damage.

Fill out your claim forms

Once you’ve determined that you’re making a claim, your company will instruct you to fill out forms on their website, or they’ll send you the necessary paperwork. Return the forms promptly after filling out every section to the best of your knowledge.

Welcome the claims inspector

Most claims will require a visit from a claims inspector, who will visit your home to survey the damage and determine how much the insurance company should pay for the loss. Expect an interview process, but not detective-like questioning. These people are trying to help you, not implicate you.

Cash that check

The claims adjuster may cut you a check on the spot, or they may have it mailed to you at a later date. Either way, you’ll get your money if your claim is approved — and state laws require that you get it promptly.

Learn more about the home insurance claim process here

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.