Your house and all the valuables inside add up to a big investment. Homeowners insurance is an essential safety net to protect that investment, so you want a quality company. We evaluated large insurers to find the best home insurance.
What Is Homeowners Insurance?
Homeowners insurance is a mix of coverage types that protect your investment in your home. It covers the dwelling (house), other structures such as fences, and personal belongings from accidents and problems, such as house fires and theft.
Homeowners insurance also provides liability coverage, which pays for property damage and injuries that members of your household cause to others. Liability coverage also pays for a legal defense and settlements if you are sued for an injury or property damage.
A standard home insurance policy includes additional living expenses (ALE) coverage, which pays for extra costs if you can’t live at home because of damage that’s covered by the policy. Extra expenses could include hotel lodging, restaurant bills and other services (such as pet boarding).
What Does Home Insurance Cover?
Home insurance covers your house, other structures on your property like barns and fences, and your belongings. It also provides liability protection and coverage for additional living expenses if you’re forced out of your home due to damage.
A standard home insurance policy contains these valuable coverage types.
The dwelling section of a home insurance policy covers your house structure. The dwelling coverage amount should reflect the cost to rebuild the house based on the construction and labor costs in your area. Dwelling coverage is not based on the real estate market value of your home.
There’s related coverage for other structures such as a fence or unattached garage.
Personal property coverage
Personal property coverage pays to repair or replace your personal belongings if they are damaged or destroyed. This encompasses furniture, clothes, kitchenware, house decor such as curtains and everything you have packed away in boxes in your basement or attic.
The coverage amount for personal property is usually set between 50% to 70% of the dwelling coverage amount. For example, if your dwelling is insured for $250,000 and your contents coverage is set at 50%, you’ll have $125,000 in contents coverage. You can buy more personal property coverage if you need it.
While it’s easy to focus on the material items like your house and belongings, homeowners insurance includes crucial coverage for liability.
This liability insurance pays for injuries and property damage accidentally caused by you to others. For example, if a guest trips on your sidewalk and gets hurt, liability insurance can pay their medical bills. Liability insurance also pays for a lawsuit judgment if you’re sued, and your legal defense costs.
If your liability insurance is inadequate, you could be on the hook for any amount over the policy limits. For the best homeowners insurance, a general rule of thumb is to buy enough liability insurance to cover your net worth, or what can be taken from you in a lawsuit.
Umbrella insurance is an inexpensive way to add more liability insurance.
Additional living expenses coverage
Also known as “loss of use,” additional living expenses coverage can pay for extra expenses like hotel bills, restaurant meals and pet boarding if you can’t live at home while it’s being repaired due to damage covered by the policy.
The amount you have for additional living expenses coverage is typically set at a percentage of your dwelling coverage amount, but you can buy more if you don’t think it’s enough.
Many Homeowners Don’t Know They Already Have Coverage
Many homeowners misunderstand their home insurance coverage. This includes a large portion who don’t know that they already have coverage for common problems, according to a survey by Forbes Advisor. For example:
- 40% of homeowners didn’t know that water damage from a burst pipe is covered by a standard home insurance policy.
- 61% didn’t know that damage from a wildfire is covered.
When homeowners don’t know what’s covered, they may not make insurance claims for damage they’re entitled to get compensation for.
What do you believe would be covered by a typical homeowners insurance policy?
|Cause of damage||% of homeowners who say it’s covered||Is it actually covered?|
|Burst pipe by washing machine||60%||Yes|
|Falling satellite debris from the sky||33%||Yes|
|None of the above||2%||n/a|
|Source: Forbes Advisor survey of 2,000 homeowners, conducted May 16-18, 2022|
Other Home Insurance Considerations
- “Schedule” high-value items. Certain types of items, such as jewelry, have “sub-limits,” meaning your insurance company will only pay up to a certain amount for those items. For example, a standard home insurance policy usually has a $1,500 sub-limit for theft of jewelry. To properly insure valuable items, consider “scheduling” them. When you schedule personal property you insure items separately for their full value, and the coverage in your home insurance policy can then be used for everything else, such as clothes, rugs and kitchenware.
- Consider getting replacement cost instead of actual cash value (ACV) coverage. Replacement cost pays to replace an item with a brand-new version, whereas ACV reimburses you for an item’s depreciated amount. Have a five-year-old TV that was destroyed in a fire? Then you would be reimbursed for a five-year-old TV under ACV coverage. Choose replacement cost coverage if you’re looking for the best homeowners insurance.
- Buy endorsements that fill specific gaps. Endorsements are add-ons. They are a good way to tailor your home insurance policy and fill in any coverage gaps. For example, some insurance companies sell increased coverage for landscaping, home systems breakdown, and water backup and sump overflow.
- Buy additional insurance for certain natural disasters. Even the best homeowners insurance plans can unravel if certain natural disasters hit, such as floods, earthquakes and landslides. These problems aren’t covered by standard home insurance. They require special policies such as flood insurance and earthquake insurance.
What Does Home Insurance Not Cover?
A standard home insurance policy excludes several types of problems, such as:
- Ordinance or law, such as a government requirement to demolish, repair or rebuild your home to meet local ordinances
- Earth movement, including earthquakes, landslides and sinkholes
- Water damage, including floods and water backup from sewers and drains
- Power failure
- Neglect, such as a failure to maintain heat
- Nuclear hazard
- Intentional loss
- Government action, such as a seizure of property
- Wear and tear
- Smog, dry rot, rust or other corrosion
- Discharge, migration, seepage, escape or release of pollutants
- Smoke from agricultural or industrial operations
- Mechanical breakdown or a latent defect that causes property damage
- Shrinking, settling, expansion or bulging of bulkheads, pavement, footings, foundations, patios, walls, floors, roofs and ceilings
- Vermin, rodents, birds or insects
- Damage caused by an animal you own
Types of Homeowners Insurance Policies
Whether you rent or own, live in a condominium, mobile home or single-family house, there’s are types of home insurance designed to match your living situation.
- HO-1: This bare-bones policy usually covers only your house for 10 “perils,” or problems. It’s not sold in many states and if you have a mortgage, you’re likely required to have a better home insurance policy.
- HO-2: This type of home insurance includes coverage for your house and other structures on your property, your belongings, liability insurance, additional living expenses and medical payments. However, coverage for your house and belongings is only for specific perils, or problems, such as fire.
- HO-3: The most common type of home insurance policy, the HO-3 covers your house and other structures, as well as your possessions. It also includes liability insurance, additional living expenses and medical payments coverage. Unlike an HO-2, it covers damage to your house from all perils unless they are specifically listed as exclusions, such as floods. Your personal property is covered for 16 types of problems, such as theft and fire.
- HO-4: Known as renters insurance, an HO-4 covers your belongings, and includes coverage for liability and additional living expenses.
- HO-5: This type of policy covers your home and belongings under all circumstances except problems specifically listed as exclusions. An HO-5 policy offers the highest level of protection for houses and belongings.
- HO-6: An HO-6 is home insurance for people who live in condominiums. It covers walls, floors and ceilings of your unit and what you own that’s in it, and includes coverage for liability, additional living expenses and medical payments.
- HO-7: This policy is similar to an HO-3, but is for mobile homes.
- HO-8: An HO-8 is designed for older and historic homes, which usually have a rebuilding cost that’s higher than the market value of the house. It includes coverage for the house and its contents for 10 specific problems.
How to Find the Best Homeowners Insurance Policy
Your home and all of your stuff is a big investment, so naturally you don’t want to go with a company just because you see a commercial on TV. Here are some tips to help you get started on your shopping journey.
Determine How Much Coverage You Need
The key to figuring out how much home insurance you need is to look at each standard coverage type and adjust the amounts to fit your specific needs, then add extra coverage to plug any gaps. Here’s what that might look like:
- Dwelling coverage. Since the cost to replace your home and other structures could vary depending on local construction and material costs, it’s difficult to come up with a number on your own. Your insurance agent can help provide an estimate. It’s a good idea to add extra coverage like extended or guaranteed replacement cost coverage, if it’s available, to help account for possible surges in local construction costs, especially if your area is prone to natural disasters.
- Contents coverage. A good way to calculate how much coverage you need for all your stuff is by creating a home inventory. It’s a good idea to have “replacement cost” coverage in your home insurance policy, which pays the cost for new items. Actual cash value only pays the depreciated value of your damaged items.
- Liability coverage. You want to buy enough liability coverage to cover what can be taken from you in a lawsuit, like your savings.
- Additional living expenses (ALE) coverage. ALE coverage is typically set at a percentage of your dwelling coverage, such as 20%. But if you need more, you can increase your loss of use coverage. This pays the extra costs if you can’t live at home due to damage.
- Other coverage types. You can fill gaps in a policy with coverage types such as flood insurance, earthquake insurance, water and sump overflow and home systems breakdown coverage.
Compare Home Insurance Quotes
Once you know how much coverage you need, you can start shopping around. It’s important to compare home insurance quotes from multiple insurers because rates can vary considerably for the same coverage.
You can get free home insurance quotes:
- Online. You can get them from an insurer’s website or by visiting a website that specializes in providing multiple quotes at once.
- Insurance agent. An independent insurance agent can get quotes from multiple companies. A “captive” insurance agent only works for one company.
Home Insurance Discounts
Make sure you ask about discounts. Here are some common types to look for:
- New or renovated home discount. This is a price break that often requires upgraded wiring and plumbing.
- Safety and security discounts. Having fire safety devices (such as smoke alarms and sprinklers) and security devices (such as burglar alarms and deadbolts on exterior doors) often leads to a discount.
- Roof age discount. If you have a newer roof your insurer might lower your rate.
- Disaster preparedness discount. Ask about this discount if you take steps to safeguard your home against natural disasters, such as installing storm shutters and shatterproof glass if you live in a hurricane-prone area.
- Multi-policy discount. This discount is frequently available if you buy more than one type of policy from the same insurance company, such as auto, RV and motorcycle insurance. Bundling auto and home insurance is typically one of the best discounts you can get.
- Multi-home discount. If you need to insure more than one home, find out the discount if you insure them with the same company.
- Claim-free discount. Ask about a price break when you don’t have a recent history of insurance claims.
- Insurance payment discounts. You can often get small discounts for going paperless and paying your premium in full.
- Employment, organization and association discounts. Depending on your occupation (such as educators) or if you are a member of a union, professional organization or alumni association, your insurer might have an affiliation discount.
How Much is Homeowners Insurance?
Forbes Advisor found a national average of $1,854 a year for homeowners insurance for a house insured for $300,000.
What Factors Affect Homeowners Insurance Rates?
Home insurance cost will vary depending on several factors, such as:
- Where you live
- The cost to rebuild the house
- The materials that make up your house, like wood, stone, stucco and brick
- How close you are to a fire department and water source
- The claims history in your area, such as wildfires and crime rates
- Your personal claims history
- How much coverage you choose
- Your credit (if allowed in your state as a pricing factor)
How to File a Homeowners Insurance Claim
Filing a homeowners insurance claim should be done promptly after the damage or other problem. Here’s a step-by-step process for filing a home insurance claim.
1. Contact police, if necessary
You should file a police report if there’s a theft, vandalism or burglary. You’ll need this documentation for the insurance claims process.
2. Document the loss
Assess the damage, take photos and document the loss. Make a list of any items that were damaged or stolen. The insurance company will want to know specifics.
3. Stop further damage
If your house was damaged, take action to prevent more destruction to your home and belongings. For instance, if you have a hole in your roof or a smashed window, you should board it up to prevent more damage. But don’t fix the problem, such as repairing the roof or installing a new window, before contacting your insurance company. They may want to send an adjuster out to observe the damage.
Also, don’t throw away damaged items, like a rain-soaked chair, until it’s been documented by the insurance adjuster.
4. Notify your insurance company or agent
Contact your home insurance company or agent as soon as you can to report the loss. Insurance companies may demand that you notify them within a certain period after the loss.
Fill out the claims forms as completely as you can.
5. Meet with an adjuster if the insurance company requests it
The adjuster may ask you questions, review the damage and estimate how much you’re owed.
6. Consider a public adjuster for very large home insurance claims
If you have significant damage, consider hiring a public adjuster. This is a person who will work on your behalf to help you get your claim documented and submitted, and help you negotiate with the insurance company. A large claim can take many months to resolve, and a public adjuster can help you maximize your claim and keep the process moving.