What homeowners insurance covers
Homeowners insurance is not required by state law, but nearly every mortgage lender requires it. A standard policy combines several coverages. According to the Insurance Information Institute (Triple-I), they typically work like this:
- Dwelling pays to repair or rebuild the house after covered perils such as fire, lightning, windstorm or hail.
- Other structures covers a detached garage, shed or fence, generally for about 10 percent of the dwelling limit.
- Personal property covers furniture, clothing and other belongings, generally 50 to 70 percent of the dwelling limit, including items away from home.
- Liability pays legal defense and damages if you or your family injure someone or damage their property; most policies start at $100,000.
- Additional living expenses pay for a hotel, meals and other extra costs while your home is being repaired; many policies offer about 20 percent of the dwelling limit.
Policy forms
Triple-I notes that the HO-3 is the most popular homeowners form. It covers the house against all risks except those specifically excluded, and covers belongings against a list of named perils. Other common forms include the HO-5, which extends open-perils protection to belongings, the HO-6 for condominium owners and the HO-4 for renters. Valuables such as jewelry, art and collectibles have dollar limits for theft, so many owners add a scheduled personal property endorsement, or floater.
What is excluded
A standard policy does not cover flood, earthquake, routine wear and tear or damage caused by poor maintenance. Sewer and drain backup is also excluded unless you add an endorsement, and it is not covered by flood insurance either. Flood coverage is sold separately through the National Flood Insurance Program (NFIP) or private insurers. FEMA states that NFIP policies usually take effect after a 30-day waiting period, and the program's residential limits are $250,000 for the building and $100,000 for contents. Earthquake coverage is available as a separate policy or endorsement.
Replacement cost or actual cash value
How a claim is paid matters as much as the limit. Actual cash value pays what damaged property was worth after depreciation. Replacement cost pays to repair or replace it with new items of similar kind and quality. Extended or guaranteed replacement cost endorsements add a cushion above the dwelling limit when construction costs rise after a disaster.
What drives the price
Premiums depend on the cost to rebuild, construction type, roof age and material, distance to a fire station and hydrant, local weather and wildfire risk, claims history, deductibles and, in states that allow it, credit-based insurance scores. Protective devices, a newer roof and bundling with auto insurance can lower the cost. In coastal states, a separate percentage deductible for hurricane or wind damage often applies.
How to choose coverage
Insure the dwelling for what it would cost to rebuild, which can differ sharply from the home's market value. Take a room-by-room inventory to size personal property coverage, consider liability limits of at least several hundred thousand dollars, and add an umbrella policy if your assets are larger. Ask about water backup, ordinance or law coverage for code upgrades, and equipment breakdown. For a quick estimate, use our home insurance calculator.
How claims work and state differences
After a loss, prevent further damage, photograph everything, keep receipts for emergency repairs and temporary housing, and report the claim quickly. An adjuster inspects the damage and the insurer pays according to your limits, deductible and valuation method; mortgage lenders are often named on large dwelling checks. Rules vary by state: coastal states set hurricane deductible rules, and many states operate FAIR plans or similar programs as insurers of last resort when private coverage is hard to find.
Polis Re helps you compare homeowners insurers and policy options and request quotes in one place. Policies are issued by licensed insurers and placed through licensed producers in your state.
