Homeowners Insurance

Homeowners Insurance: Basics and What You Need to Know

Key takeaways
* Homeowners insurance protects the structure of your home, other on‑site structures, personal property, and provides liability coverage for injuries or damage you or household members cause.
* Standard policies usually exclude flood and earthquake damage; separate policies or endorsements are needed for those perils.
* Premiums vary widely by location, coverage limits, home condition and claims history; the U.S. national average is roughly $1,300 per year.
* Homeowners insurance protects you; mortgage (private mortgage) insurance protects the lender; a home warranty covers repairs to systems and appliances.

What homeowners insurance covers
Homeowners insurance typically includes several main coverages:
* Dwelling coverage — repairs or rebuilding of the home’s structure from covered perils (fire, lightning, wind, vandalism).
* Other structures — detached garages, sheds, fences.
* Personal property — furniture, clothing and other belongings (often subject to sublimits for valuables).
* Liability — legal and medical costs if someone is injured on your property or you damage someone else’s property.
* Additional living expenses (ALE) — temporary housing and related costs if your home is uninhabitable while being repaired.

How claims are paid: deductibles and valuation
* Deductible: You pay the deductible amount before insurance benefits are paid. Higher deductibles generally lower premiums.
* Valuation methods:
* Replacement cost — pays to repair or replace property without deduction for depreciation (if your policy includes replacement-cost coverage).
* Actual cash value (ACV) — replacement cost minus depreciation; results in a lower payment.
* Recoverable depreciation endorsement: If included, you may receive depreciation up front or recover it after repairs are completed.

Common exclusions and when you need extra coverage
* Floods and earthquakes are typically excluded from standard homeowners policies and require separate flood or earthquake insurance.
* Many policies exclude long-term wear and tear, gradual water damage, and some mold-related losses.
* Special coverages or endorsements may be needed for high-value items (jewelry, art), sewer backup, wind/hurricane damage, or higher limits for personal property.
* In high-risk areas, state FAIR plans or catastrophe-specific programs can provide basic structural coverage when private insurers won’t.

Liability limits and umbrella insurance
* Standard liability limits often start at $100,000 but can be increased.
* Umbrella insurance supplements homeowners liability coverage and is recommended if you have significant assets or elevated liability exposure.

Why lenders require homeowners insurance
* Lenders typically require proof of homeowners insurance before funding a mortgage to protect the collateral.
* Premiums may be paid through an escrow account as part of monthly mortgage payments; if you don’t maintain coverage, a lender may force-place insurance at a higher cost.

How homeowners insurance differs from other protections
* Home warranty — a service contract covering repair or replacement of appliances and home systems due to normal wear and tear (not the same as insurance).
* Mortgage insurance — protects the lender if a borrower defaults; required when down payments are below lender thresholds (often 20%).

Typical cost factors
Premiums depend on:
* Location and local risk (crime, weather events, proximity to coast or flood zones).
* Replacement cost of the home and chosen coverage limits.
* Age, construction, and condition of the home.
* Your claims history and credit-based insurance score (where allowed).
* Deductible amount and any discounts (bundling, security systems, claims-free).

Practical tips for buying and saving
* Compare multiple quotes and verify coverage details — identical policy names may vary by insurer.
* Review replacement-cost limits and consider endorsement for guaranteed replacement cost if available.
* Increase your deductible to lower premiums, if you can afford the out‑of‑pocket cost in a claim.
* Bundle home and auto policies for multi-policy discounts.
* Maintain and upgrade home systems (roof, wiring, plumbing) to reduce risk-based surcharges.
* Add riders for high‑value items rather than relying on standard personal property limits.
* Consider flood or earthquake insurance if you live in prone areas; lender requirements may also dictate coverage.

Special situations
* Second homes and vacation properties often require different coverage and may have different rates.
* Vacant homes typically need vacancy or vacant‑home insurance because standard policies may deny coverage for unoccupied properties.
* Short‑term rentals (Airbnb) may not be covered under a standard policy; look for host/rental endorsements or separate short‑term rental insurance.

Bottom line
Homeowners insurance is essential for protecting your home, belongings, and financial liability. Because coverages, exclusions, and pricing vary by insurer and location, compare policies carefully, verify limits and exclusions, and add endorsements as needed for flood, earthquake, high‑value items, or rental use. Regularly review your policy as home value and circumstances change.