Homeowners Insurance Buyers Guide 2023

We’re going to say something you may have never considered before: Home insurance is home security.

What do we mean, exactly? Well, just like your alarm system protects you from intruders in the moment, your home insurance will protect you in the event of a burglary or catastrophe after the fact. Your home security system and your homeowners insurance together are what ensures your protections are complete.

How do you know if your policy provides ample protections? Do you know what you’d do if your home burned down or if a burglar made off with your valuables? We’re going to desmisty everything here and help you sleep easier knowing that you’re covered comprehensively.

What Is Homeowners Insurance?

The most simple way to think about it is that homeowners insurance protects you in the event of unforeseen events. This means if there’s a fire, a big storm, a natural disaster, or if someone breaks their leg on your property, your policy should help you get back to baseline by providing the necessary funds for repairs and replacements.

That said, there are events that homeowners insurance will not cover, so it’s important to understand the limitations of your specific policy. And if you feel your standard policy is a little lacking, there’s always the opportunity to purchase add-on coverages to make sure you’re protected comprehensively.

We’re sure you recognize this guy.

But before we start talking about all the ins and outs of home coverage, it might be helpful to answer why you need it in the first place.

Why Do I Need Homeowners Insurance?

You might be thinking — hey, I’m a responsible person. I’m not setting off fireworks in my living room or building a dirt bike trail in the backyard. Why would I need to spend my hard-earned cash to protect something that isn’t really in any danger anyway?

Well, there are two primary reasons you need home insurance:

1. Even if you’re the most careful, risk-averse individual on the planet, there’s still no telling which way the winds will blow. Your home can be damaged or destroyed through absolutely no fault of your own by fire, natural disaster, or any number of other threats. You want to make sure that if something unexpected happens, you’re not going to be on the hook for costly repairs.
2. It’s required by the vast majority of lenders in order to secure a mortgage. Until you’ve paid off your home, you don’t own it, the bank does. They want to make sure their investment is protected, even if you’re not inclined to. If your home is damaged or destroyed, they want to make sure there’s a mechanism by which it can be made whole without relying on the borrower to pony up.

Now, once you own your home outright — meaning you’ve paid off your mortgage in full — you’re no longer obligated to carry homeowners insurance. But I’d again refer you back to reason number one. Your home is a huge investment. It just makes sense to protect it.

How Much Homeowners Insurance Do I Need?

Most of the time your mortgage provider is going to determine the minimum acceptable coverage for your loan. Sometimes you’ll only be required to carry enough insurance to cover the balance of the loan, which can be pretty inexpensive. If that’s the case, you might consider reading our AAA homeowners insurance review. They offer these types of budget-friendly protections.

That said, if you’re only going with bare minimum coverage, you might end up in a really bad spot financially if the worst happens. Sure, you’ll be able to pay off the remainder of your loan, but if your house was flattened by a tornado, you’re going to be free and clear … and homeless. Even if you think it will never happen to you, it’s important to carry enough insurance that you’ll be protected in the event of a major catastrophe.

J.K. Simmons has been a spokesperson for Farmers Insurance for several years.

What does that mean, though? Brass tacks, we recommend securing a policy that will cover the total rebuild cost of your home. This is not the purchase price, either. You’ll want to do some research and see roughly how much it is to build a home per square foot in your area. Take that number and multiply it by your own square footage, and that will give you a rough estimate of how much coverage you’ll need.

Now that you understand what homeowners insurance is, why you need it, and how much of it you need, we’re ready to dig into the specifics.

Are There Different Types of Homeowners Insurance?

There are eight to be exact. Each type serves a specific purpose, and some are more popular than others. Here’s a quick breakdown:

• HO-1: This is the most basic and limited type of policy for a single-family home. There are very few providers that offer HO-1 policies anymore.
• HO-2: These offer slightly more protections than HO-1 policies, but aren’t exactly popular either.
• HO-3: This is the most popular policy type for single-family homes today.
• HO-4: These policies are for renters specifically.
• HO-5: More comprehensive than HO-3 policies, these are the second most popular policy types today.
• HO-6: These policies are specifically for condo owners.
• HO-7: These are policies specifically for mobile or manufactured homes.
• HO-8: This is a special type of policy for very old homes that don’t meet today’s insurer standards.

As you can see, if you’re shopping for a policy for a standard, single-family home, you’re most likely going to be dealing with HO-3 or HO-5 policies. What’s the difference between the two?

The short answer is the extent of the coverage. HO-3 policies cost and cover less, while HO-5 policies cost a little more and are more comprehensive. For example, HO-5 policies insure dwelling and personal property replacement as default, as opposed to the reimbursement HO-3 policies typically offer. HO-5 policies also typically include higher coverage limits to protect expensive items like jewelry, electronics, and collectibles.

Which type of policy do you need? That all depends. Most folks are just fine with HO-3 insurance policies. In fact, the National Association of Insurance Commissioners estimates that about three-quarters of single-family home policies are HO-3. However, if you need to protect your extensive collection of fine furs or make sure you’re covered should a pipe burst in your wine cellar, you might need an HO-5 policy.

So now that we’ve zeroed in on the type of policy you’re likely looking for, let’s take it a step further and discuss what a typical HO-3 policy will — and won’t — cover.

What Does a Typical Homeowners Insurance Policy Cover?

You might think that your homeowner insurance protects exactly that — your home. You’d only be partially right. Even the most standard policies protect beyond your four walls. Here’s what standard plans include:

Your dwelling: This is what most people think of when they hear “homeowners insurance.” The dwelling portion of your policy covers the structure of your home.

Other structures on your property: If you have a fence surrounding your property, a swimming pool, or a detached garage, this section of your policy will protect them. Generally speaking these structures will be covered by 10 percent of your total dwelling coverage. This means if you have a $300,000 dwelling limit, your other structures will be covered up to $30,000.

Allstate offers plenty of resources for your insurance questions.

Your personal property: This section covers everything inside your home, including your furniture, your electronics, your clothing, and other personal items. Similar to your other structures coverage, your personal property coverage is generally a percentage of your dwelling limit.

Liability: Your liability protection covers you if someone is injured on your property. Generally speaking, if you’re found to be at fault, your liability coverage will help pay a portion of the victim’s legal and medical bills. The amount your provider will pay out, though, depends entirely on the limits you select.

Now your specific policy might dice things up a little differently — for example, like what we saw in our USAA analysis, your policy might break that last category out into legal and medical costs. But generally, the four categories above are what standard homeowners insurance policies will cover. This is certainly good to know, but perhaps what’s more important is understanding what your policy won’t cover.

What Do Typical Homeowners Insurance Policies Exclude?

Just as important as understanding what your policy covers is what it won’t. There’s nothing worse than being knee-deep in floodwater and hearing that your insurance provider can’t do anything for you. So here’s what a standard policy usually won’t cover.

Anything above your limit: Let’s say someone is badly injured on your property and sues you for $1 million. If the court rules against you, you’re on the hook for that amount. And if you only have $500,000 worth of liability coverage, you’ll have to come up with the other half yourself.

Earth movements: Generally speaking, earthquakes, sinkholes, mudslides, and other movements of the earth are not covered by standard homeowners insurance policies.

Maintenance issues: Most of the time, general wear and tear will not be covered by your homeowners insurance policy, nor will any damage caused by neglect. If you flush a towel down the toilet and your pipes burst — sorry — that’s probably on you.

Pests and infestations: Similarly to maintenance issues, any damage caused by pests are unlikely to be covered by your homeowners insurance. That means you really should quit putting off that termite treatment.

Mold and rot: Got a damp basement? Probably better to invest in a dehumidifier than bank on your homeowners insurance covering the repairs when your floor starts to sag. Most policies won’t protect you here.

Floods: Standard homeowners insurance will not protect you if your home is damaged due to a flood. You’ll need to purchase a separate policy if you’re at risk. (Keep in mind a flood is different from a pipe bursting in your home and the ensuing water damage that occurs.)

Car break-ins: If someone smashes your window and steals your briefcase out of your car while it’s sitting in your driveway, it’s unlikely that your homeowners insurance policy will cover it under your personal property protections. You’re going to need an auto insurance policy that covers theft to protect you there.

With this in mind, you can rest easy knowing that most every policy can be custom-built to serve your needs. There are plenty of add-on coverages offered by providers to make sure you’re protected from all angles.

What Additional Coverages and Options Are Available?

If you want protection from a specific threat, odds are you can find it. I’m not kidding, either. If you want to be protected from werewolf attack, there are insurers out there that’ll sell you a policy.3 That said, there are some more standard add-ons that a lot of folks include with their policies. These might include:

Flood damage: Generally speaking, water damage is only covered by your homeowners insurance if there was a malfunction in your pipes that you had nothing to do with. If the creek in your backyard rises and intrudes into your domicile, you’re not going to be covered. If you’re at risk, you may need to purchase flood insurance on top of your policy.

Replacement costs: Again — generally speaking — most homeowners insurance policies will only reimburse you for the depreciated costs of your belongings if they are stolen or damaged in a covered event. That means if your six-year-old laptop is taken during a burglary, your provider will only cut a check for what it’s worth on the open market (not much!). If you want them to replace lost or damaged items, you’re probably looking at an addendum to your standard policy.

Sewer and drain back-up: Similar to flood insurance, if a municipal water main backs up, it’s unlikely to be covered by your standard policy. A back-up endorsement, however, will make sure you’re protected.

Umbrella insurance: Say you own a modest home but have a collection of fine antique jewelry you want to protect — your limits might be a little too low to make sure your possessions are covered. Umbrella insurance, though, will raise those limits so that you’ll be able to recover in the event of a catastrophe. If you’re interested in this type of coverage, we found in our review of Allstate that they offer pretty decent coverage in this regard.

There are quite a few other insurance add-ons that you can explore, but these are among the most common. Obviously your specific situation will dictate what you need to add to your standard policy, but there are a few key practices to keep in mind when you’re shopping around for your perfect policy.

How Should I Shop for Homeowners Insurance?

First, understand that there is no one-size-fits-all approach to homeowners insurance. Every property is unique, and every property owner will require specific protections. It’s important to shop around and compare providers on more criteria than the price of their premium alone.

Some of the different types of insurance offered by AAA.

Second, you want to make sure that your policy is going to cover your needs. As mentioned, minimum coverage might be easier on your wallet in the short term, but if the worst happens, you’re going to be left scrambling. It’s best to understand how much it would cost to rebuild your home from the ground up and carry insurance that would cover that price.

Third, make sure your provider has a good track record in regard to customer service. The Better Business Bureau is a great resource, as is the National Association of Insurance Commissioners. If the provider you’re considering has a ton of complaints, you might end up having a similar negative experience when you need help the most.

With all of these considerations in mind, it might be helpful to take a look at the chart that helps our experts determine which providers are better than others. Here’s a quick example:

Homeowners Insurance Competition Table

We always recommend people comparison shop when they’re looking for homeowners insurance. The good news is that this task has been made a lot easier by online quote tools that make shopping a snap.

What Information Will I Need for a Quote?

Most homeowners insurance providers offer online quote tools to make comparison shopping easy. Generally speaking, these online quotes don’t require much legwork from the purchaser, and they’re detailed enough to give you a clear understanding of what you’re covering and what it’ll cost.

Travelers’ online quote process is fast and easy.

Different providers require different pieces of information to secure a quote, but it’s likely stuff you’ll know off the top of your head. How many rooms does your house have? What is it built out of? What year was it constructed? Have there been any major renovations or repairs? You’re likely to encounter these types of questions when seeking a quote.

Once that quote comes back, though, make sure you’re evaluating it on more than price alone. Check to see what your limits are, what’s going to be covered, and recommendations they offer for additional coverage.

Here’s an example of the information you’re likely going to receive from your online quote. This was from our review of Farmers, and the really good policy described below cost $307 per month:

Farmers Quote for a $300,000 Home in Atlanta

Deductibles

Property Coverage

Liability

Your coverages will certainly inform your decision, but the bottom line is definitely a consideration here. Understanding that, it’s reasonable to ask how much all of this is going to set you back.

How Much Does Homeowners Insurance Cost?

Asking how much a policy will cost is a bit like asking “how much does a new car cost?” Sure, you can get a vague idea, but it really depends on the quality of the automobile. A Mercedes is obviously going to cost more than a Kia.

Understanding that, it’s helpful to know the average homeowners insurance policy in America costs about $1,300 annually or $108 dollars per month. That is based on a home that costs about $250,000 and does not take into account additional coverages or unique situations. Your premium will fluctuate based on how valuable the property you want to insure is, where it’s located, and other considerations unique to your situation.

With that in mind, though, there are some ways to bring that premium price down.

How Can I Save Money on My Homeowners Insurance Policy?

Each insurance provider is different and, as such, the discounts they offer won’t be universal. However, there are a few things you can do to make sure you’re getting the best price possible on your premium.

No claims: Insurers want to provide service to folks who pose low risk, so if you can show that you haven’t made a claim against your policy, you’re likely to receive a discount.

Security systems: Since homeowners insurance covers your personal property, it makes sense that providers would incentivize those who take measures to prevent theft. Installing a reliable home security system will sometimes entitle you to home insurance premium savings.

Fire alarms: Similar to discounts realized from installing a home security system, installing atmospheric sensors like fire alarms and flood alerts will usually entitle you to a discount on your premium.

Fire alarms: Similar to discounts realized from installing a home security system, installing atmospheric sensors like fire alarms and flood alerts will usually entitle you to a discount on your premium.

Bundling: One of the best ways to save on your homeowners insurance policy is by bundling it with your other insurance needs. If you check out our review of Farmers, for instance, you’ll see that they offer a ton of options with compounding savings when you purchase multiple policies.

Now that you understand the function of homeowners insurance, what to look for when selecting a policy, and how much it’s likely to cost, it’s time to consider which provider is right for you. There are a few best practices to keep in mind when shopping around.

Which Homeowners Insurance Provider Is Right for Me?

The three main things to keep in mind when shopping for homeowners insurance are:

1) Each situation is different. You need to have a policy that is tailor-fit for your situation and needs.

2) Make sure your policy is comprehensive. The aftermath of a disaster is the worst time to discover your coverage was inadequate.

3) Your premium is going to depend on a number of factors. It’s important to speak with a representative from the insurer you’re considering and provide them with as much detail as possible.

We recommend securing at least five quotes from well-established insurance providers before making your decision on which policy to purchase. Be sure to compare the coverages, the limits, and the deductibles against what your final premium will be. Remember, short-term savings can often yield long-term problems.

Ultimately your decision is going to come down to what you value. Affordable protections might be a little slim when it comes to coverage, and expensive providers might be offering protections you won’t really need.

It’s best to take your time, do your research, and secure a policy that makes you the most comfortable.

Good luck, and stay safe out there.

Homeowners Insurance FAQs