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Homeowners insurance protects what’s typically the biggest investment you’ll make: your house. Yet this investment can disappear in minutes if there’s a fire or natural disaster. Thankfully, homeowners insurance can cover the costs in these times of calamity. Read on to learn more about how homeowners insurance works and what type of coverage you need.

Key Takeaways

  • Homeowners insurance covers your home, other structures on your property, your belongings, liability and medical bills for guests injured on your property.
  • When you shop for homeowners insurance, make sure to insure your house for the cost of replacing or rebuilding it.
  • You may need extra coverage for your valuables, such as jewelry and expensive computers, if their value exceeds the standard coverage limits.

What is homeowners insurance?

Homeowners insurance is a combination of property and liability insurance that protects your home and your assets against covered losses and damages. It covers damage to your home, damage or theft of its contents, loss of use (additional living expenses), and includes personal liability insurance for accidents that may happen at home or at the hands of the homeowner.

Home Insurance Calculator

See how the average annual home insurance rates vary with the options chosen.

Average Annual Home Insurance Rates
94404 - Foster City
$797 Average rate
$1,179 Highest
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$496 Lowest

Most expensive ZIP for home insurance in

ZIP Code City Highest Rate
92325 Crestline $1,450
92391 Twin Peaks $1,426
92321 Cedar Glen $1,425
92352 Lake Arrowhead $1,423

Least expensive ZIP for home insurance in

ZIP Code City Lowest Rate
94086 Sunnyvale $742
94085 Sunnyvale $743
94087 Sunnyvale $743
95051 Santa Clara $743

Methodology commissioned Quadrant Information Systems to field home insurance rates from major insurers in each state for nearly all ZIP codes in the country for 10 coverage levels based on various dwelling and deductible limits. The homeowner profile is a 35-year-old married applicant with excellent insurance score; new business HO3 policy for house built in 2000 with frame construction and composition roof. Other Structures: 10%. Loss of Use defaulted: 10%. Guest Medical limit: $5,000. Deductible limit: $1,000. Personal property: 50% of dwelling coverage for replacement value

What does homeowners insurance cover?

Here’s what a homeowners policy covers:

Type of coverageWhat it doesHow much it covers
DwellingIt will cover any damage to your home and the structures attached to it.Enough to repair or rebuild your home.
Personal belongings Pay to replace any lost or damaged property, including furniture and appliances.Often 50% of the dwelling amount.
Other structuresCertain structures outside your house, such as your garage or fence.Often 10% of the dwelling amount.
Loss of useCovers additional living expenses you incur if you can’t live at home due to damage. This could include hotel bills, restaurant meals and laundry costs.Up to 30% of the dwelling limit. Often 20% of the dwelling amount
Personal Liability Liability is for cases where you are sued for damages or injuries to someone else.Policies also go up to $500,000.

Other items may be covered under your home insurance, with specific limits for each, so check your policy or ask your agent:

  • Downed trees
  • Replacement of lawn, trees and shrubs
  • Debris removal
  • Power outages, including food spoilage
  • Grave markers
  • Unauthorized charges to your credit cards

You may need extra coverage for valuables, such as jewelry, computer equipment, antiques and other pricey possessions, where their value exceeds the coverage limits in your policy.

How homeowners insurance works

Home insurance provides financial protection to your home and its contents from the risks of disaster, theft or accident. Most homeowners insurance policies include the following coverage:

Dwelling coverage: Your home insurance policy pays to repair or rebuild the structure of your home if it’s damaged or destroyed by covered perils such as fire, hurricanes and other natural calamities listed on your policy.  Most home insurance policies also cover the cost of repairing or replacing structures like garages, tool sheds and gazebos.

Personal property coverage: Home insurance policy protects your personal belongings such as furniture, jewelry, clothes, etc from fire, theft, hurricane or other covered perils. 

Most policies offer coverage for expensive items such as jewelry, art pieces and silverware, but there is a dollar limit. High-value items can be covered with an endorsement called a floater.

Liability coverage: Liability insurance protects you against lawsuits for bodily injury or property damage you cause to other people and their property. It also pays the cost of repairing any damages your pets may have caused. Liability limits are generally set at about $100,000 however it is important to discuss with an agent to find out if you need a higher level of protection.

Additional living expenses: Homeowners insurance policies typically cover additional living expenses in the event that your home is uninhabitable due to a covered disaster. This coverage is designed to help you cover the cost of temporary housing and other necessary expenses such as hotel bills and restaurant meals while your home is being repaired or rebuilt. 

What a homeowners insurance policy doesn’t cover

Home insurance doesn’t cover the following:

  • Earthquakes
  • Floods
  • Mold
  • Damage due to negligence 

You’ll need to buy separate policies if you want coverage for those disasters. And in some areas of the country, you need to buy windstorm coverage separately.

Mortgage lenders usually require customers to purchase home insurance. Our tip: Don’t rely on the dwelling coverage levels mandated by your mortgage company. Those levels are designed to protect the house itself, but not necessarily your possessions. That’s why it’s important to check with your agent or insurance company to ensure adequate coverage.

Types of homeowners insurance

Every home is different and the type of homeowners insurance policy you should get depends on your own needs. 

Regardless of whether you own or rent, it’s important to have some form of insurance to protect your belongings in case of an emergency. Home insurance cover losses and damages to an individual’s home caused by natural disasters, theft or accidents.  

Below are the basic types of homeowners insurance policies:

HO-1: Basic homeowners policy

  • Covers your house and possessions against 10 different perils.
  • HO-1 policies have been discontinued in most states.

HO-2: Broad homeowners policy

  • Covers house and contents against 16 perils, which are named in the policy.

HO-3: Special form homeowners policy

  • Covers the structure for all perils except those specifically excluded by the policy.
  • Contents are covered against perils named in the policy.

HO-4: Renters insurance policy

  • Renters insurance covers contents for 16 named perils and includes liability coverage.
  • It does not insure the dwelling itself.
  • Also includes liability coverage for the renter.

HO-5: Premier homeowners policy

  • Generally offered to newer, high-end homes that are well-maintained.
  • Much like the HO-3 policy but contents are covered against all perils except those specifically excluded.
  • According to the Insurance Information Institute, depending on the year of construction, the area where you live, your claims history, and other rating factors, you can buy an HO-5 for about the same cost as a traditional HO-3.

HO-6: Insurance for owners of co-ops or condominiums

  • Provides personal property coverage, liability coverage and specific coverage of improvements to the owner’s co-ops or condominium. Insurance provided by the owner’s association normally covers most of the actual structure.

HO-8: Policy for older homes

  • Covers the same perils as HO-2 but pays only for repair costs or actual cash value since replacement cost could make the policy costly.
  • Well-suited for older homes whose market value is considerably less than the cost to rebuild them.

Texas defines home insurance policies differently. The Texas Department of Insurance offers to assist Texans in finding coverage.

Perils covered in HO-2, HO-4 and HO-6 policies:

  1. Fire or lightning
  2. Windstorm or hail
  3. Explosion
  4. Riot or civil commotion
  5. Damage caused by aircraft
  6. Damage caused by vehicles
  7. Smoke
  8. Vandalism or malicious mischief
  9. Theft
  10. Volcanic eruption
  11.  Falling objects
  12. Weight of ice, snow, or sleet
  13. Accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning, or automatic fire-protective sprinkler system, or from a household appliance.
  14. Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioning or automatic fire-protective system.
  15. Freezing of plumbing, heating, air conditioning or automatic, fire-protective sprinkler system, or of a household appliance.
  16. Sudden and accidental damage from artificially generated electrical current (does not include loss to a tube, transistor or similar electronic component).

What homeowners insurance includes

Not all homeowners insurance policies are the same. There are different types of insurance policies in the market and they offer various levels of protection.

There are three levels of coverage:

Actual cash value 

When it comes to home insurance, one of the most important factors to consider is the actual cash value (ACV) of your home. In short, ACV is the current replacement cost of your home minus any depreciation. Depreciation is a decrease in value due to age or wear and tear.

Actual cash value may not be enough to rebuild your home.

Replacement Cost 

The replacement cost of your property is the amount your insurance policy will pay to repair or rebuild your property if it is damaged. This amount does not take into account age or wear and tear. Replacement cost policies give you more protection than actual cash value coverage.

For example, what happens if a burglar steals your six-year-old television set? 

With actual cash value coverage, you get only what you would expect to pay for a six-year-old television set. With replacement cost coverage, the insurance company pays to replace your TV with a new set similar to the stolen one.

Guaranteed/extended replacement cost

This coverage pays for the full cost of replacing or repairing a damaged or destroyed home, even if it is above the policy limit. Guaranteed and extended replacement cost policies are designed to protect the policyholder from increases in the cost of building materials over time.

Other insurance you may need for your home

There are many potential extras, such as coverage for sewer back-ups and building-code upgrades. However, homeowners insurance does not include these, so you will have to buy additional coverage to get extra protection for your home. 

Below are some important additional coverage types.

Flood insurance

Homeowners policies do not cover flood damage. The National Flood Insurance Program (NFIP) offers flood insurance through home insurance companies nationwide.

If a mortgage lender determines your home is in a special flood hazard area, you might be required to purchase flood insurance.

Earthquake insurance

If you are concerned about earthquakes, you can buy earthquake insurance with a separate policy.

Windstorm insurance

Most homeowners insurance policies cover damage caused by the wind. But in hurricane-prone areas like Florida, homeowners who want to insure against wind damage need to buy special windstorm coverage.

Umbrella insurance

You can buy a separate umbrella insurance policy if you want more liability coverage than your home and car insurance policies offer. This is a good idea if you have a lot of assets and would be open to a big lawsuit if you cause a lot of damage. The liability coverage gained through an umbrella policy is also relatively cheap.

Many factors go into determining the premiums for a homeowners policy. The age of your home, the materials used to build it, where it’s located, the square footage and its distance from a fire hydrant all generally play a role in rates.

When shopping for home insurance, remember this: insure your house for the cost to replace it — or reconstruction costs — not its real estate market value, and don’t factor in the value of your land.

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Shivani Gite
Contributing Writer


Shivani Gite is a personal finance and insurance writer with a degree in journalism and mass communication. She is passionate about making insurance topics easy to understand for people and helping them make better financial decisions.