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A house is the biggest investment that most people will ever make. Homeowners insurance provides a way to protect it. 

A home insurance policy protects more than just the structure of your home. It includes coverage for other structures like a detached garage, personal property and personal liability.

Home insurance provides a lot of protection, but your policy has some exclusions and limitations, some of which can be covered with an endorsement or another policy. Read on to learn what home insurance covers, what it doesn’t, and how much coverage you need.

Key Takeaways

  • Homeowners insurance covers your home, other structures on your property and your belongings, and it also provides liability coverage.
  • When you shop for homeowners insurance, make sure the policy includes enough coverage to rebuild your home. 
  • Home insurance excludes floods and earthquakes and also has special limits on some types of personal property, like art and musical instruments.

What is homeowners insurance?

Homeowners insurance is a policy that combines property and liability insurance to protect your home and your assets against covered losses. 

In general, homeowners insurance covers damage to the home and other structures on the property, damage or theft of its contents and loss of use (additional living expenses). It also includes personal liability insurance for accidents that may happen at home or for which you’re responsible. 

A home insurance policy provides broad financial protection, and it’s important to understand it.

Home Insurance Calculator

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

Average Annual Home Insurance Rates
33315 - Fort Lauderdale
$10,230 Average rate
$19,810 Highest
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$2,341 Lowest

Most expensive ZIP for home insurance in

ZIP Code City Average Rate
33070 Islamorada Village of Islands $18,374
33037 Key Largo $18,140
33036 Islamorada Village of Islands $18,033
33001 Long Key $18,014

Least expensive ZIP for home insurance in

ZIP Code City Average Rate
32307 Tallahassee $2,251
32313 Tallahassee $2,251
32306 Tallahassee $2,251
32308 Tallahassee $2,267

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

Am I required to get homeowners insurance?

You are not legally required to purchase homeowners insurance. But if you have a mortgage, the lender will likely require you to carry a home insurance policy. Even if you don’t have a mortgage, having home insurance is always a good idea.  

“Your home is usually the biggest purchase you make and one of the largest assets you will own. It makes no sense to leave it unprotected, and part of good personal risk management is understanding the coverages you have bought,” says Brenda Wells, chair of the Department of Finance and Insurance at East Carolina University. 

How homeowners insurance works

Homeowners insurance is a contract between you and the insurance company. You agree to pay the premiums and do your best to avoid a claim. In return, the insurance company agrees to pay claims in accordance with the terms of the policy. 

A homeowners insurance policy provides financial protection in sudden, unexpected, and accidental events.

A standard HO-3 home insurance policy covers your home for all perils, which means that it’s covered unless it’s specifically excluded. While there are some differences between policies from state to state and company to company, the basics of coverage are generally standard.

When you need to use your home insurance, you file a claim, and the insurance company investigates. After reviewing the damage and coverage on the policy, you’ll receive a check in accordance with the policy terms and limits.

What does homeowners insurance cover?

Home insurance policies are divided into six parts. Here’s what a homeowners policy covers under each of those sections, with common coverage limits:

Type of coverageWhat it coversCommon coverage limits
DwellingDamage to your home and attached structures like a deckCalculated replacement cost of the home
Personal property Damage to or theft of personal property50% to 70% of the dwelling coverage
Other structuresStructures on the property not attached to the house, like a shed10% of the dwelling amount
Additional living expenses/Loss of useAdditional living expenses you incur if you can’t live at home due to a covered loss, like a hotel20% to 30% of the dwelling coverage
Personal liability Injuries or damage to others or their property for which you’re responsible$100,000 standard, up to $500,000
Medical paymentsMedical bills for someone injured on your property, regardless of fault$1,000 to $5,000

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
  • 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, whose value exceeds your policy’s coverage limits. Money and valuable papers, for instance, have specific limits.

“These are covered, but only for very small amounts. For instance, you can have $10,000 in cash in your home, and if it’s destroyed in a fire or stolen, most policies only pay $200-ish for it,” Wells says.

What a homeowners insurance policy doesn’t cover

Home insurance generally excludes the following:

  • Earthquakes
  • Floods
  • Mold
  • Water and sewer backup
  • Wear and tear and maintenance issues
  • Intentional damage
  • War or terrorism
  • Pest or animal damage
  • Home-based businesses
  • Pollution and corrosion
  • Mechanical failure
  • Power failure, with some exceptions

Some of these items can be covered with an endorsement or a separate policy. “You must buy flood insurance as a separate policy, as it is universally excluded from the vast majority of policies,” Wells says. 

In some areas, windstorm damage may be excluded and require an endorsement or additional policy. It’s critical to read the fine print to ensure you have the coverage you want. 

Types of homeowners insurance

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

Most people purchase an HO-3 home insurance policy, the standard option. However, it’s important to understand your options to confirm you are getting the right coverage for your situation. 

Below are the basic types of homeowners insurance policies. Note that while an HO-1 basic form home insurance policy does exist, most insurers no longer sell this type of policy.

HO-2: Broad form homeowners policy

An HO-2 policy is a named perils home insurance policy. The policy type covers the house and contents against 16 perils, which are named in the policy. An HO-2 policy may be used when the home doesn’t qualify for an HO-3, but it’s not the most common choice. 

HO-3: Special form homeowners policy

An HO-3 policy is the most widely used type of homeowners insurance. It covers the structure for all perils except those specifically excluded by the policy at replacement cost. Additionally, your home’s contents are covered against perils named in the policy and at actual cash value unless replacement cost coverage is endorsed. An HO-3 is the standard home insurance policy.

HO-4: Contents broad form renters insurance policy

Renters insurance covers contents for 16 named perils and includes liability coverage. It is home insurance for renters and does not cover the structure itself; it covers only personal property. If you rent a home, this coverage will help you pay to replace your belongings after a fire or other covered loss. 

HO-5: Comprehensive form homeowners policy

An HO-5 policy is generally offered to newer, high-end homes that are well-maintained. In many ways, an HO-5  is much like the HO-3 policy, but contents are covered against all perils except those specifically excluded. 

An HO-5 policy may also include other coverage, like extended replacement costs, that must be endorsed on an HO-3 policy.

HO-6: Unit owners form condominium insurance

HO-6 insurance is for co-ops or condominiums. Specifically, an HO-6 insurance policy provides personal property coverage, liability coverage and coverage for some parts of the interior of a condo. 

Insurance provided by the homeowner’s association normally covers most of the actual structure.

HO-8: Modified form 

An HO-8 covers the same perils as an HO-2 but pays only claims at actual cash value. This type of policy is generally used for older homes where the market value is considerably less than the cost to rebuild or for historic homes with difficult-to-replace features and construction materials.

All perils vs. named perils

Home insurance policies cover perils in two different ways. A peril is anything that can damage your home, like fire, wind or water.

An all perils policy, sometimes called an open perils policy, covers all perils that are not specifically excluded from the policy. With an all perils policy, you are covered unless the policy states that the peril is excluded. So, rather than seeing a list of what perils are covered, you’ll see a list of what’s not.

A named perils policy only covers those perils that are specifically listed in the policy. If it’s not listed, it’s not covered.

How homeowners insurance pays claims

Home insurance pays out claims with two basic approaches: actual cash value and replacement cost.

Actual cash value 

Actual cash value represents the replacement cost of an item minus depreciation. A few policies, notably the HO-8, use actual cash value for the home’s structure. Most policies, with the exception of the HO-5, also use it for personal property claims.

Actual cash value is generally not enough to replace an item. But you’ll have some compensation for the damage or loss. 

Replacement cost 

The replacement cost of your property is the amount it would cost to completely rebuild or replace your home, repair damage to a particular part of the home or replace personal property. This amount does not take into account depreciation. Replacement cost coverage will pay to replace everything new and with like kind and quality at today’s prices.

Most home insurance policies use replacement cost to insure the home itself. Replacement cost needs to be endorsed on personal property unless you choose an HO-5 policy.

Guaranteed/extended replacement cost

Some policies offer coverage beyond the calculated replacement cost, either as an endorsement or standard. Extended replacement cost provides an extra amount above the dwelling coverage, usually an additional 25% or 50% more.

Guaranteed replacement cost ensures that the company will pay to rebuild the home no matter how much the claim exceeds the dwelling coverage limit. This type of coverage protects you from inflation or other causes of increased replacement cost that happen over time. 

Other insurance you may need for your home

Home insurance doesn’t cover everything, and there are some common exclusions. You may want or need to add additional coverage to your home, either as an endorsement or a separate policy, to cover things home insurance excludes. 

Here are some of the more important options to consider.

Flood insurance

Homeowners policies do not cover flood damage. If a mortgage lender determines your home is in a special flood hazard area, you might be required to purchase flood insurance, and in some areas, it’s required by law. Or you might simply decide that you want the peace of mind that flood insurance provides. 

The National Flood Insurance Program (NFIP) offers flood insurance through home insurance companies nationwide, or you can buy it through a private flood insurance company.

Earthquake insurance

If you live in an area prone to earthquakes, you can buy earthquake insurance either as an endorsement or as a separate policy. In California, most earthquake coverage is sold through the California Earthquake Authority.

Windstorm insurance

Most homeowners insurance policies cover damage caused by windstorms. But, in some areas, particularly coastal areas prone to hurricanes, you may need to buy separate 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’re responsible for a major loss. 

How much does homeowners insurance cost?

The average cost of a homeowners insurance policy with $300,000 in dwelling coverage and liability and a $1,000 deductible is $2,601. However, the amount of dwelling coverage you need will affect rates, as will other factors like where you live.

Take a look at the average cost of home insurance nationwide at various coverage levels.

Dwelling coverageLiabilityAverage monthly premiumAverage annual premium
$200,000$100,000$166 $1,988 
$200,000$300,000$167 $2,005 
$300,000$100,000$215 $2,582 
$300,000$300,000$217 $2,601 
$400,000$100,000$268 $3,211 
$400,000$300,000$269 $3,231 
$600,000$100,000$388 $4,651 
$600,000$300,000$390 $4,677 
$1,000,000$100,000$615 $7,380 
$1,000,000$300,000$618 $7,412 
Average home insurance rates by coverage level

What factors affect home insurance rates?

Insurers evaluate your unique situation to determine your home insurance costs. Common factors that affect home insurance rates include:

  • Location
  • Size and age of the home
  • Construction materials inside and out
  • Features like swimming pools
  • The homeowner’s credit history
  • The claims history of the home and the homeowner

Where your house is located may be the biggest factor in what you pay because of the risks, with rates especially high in places with major weather risks.

The use of a homeowner’s credit score for insurance rating is legal in most states, although a few have banned it.

“Credit score also matters, as it has generally been shown that lower credit scores are correlated with higher frequency and severity of insurance claims,” Wells says.

What to consider when choosing home insurance

While price is the first thing most people consider when shopping for home insurance, there are some other things to consider.

Keep the following details in mind:

  • Reputation: Ensure you buy home insurance from a reputable company that will be there if you need to file a claim. Check the company’s AM Best score and reputation for claims handling and customer service.
  • Extra coverage options: While there are standards for coverage, every company does things a little differently. Some companies include extra coverage as standard, like extended replacement cost. Others may have more available discounts or different deductible options. Do a careful comparison before you buy.

How much home insurance do you need?

You need enough home insurance to cover the replacement cost of your home and meet any requirements of your mortgage contract. Generally, those are much the same. 

Since the dwelling coverage affects the coverage for other sections of the policy, it’s important to get it right. Remember that replacement cost and market value are not the same since market value includes the value of the land and is affected by other factors unrelated to the cost of rebuilding the house.

You should also make sure you have enough coverage for any valuable personal property and consider increasing your liability coverage to protect your current assets and future income.  

You may also need flood, earthquake or windstorm insurance, depending on where you live.

Home insurance: The bottom line

Buying home insurance isn’t complicated, but it’s important to understand your needs and get the right coverage. Take the time to shop around, read policy details and talk to an agent if you need help. If you need to file a claim, you don’t want to find out too late that you were underinsured or didn’t have the right coverage.

Methodology analyzed home insurance rates from Quadrant Data Services in 2024 at multiple dwelling coverage levels and liability levels, with rates from all 50 states and D.C. in 34,588 ZIP codes. Rates were fielded from 82 home insurance companies.


What our expert says

Brenda WellsRobert F. Bird Distinguished Professor of Risk Management and Insurance, East Carolina University
“Your home is usually the biggest purchase you make and one of the largest assets you will own. It makes no sense to leave it unprotected, and part of good personal risk management is understanding the coverages you have bought.”

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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.