- What is homeowners insurance?
- Why do you need homeowners insurance?
- What does homeowners insurance cover?
- Dwelling coverage
- Other structures coverage
- Personal property coverage
- Personal liability coverage
- Medical payments coverage
- Additional living expenses
- What homeowners insurance does not cover
- Flood insurance
- Deductibles
- How homeowners insurance costs are determined
- Florida homeowners insurance
- How to compare homeowners insurance
- Home insurance checklist
- Frequently asked questions
What Is Homeowners Insurance?
Homeowners insurance is a type of property and liability insurance designed to help protect a home and the people who live there from certain financial losses.
Depending on the policy, homeowners insurance can help pay to repair or rebuild a home after a covered event, replace or repair covered belongings, provide liability protection when the homeowner is legally responsible for certain injuries or property damage, and help with certain additional living expenses when a covered loss makes the home temporarily uninhabitable.
Home insurance is sometimes called hazard insurance. It is different from mortgage insurance. Homeowners insurance protects against covered property and liability risks, while mortgage insurance generally protects the lender against certain loan-related risks.
Why Do You Need Homeowners Insurance?
A home can be one of the largest financial assets a household owns. A major fire, storm, theft, or liability claim can create expenses that would be difficult to pay entirely out of pocket.
Homeowners insurance provides a way to transfer some of those risks to an insurance company in exchange for a premium.
Mortgage lenders commonly require it
If you have a mortgage, your lender will generally require you to maintain homeowners insurance as a condition of the loan. The lender wants the property securing the loan to remain protected.
Many homeowners pay insurance premiums through an escrow account along with their mortgage payment. The exact payment arrangement depends on the mortgage and lender.
What Does Homeowners Insurance Cover?
A typical homeowners policy can contain several separate coverage categories. The limits and conditions are established by the policy, and coverage differs between insurers and policy forms.
Dwelling
Helps cover the physical structure of the home after a covered loss, subject to policy terms and limits.
Other Structures
Can protect certain detached structures such as sheds, fences, or detached garages when damaged by a covered event.
Personal Property
Helps protect covered belongings such as furniture, clothing, electronics, and other possessions.
Personal Liability
Can help protect you financially if you are legally responsible for certain injuries or property damage.
Medical Payments
May help pay certain medical expenses for someone injured on your property, subject to policy conditions.
Additional Living Expenses
May help with increased living expenses when a covered loss makes your home temporarily uninhabitable.
Dwelling Coverage
Dwelling coverage is designed to protect the physical structure of your home against covered losses.
Depending on the policy, the dwelling can include the home's walls, roof, foundation, built-in fixtures, and attached structures.
How much dwelling coverage do you need?
The amount of dwelling coverage should generally be based on the estimated cost to rebuild the home rather than simply its current market value.
Rebuilding cost and market value are different concepts. The market value of a property includes factors such as the land and local real estate conditions, while rebuilding costs focus on construction, materials, labor, and other costs associated with restoring the structure.
Other Structures Coverage
Other structures coverage can protect qualifying structures on your property that are separate from the main residence.
Examples can include:
- Detached garages
- Fences
- Sheds
- Detached workshops
- Other qualifying structures on the property
Coverage limits and covered causes of loss vary by policy. Review your declarations page and policy documents to understand the protection that applies to your property.
Personal Property Coverage
Personal property coverage is designed to protect covered belongings inside the home and, depending on the policy, certain belongings located elsewhere.
Common examples include:
- Furniture
- Clothing
- Electronics
- Kitchen equipment
- Appliances and household items
- Sports equipment
- Other qualifying possessions
Actual cash value vs. replacement cost
| Method | How it generally works |
|---|---|
| Actual cash value | Takes depreciation into account when determining the value of covered property after a loss. |
| Replacement cost | Generally focuses on the cost to replace qualifying covered property with a comparable new item, subject to the policy's terms and limits. |
Certain expensive belongings may also have special limits under a policy. Jewelry, collectibles, firearms, artwork, and other valuable items may require additional coverage depending on the policy.
Personal Liability Coverage
Personal liability coverage can help protect you when you are legally responsible for certain injuries to another person or damage to another person's property.
For example, a liability claim could arise if a visitor is injured at your home or if you accidentally cause covered property damage to someone else.
Liability coverage can also help with certain legal defense costs, subject to the policy's terms and limits.
Medical Payments Coverage
Medical payments coverage can help pay certain medical expenses when someone is injured on your property, subject to the policy's terms.
It is different from personal liability coverage. Medical payments coverage can apply to certain injuries without requiring the same determination of legal responsibility that a liability claim may require.
Coverage limits are usually relatively limited, so this coverage should not be viewed as a substitute for comprehensive health insurance or liability protection.
Additional Living Expenses and Loss of Use
If a covered event makes your home temporarily uninhabitable, additional living expense coverage may help pay certain increased costs while the home is being repaired or rebuilt.
Depending on the policy, examples may include:
- Temporary hotel accommodation
- Temporary rental housing
- Additional food expenses
- Certain transportation or other increased living costs
- Other qualifying temporary expenses
This coverage generally does not mean that every expense you incur while displaced will be reimbursed. Policies usually have limits, qualifying conditions, and time restrictions.
What Does Homeowners Insurance Not Cover?
One of the most important parts of understanding home insurance is knowing what is excluded.
A standard homeowners policy generally does not cover every possible type of property damage.
| Risk | Typical treatment |
|---|---|
| Flood | Generally not covered by a standard homeowners policy; separate flood insurance may be needed. |
| Earthquake | Generally excluded from standard policies; separate coverage may be available. |
| Normal wear and tear | Generally not an insured sudden loss. |
| Maintenance problems | Routine maintenance and deterioration are generally the homeowner's responsibility. |
| Intentional damage | Intentional acts can be excluded, depending on the policy and circumstances. |
The exact exclusions are found in the policy itself. Never assume that a particular event is covered simply because the damage is unexpected.
Do You Need Flood Insurance?
Flood insurance is one of the most important additional coverages for homeowners to understand because standard homeowners insurance generally does not cover flood damage.
Flood risk is not limited to homeowners who live immediately next to a body of water. Heavy rainfall, storm surge, drainage problems, overflowing waterways, and other conditions can create flood risk.
Depending on the home's location and mortgage, flood insurance may also be required by the lender.
Florida and flood insurance
Florida has significant exposure to flooding because of its geography, coastal areas, storms, and rainfall. Florida's Office of Insurance Regulation advises consumers that most homeowners and business policies do not cover flooding and encourages consumers to consider separate flood coverage.
What Is a Homeowners Insurance Deductible?
A deductible is the amount you are responsible for paying toward a covered loss before the insurer pays the covered amount above the deductible, subject to the policy.
Lower deductible
Usually means less out-of-pocket cost when you have a covered claim, but may result in a higher premium.
Higher deductible
May reduce the premium, but requires you to have more money available after a qualifying claim.
Special deductibles
Some policies can have different deductibles for specific risks. In areas exposed to hurricanes, windstorms, or other major hazards, a policy may contain a separate deductible or special policy terms.
Always read the deductible language rather than assuming every claim uses the same dollar amount.
Homeowners Insurance Premium vs. Home Value
Home insurance is not simply a percentage of the home's purchase price. A major factor is the estimated cost to repair or rebuild covered structures.
Land value is generally not something that needs to be rebuilt after a covered property loss. As a result, the amount of dwelling coverage can differ significantly from the home's market value.
Your insurer or insurance professional can help determine an appropriate dwelling coverage amount based on the characteristics of the property.
Florida Homeowners Insurance
Florida homeowners face several insurance considerations that are especially important because of hurricanes, wind exposure, coastal risks, flooding, and severe weather.
Wind and hurricane coverage
Florida homeowners should carefully review how their policy treats windstorm and hurricane damage, including applicable deductibles and exclusions.
Florida's Office of Insurance Regulation states that insurers are required to offer certain premium discounts for qualifying hurricane loss-mitigation features. Homeowners may need appropriate inspection documentation to receive applicable discounts.
Flood is separate
Flood coverage generally is not included in a standard homeowners policy. Florida homeowners should evaluate flood exposure separately, particularly when buying property in an area with meaningful flood risk.
Review the roof
Roof age, condition, construction, and wind resistance can be important considerations when insurers evaluate property risk and coverage. Homeowners should understand the policy's treatment of roof damage before a storm occurs.
How to Compare Homeowners Insurance
Shopping for homeowners insurance should involve more than comparing the annual premium.
The Consumer Financial Protection Bureau recommends getting quotes from several companies and comparing both cost and coverage amounts.
- Determine the appropriate dwelling coverage. Focus on the estimated rebuilding cost rather than simply the home's purchase price.
- Review personal property coverage. Estimate the value of your belongings and identify high-value items that may require additional coverage.
- Compare liability limits. Make sure you understand how much liability protection each policy provides.
- Compare deductibles. A lower premium can come with a larger deductible.
- Check exclusions. Pay special attention to flood, earthquake, wind, water backup, and other risks relevant to your location.
- Compare additional living expense coverage. Check both the amount and applicable limitations.
- Ask about discounts. Security systems, mitigation improvements, bundling, claims-free history, and other factors may qualify for discounts depending on the insurer.
- Review the insurer and policy documents. Understand the actual contract rather than relying only on an advertising description.
| Compare | What to check |
|---|---|
| Dwelling coverage | Does the limit reasonably reflect rebuilding costs? |
| Personal property | Are your belongings adequately covered? |
| Liability | Are the liability limits appropriate for your circumstances? |
| Deductibles | Could you afford the deductible after a major loss? |
| Flood | Do you need separate flood insurance? |
| Wind/hurricane | What deductibles and coverage restrictions apply? |
| Additional living expenses | What happens if your home becomes temporarily uninhabitable? |
| Discounts | Which discounts are actually available for your property? |
How to Potentially Lower Homeowners Insurance Costs
The exact ways to lower your premium vary by insurer and location. Cutting coverage without understanding the financial consequences can create a larger problem later.
- Compare quotes from multiple insurers.
- Ask about available home safety and security discounts.
- Ask about hurricane or wind mitigation discounts where applicable.
- Consider whether you can reasonably afford a higher deductible.
- Review your coverage after renovations and major improvements.
- Ask about bundling eligible insurance policies.
- Maintain a claims history that accurately reflects your situation.
- Periodically compare the policy against your current needs.
Homeowners Insurance and Your Mortgage Payment
Homeowners insurance can be part of the total monthly cost of owning a home even when it is not paid directly to the insurance company every month.
When insurance is included in an escrow arrangement, part of your monthly mortgage payment is set aside for the insurance premium. The lender or mortgage servicer then pays the insurance bill from the escrow account when it becomes due.
This means homeowners should consider insurance when calculating the real cost of homeownership alongside principal, interest, property taxes, maintenance, utilities, and other expenses.
Homeowners Insurance Checklist
- Estimate the cost to rebuild your home.
- Review dwelling coverage limits.
- Inventory your major belongings.
- Check personal property coverage limits.
- Identify valuable items that may need scheduled coverage.
- Review personal liability limits.
- Understand your deductible.
- Check for separate hurricane or wind deductibles.
- Determine whether you need flood insurance.
- Review additional living expense coverage.
- Compare multiple insurance quotes.
- Ask about available discounts.
- Read exclusions and policy limitations.
- Review your policy after renovations or major property changes.
- Keep your policy documents and home inventory accessible.
Frequently Asked Questions
What is homeowners insurance?
Homeowners insurance is property and liability insurance that helps protect a home, belongings, and the homeowner's finances against certain covered losses.
Is homeowners insurance required?
Homeowners insurance is generally not a universal legal requirement for every homeowner, but mortgage lenders commonly require it as a condition of the loan.
What does homeowners insurance cover?
A typical homeowners policy can include dwelling, other structures, personal property, personal liability, medical payments, and additional living expense coverage, subject to the policy's terms, limits, deductibles, and exclusions.
Does homeowners insurance cover flooding?
Standard homeowners insurance generally does not cover flood damage. Separate flood insurance may be available or required depending on the property and mortgage.
Does homeowners insurance cover hurricanes?
Coverage for hurricane-related damage depends on the policy and applicable state rules. Homeowners should specifically review wind coverage, hurricane deductibles, exclusions, and flood insurance because flood damage generally requires separate coverage.
What is a homeowners insurance deductible?
A deductible is the amount the policyholder generally pays toward a covered loss before the insurer pays the covered amount above the deductible, subject to policy terms.
How much homeowners insurance do I need?
The appropriate amount depends on your home's estimated rebuilding cost, belongings, liability exposure, location, lender requirements, and other circumstances. Dwelling coverage should generally not be based solely on the home's market value.
How can I compare homeowners insurance quotes?
Compare multiple quotes using similar dwelling limits, personal property coverage, liability limits, deductibles, exclusions, additional living expense coverage, and other relevant options.
Why is homeowners insurance more expensive in some areas?
Insurance prices can vary because insurers consider factors such as local weather and catastrophe risk, rebuilding costs, claims history, property characteristics, coverage limits, deductibles, and insurer-specific pricing practices.
Is homeowners insurance the same as mortgage insurance?
No. Homeowners insurance protects against covered property and liability risks. Mortgage insurance generally protects the lender against certain risks associated with the mortgage.