Homeowners insurance protects your home’s structure, personal belongings and liability for injuries on your property. The average annual cost is $1,500-$3,000 depending on location, home value and coverage limits. Lenders require coverage at least equal to your loan amount. Standard policies cover fire, theft, wind and liability but exclude floods and earthquakes—those require separate policies. Compare this with a home warranty which covers mechanical failures instead.
What Homeowners Insurance Covers
Dwelling Coverage (Coverage A)
Covers the structure of your home:
- House structure
- Attached garage
- Built-in appliances
- Permanently installed fixtures
Coverage amount: Should equal rebuilding cost (not market value). Your lender requires this as part of your closing costs.
Example: Home worth $400,000 might cost $350,000 to rebuild. Dwelling coverage should be at least $350,000.
Other Structures (Coverage B)
Covers detached structures:
- Detached garage
- Shed
- Fence
- Deck/patio
- Guest house
Typical limit: 10% of dwelling coverage
Personal Property (Coverage C)
Covers your belongings:
- Furniture
- Clothing
- Electronics
- Appliances
- Other personal items
Typical limit: 50-70% of dwelling coverage
Special limits apply to:
- Jewelry ($1,500-$2,500)
- Cash ($200)
- Firearms ($2,500)
- Collectibles
- Art
For high-value items: Add a rider/floater for full coverage
Loss of Use (Coverage D)
Covers living expenses if you can’t stay in your home:
- Hotel costs
- Meals
- Temporary rental
- Other additional expenses
Typical limit: 20% of dwelling coverage
Liability (Coverage E)
Covers legal responsibility for injuries to others:
- Injuries on your property
- Damage you cause to others’ property
- Legal defense costs
Typical limit: $100,000-$300,000 (consider umbrella policy for more)
Medical Payments (Coverage F)
Covers minor injuries to guests:
- No-fault coverage
- Quick payment for small medical bills
- Prevents larger claims
Typical limit: $1,000-$5,000
What’s NOT Covered
Standard Exclusions
| Not Covered | Alternative |
|---|---|
| Flood damage | Separate flood insurance |
| Earthquake | Separate earthquake policy |
| Sewer backup | Add endorsement |
| Mold | Limited—add endorsement |
| Maintenance issues | Not insurable |
| Pest damage | Not insurable |
| Normal wear | Not insurable |
Flood Insurance
Required if: You’re in a FEMA-designated flood zone
Cost: $700-$3,000+ annually
Where to get: National Flood Insurance Program (NFIP) or private insurers
Even if not required: Consider if any flood risk exists—standard policies pay nothing for flood damage
Earthquake Insurance
Consider if: You’re in a seismic zone
Cost: $800-$5,000+ annually (higher in California)
Deductibles: Often 10-20% of dwelling coverage
How Much Coverage Do You Need?
Dwelling Coverage
Calculate rebuilding cost:
- Local construction cost per square foot
- Times your home’s square footage
- Plus cost of special features
Example:
- 2,000 square feet × $200/sq ft = $400,000
- Custom kitchen adds $30,000
- Total rebuilding cost: $430,000
Don’t insure for market value. Land doesn’t need to be rebuilt.
Personal Property
Create a home inventory:
- Room-by-room list of belongings
- Photos or video documentation
- Receipts for major items
- Store inventory off-site (cloud)
Choose coverage type:
- Actual cash value (ACV): Pays depreciated value
- Replacement cost: Pays to replace with new item (better)
Liability Coverage
Minimum: $100,000 Recommended: $300,000-$500,000 Best: Add umbrella policy for $1 million+
Consider more if:
- You have assets to protect
- You have a pool, trampoline or dog
- You entertain frequently
- You have teen drivers
Average Homeowners Insurance Costs
By State (Annual Average)
| State | Average Premium |
|---|---|
| Oklahoma | $4,500+ |
| Kansas | $3,800+ |
| Nebraska | $3,500+ |
| Texas | $3,400+ |
| Colorado | $3,200+ |
| Florida | $3,000+ |
| California | $1,500 |
| Utah | $1,200 |
| Oregon | $1,100 |
| Hawaii | $700 |
Factors Affecting Cost
| Factor | Impact |
|---|---|
| Location | High claims area = higher cost |
| Home age | Older homes cost more |
| Construction type | Frame vs masonry affects rate |
| Roof condition | Old roof = higher premium |
| Claims history | Past claims increase rates |
| Credit score | Lower score = higher rates |
| Deductible | Higher deductible = lower premium |
| Coverage amount | More coverage = higher cost |
How to Lower Your Premium
Increase Your Deductible
| Deductible | Approximate Savings |
|---|---|
| $500 → $1,000 | 10-15% |
| $1,000 → $2,500 | 15-20% |
| $2,500 → $5,000 | 20-30% |
Trade-off: Higher out-of-pocket when you file a claim
Bundle Policies
Combine home and auto insurance:
- Typical savings: 10-25%
- Single company handles both
- May simplify billing
Improve Home Security
Discounts for:
- Smoke detectors (5-10%)
- Security system (10-20%)
- Deadbolt locks (2-5%)
- Fire sprinklers (5-10%)
- Smart home monitoring
Maintain Good Credit
Insurance companies use credit-based insurance scores:
- Good credit = lower premiums
- Improving credit lowers rates over time
Stay Claims-Free
Claims increase premiums:
- One claim: 9-20% increase
- Two claims: 20-40% increase
- Three claims: May be non-renewed
Consider not filing small claims if out-of-pocket cost is close to deductible
Shop Around
Get quotes from:
- At least 3-5 companies
- Different company types (national, regional, local)
- Both direct and through agents
Shop every 2-3 years or after major life changes
Ask About Discounts
Common discounts:
- New home
- New roof
- Loyalty (staying with company)
- Paid in full
- Paperless billing
- Professional affiliations
- Senior/retiree
Choosing the Right Policy
Policy Types
HO-3 (Special Form): Most common
- Open perils on dwelling (covers everything except exclusions)
- Named perils on contents
HO-5 (Complete): Better coverage
- Open perils on both dwelling and contents
- Fewer exclusions
- Higher premium
HO-6 (Condo): For condo owners
- Covers interior and contents
- Association covers exterior
HO-8 (Older Home): For historic/older homes
- Pays actual cash value
- For homes where replacement exceeds market value
Replacement Cost vs Actual Cash Value
Actual Cash Value (ACV):
- Pays depreciated value
- 10-year-old TV: Pays current value of 10-year-old TV
- Lower premium
Replacement Cost:
- Pays to replace with new
- 10-year-old TV: Pays for new comparable TV
- Higher premium (worth it)
Extended Replacement Cost:
- Pays 25-50% above dwelling limit if costs exceed
- Protection against construction cost increases
Guaranteed Replacement Cost
- Pays to rebuild regardless of cost
- Best protection
- Increasingly rare
- Higher premium
Filing a Claim
When to File
File a claim when:
- Damage exceeds deductible significantly
- Major loss (fire, theft, storm)
- Liability incident
Consider not filing when:
- Damage barely exceeds deductible
- Minor damage you can afford
- Claim would be small
Remember: Claims stay on record 5-7 years and affect premiums
The Claims Process
Step 1: Document damage
- Photos and video before cleanup
- List damaged items
- Keep damaged items if possible
Step 2: Contact insurance company
- Report claim promptly
- Get claim number
- Understand next steps
Step 3: Protect property
- Prevent further damage
- Make temporary repairs if needed
- Save receipts for reimbursement
Step 4: Meet with adjuster
- Walk through damage together
- Provide documentation
- Get estimate
Step 5: Review settlement
- Compare to your estimate
- Negotiate if needed
- Understand what’s covered
Claim Tips
Document everything: More documentation = smoother claims
Get multiple repair estimates: Don’t rely solely on insurance estimate
Know your policy: Understand coverage and exclusions before you need them
Keep records: Save all claim correspondence
Consider public adjuster: For large, complex claims
Frequently Asked Questions
Is homeowners insurance required?
Lenders require it as a condition of the mortgage. If you own your home outright, it’s not legally required but strongly recommended.
How much homeowners insurance do I need?
Dwelling coverage should equal rebuilding cost. Personal property should cover your belongings. Liability should be at least $300,000. Consider umbrella policy for more.
Does homeowners insurance cover flooding?
No. Standard policies exclude flood damage. You need separate flood insurance, available through NFIP or private insurers.
How much does homeowners insurance cost?
Average is $1,500-$3,000 annually, but varies widely by location, home value and coverage. Some high-risk areas exceed $5,000.
Can I be dropped by my insurance company?
Yes. Companies can non-renew for multiple claims, deteriorating property condition, or exiting a market. They must provide notice (typically 30-60 days).
What’s the difference between replacement cost and actual cash value?
Replacement cost pays to buy new items. Actual cash value pays depreciated value. Replacement cost is worth the extra premium.
How do I lower my homeowners insurance premium?
Increase your deductible, bundle with auto, improve home security, maintain good credit, shop around and ask about discounts.
Related Articles
Michael Chen
Certified Financial Planner, Mortgage Specialist
Our team of mortgage experts provides accurate, up-to-date information to help you make informed decisions about your home financing.
Home Warranty: Is It Worth the Investment for Buyers?
Home warranties cover repair or replacement of major systems and appliances. Typically $300-$600/year with $75-$150 service fees. Learn what's covered.
Property Taxes Explained: Know Your Home's Costs
Property taxes are based on your home's assessed value times the local tax rate. Learn how taxes are calculated, when they're due and how to appeal.
Mortgage Interest Tax Deduction: Know Your Benefits
Deduct mortgage interest on up to $750,000 of home debt if you itemize. Learn qualification rules, limits and how to claim the deduction.