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For most people, their home is their largest asset, and replacing it on their own would be nearly impossible. That’s where homeowners insurance comes in. Home insurance coverage protects homeowners from the financial risk of loss or damage to their home in the event of a natural disaster, fire, or other hazards.
However, insuring your home does add to the cost of homeownership, and the price can be considerable. In fact, the average annual homeowners insurance premium reached a nationwide high of $1,398 in 2021 and may continue rising. Here’s what you need to know about this vital insurance.
Homeowners insurance helps pay to repair or replace your home after it’s damaged by a covered peril.
Most homeowners insurance includes coverage for your dwelling, other unattached structures, personal possessions, loss of use, liability, and medical expenses of guests injured on your property.
Homeowners with valuables, a high net worth, or other high-value assets may need more coverage than a standard homeowners policy offers.
Table of contents
- What is homeowners insurance?
- The cheapest homeowners insurance
- The best home insurance companies
- What are the types of homeowners coverage?
- Average cost of homeowners insurance policy by state
- What factors affect your home insurance rates?
- How to get a homeowners insurance quote
- Homeowners insurance discounts
- Alternative ways to save on home insurance
- How to file a homeowners insurance claim
- Homeowners insurance FAQs
What is homeowners insurance?
After damage from a major storm, a fire, or an event the insurance industry describes as an “act of God,” you’ll want to repair your home to continue living there comfortably. And without a homeowners insurance policy in place, you’d be on the hook for the full cost of these repairs.
The goal of homeowners insurance is to get you and your home back to where you were before the damage or destruction occurred as quickly as possible.
How does home insurance work?
The insurance industry separates homeowners insurance into six individual coverages, labeled with the letters A through F:
Coverage A – Dwelling coverage: This pays for damage to the structure of your home.
Coverage B – Other structures: This protects you against loss to unattached structures on your property, such as a detached garage or tool shed.
Coverage C – Personal property: This coverage pays for personal belongings in the home that are affected by the loss. Generally, Coverage C has a lower limit for very valuable items, such as jewelry, firearms, antiques, furs, and the like.
Coverage D – Loss of use: If your home is uninhabitable or parts of the home are unusable after the damage or loss, this coverage will help pay for your additional living expenses from living somewhere else while you rebuild.
Coverage E – Personal liability: This aspect of homeowners insurance will provide coverage if you or another resident of your home are legally responsible for an injury to someone else or property damage.
Coverage F – Medical payments to others: If someone is accidentally injured on your property, this type of coverage will pay for their medical expenses.
In general, you should expect a homeowners insurance policy to offer all six types of coverage. However, the level of coverage for each and the amount you can expect your insurer to pay in the event of a claim will vary from policy to policy.
How do claims work?
If you need to make a claim, the insurance company will send a claims adjuster to your home to assess the damage. Based on the adjuster’s conclusions, the insurance company will send a payment to you. Depending on the extent of the damage, you may receive an initial payment that serves as an advance on your total settlement and subsequent payments during the rebuilding process.
In many cases, you’ll receive separate payments for each category of damage. For instance, if you need to make both a dwelling claim and a personal property claim, your insurance company will generally pay those claims separately. Similarly, if you have to vacate your home during repairs, your payment for your loss of use claim will come separately.
For dwelling and other structure coverage claims, your insurer will generally make your payment check out to you and your mortgage lender. Your lender is included on the claim payment because it has a financial interest in your home. By making this check out to both you and your mortgage lender, the lender knows for certain that the repairs will be completed. The check must be endorsed by both you and your lender, and in some cases, your lender will put the money in escrow to pay for repairs as they happen.
Learn More: How to File a Home Insurance Claim
How are claims settlements calculated?
Many homeowners mistakenly believe their insurance will upgrade parts of their home if they need to make a claim. However, insurance’s real role is to return you to where you were before.
In other words, if you have a fire in your kitchen, you can’t expect to get an upgrade to stainless steel appliances and marble countertops if what you lost were basic builder-grade appliances and laminate counters. Similarly, if you have to replace the floor in your kitchen because of the fire, that doesn’t mean you’ll receive money from your insurance to redo all the floors in your house.
It’s also important to understand exactly what kind of loss valuation you have. There are two possibilities:
Actual cash value: This may also be called depreciated value since it’s the cost to make repairs, minus the depreciation due to age or use. For example, though it may have cost $1,300 to purchase a top-of-the-line dishwasher four years ago, its value has depreciated during that time. Its actual cash value is now only $655, and that’s the amount you’d receive from your insurer. If your home insurance policy has actual cash value coverage, you may not be able to rebuild your home the same as it was before your loss.
Replacement cost: This type of coverage will pay to replace or repair what you lost at today’s costs. This includes the cost to purchase new items at their current price, rather than the depreciated value of your lost items, as well as the current cost of building supplies to repair any damage.
Why do you need homeowners insurance?
Even though homeowners insurance is not legally required, it’s likely that your mortgage lender won’t allow you to take out a mortgage without a policy in place. That’s because your lender wants to protect its financial interest in your home. And even if you’ve completely paid off your home, it’s still a good idea to carry homeowners insurance.
That’s because your homeowners insurance helps pay for loss or damage if something unexpected happens. For example, your insurance coverage can protect you in the event of these potential problems:
Fire: Even a small fire can cause extensive damage. Fire damage restoration costs an average of $4.70 per square foot in the United States, according to National Catastrophe Restoration Inc. At that price, the restoration of a 2,500-square-foot home would cost a total of $11,750. However, fire damage restoration costs can vary depending on the home’s location, the level of damage, and the availability of labor and materials. This cost also doesn’t cover your living expenses if you have to vacate the property during repairs.
Burglary: The FBI estimates that the average value of personal property stolen in a single burglary was $2,661 as of 2019. In addition, 55.7% of burglaries involved forced entry, which could mean repairing damage to your home’s structure in the aftermath of a burglary.
Injury to a guest: If you or a member of your household is responsible for injuring someone else or damaging their property, you may have to pay their medical bills or pay to replace or repair their property. The injured party may also be able to sue you.
Homeowners insurance can provide coverage for all these situations. It will cover the cost of repairing your home after a fire or other covered disaster and help you pay your living expenses while the home is being repaired. It will also help you replace items that were stolen or damaged during a burglary. And it will protect you and pay damages in the event of an accidental injury or damage to someone else.
The cheapest homeowners insurance
If you’re looking for affordable homeowners insurance, Commonwealth Casualty offers the cheapest rates, with an average monthly cost of $77 and an average annual cost of $924.
However, even affordable insurance companies may have rates that vary depending on several factors. For example, the location of your home affects your premium prices since the rate of property crime in your area and the prevalence of natural disasters in your region can increase the likelihood of a claim.
Insurers also take into account factors such as the age of the home, the state of the roof, the demographics of the policyholder and anyone else living in the house, the credit score of the policyholder, and the deductible. The insurance company will weigh all these factors to determine your premium price.
Check out the table below to find the best cheap homeowners insurance quotes in your area.
|Average Annual Cost
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The best home insurance companies
The following five insurance companies are among the best providers of homeowners insurance.
Founded in 1925, COUNTRY Financial is headquartered in Bloomington, Illinois.
This insurer offers several tiers of homeowners insurance. It has basic coverage that helps after significant emergencies, such as fire or theft, and premier coverage that helps with repairs for things like countertop burns and spilled paint. It also offers combination coverage that includes basic coverage on your belongings and premier coverage on your home itself.
COUNTRY Financial also offers the following optional coverages to help you get the specific level of protection you need, including:
On average, policyholders pay $96 a monthly, or $1,150 annually. COUNTRY Financial also offers a number of discounts to lower your premiums, including:
Alarm credit and other safety discounts
Dwelling age discount
Heating system discount
Wiring age discount
COUNTRY Financial is also well-rated for both customer satisfaction and financial strength from these rating agencies:
J.D. Power Customer Satisfaction Rating: 855/1,000
A.M. Best Rating: A+ (Superior)
That said, not all COUNTRY Financial customers are fully satisfied with their homeowners insurance offerings, with some complaints lodged about the claims process.
USAA has been offering insurance and other financial products to members of the U.S. military since 1922. If you’re an active-duty member of the military, a veteran, or the loved one of someone who served in the military, then you can become a USAA member and take advantage of its excellent homeowners insurance options.
USAA offers basic homeowners insurance coverage, as well as optional earthquake coverage in certain states and home-sharing coverage for homeowners who rent out all or parts of their homes.
Homeowners pay an average monthly premium of $122, or $1,460 annually, with USAA. It offers several discounts, including:
Discount for remaining claim-free for five years
Home security system discount
USAA receives high ratings for customer satisfaction and financial strength:
J.D. Power Customer Satisfaction Rating: 889/1,000
A.M. Best Rating: A++ (Superior)
Though USAA has an excellent reputation for customer satisfaction, some members have complained about processing for weather-related claims, while others have said their premiums have gone up every year, even when they made no claims.
Policyholders have been “in good hands” with this insurance company since 1931. It offers excellent homeowners insurance policies that go above other companies’ standard coverage. Customers can also choose to beef up their insurance with optional additional coverages. These include:
Garden and yard
Musical instruments and sports equipment
Electronic data recovery
Allstate customers pay an average of $163 a month, or $1,960 annually. This makes it one of the pricier insurers on this list. However, Allstate offers a robust list of potential discounts, including:
Claim-free history discount
Discount for storm shutters or a hail-resistant roof
New homebuyer discount
Early signing/renewal discounts
Allstate boasts excellent ratings for customer satisfaction and financial strength:
J.D. Power Customer Satisfaction Rating: 829/1,000
A.M. Best Rating: A+ (Superior)
When customers are dissatisfied with Allstate, it’s often because of the claims process, which many people report to be slow and frustrating. Of particular concern are the claims for wind damage and roof issues.
Founded in 1945, Shelter Insurance is dedicated to helping protect the place you call home. With property insurance options for single-family homes, mobile homes, apartments, condos, and co-ops, Shelter is all about keeping your home safe.
In addition to the standard coverage for homeowners, this insurance company offers a number of other coverage options, including:
Sewer and drain backup
Increased personal computer coverage
Escape of water from plumbing
The average premium is $129 monthly, or $1,580 annually, but Shelter offers several discounts to policyholders. These cost-saving options include:
Multi-policy discount (Shelter also offers auto insurance)
Discount for remaining claims-free for six or more consecutive years
New home discount
Heating system discount
Shelter’s customer satisfaction and financial strength are both rated highly by these agencies:
J.D. Power Customer Satisfaction Rating: 847/1,000
A.M. Best Rating: A (Excellent)
Shelter’s customer satisfaction is high for homeowners insurance, although there are a few complaints about the company’s auto insurance.
Chubb was founded in 1792 in Philadelphia as the Insurance Company of North America (INA). The company specializes in homeowners insurance for high-value homes. Coverage can include extended replacement cost, risk consulting, temporary living arrangements, a cash settlement if you choose not to rebuild after a total loss, and additional services like tree removal and lock replacement.
Chubb home insurance policyholders are also eligible for some complimentary services from the company, such as:
Property manager services: If you own a second or seasonal property, Chubb will send someone to inspect it after a natural disaster and can manage the claim and repair work for you.
Identity management services: If your identity is stolen, this service will help you recover it. You’ll be assigned a fraud specialist to help you.
Several optional coverages are also available to policyholders, including:
In-home business insurance coverage
With an average premium of $150 monthly, or $1,800 annually, Chubb may not be the most affordable option, but a number of discounts are available. Some of these discounts include:
New home discount
Discounts for being claims-free
Backup generator discount
Chubb is highly rated by these agencies for customer satisfaction and financial strength:
J.D. Power Customer Satisfaction Rating: 896/1,000
A.M. Best Rating: A++ (Superior)
Though the company is highly rated for customer satisfaction, Chubb does receive mixed reviews online, garnering just 2 out of 5 stars from reviewers on ConsumerAffairs and 1.5 out of 5 stars on Yelp.
What are the types of homeowners coverage?
Eight forms of homeowners insurance are available:
Basic form (HO-1)
This form is the least comprehensive type of home insurance. It only offers dwelling coverage and only covers damage resulting from the following perils:
Fire and/or smoke
Hail and/or windstorms
Damage from vehicles
Damage from aircraft
Riots and civil commotion
Most mortgage lenders don’t consider HO-1 policies to offer enough insurance, so any homeowner with a mortgage will likely have to get a different policy.
Broad form (HO-2)
Broad form policies typically offer both dwelling and personal property protection. Some also include personal liability coverage but only for the specific perils listed in the policy.
Generally HO-2 policies cover the same perils as HO-1 policies but also include:
Weight of ice, snow, or sleet
Freezing of household systems, including HVAC systems
Sudden and accidental damage to pipes and other household systems
Accidental discharge or overflow of water or steam
Sudden and accidental damage from artificially generated electrical current
Since an HO-2 only offers protection against perils that are specifically named in the insurance policy, it doesn’t provide as much protection as most homeowners may need.
Special form (HO-3)
HO-3 policies are the most common home insurance policy because they offer what’s known as “open peril” coverage for your dwelling and other structures. This means HO-3 insurance will cover your home for any peril that isn’t specifically excluded by your policy. But for personal property, an HO-3 only covers the same named perils as an HO-2 policy.
However, a typical HO-3 policy has several big exclusions, namely:
Mold and fungus
General wear and tear
You may have additional exclusions depending on where you live since your location may have a higher risk of certain types of perils.
Tenant’s form (HO-4)
Commonly known as renters insurance, HO-4 policies typically cover your personal property against all the same perils as an HO-3 and include liability coverage. But they don’t offer dwelling coverage, since that’s the landlord’s responsibility.
Comprehensive form (HO-5)
HO-5 policies offer broader coverage, giving you open perils coverage for both your dwelling and your personal property, generally with extra coverage for high-value possessions.
Condo form (HO-6)
Condo owners purchase this type of insurance, which covers the walls, floors, and ceiling of the condo unit but not the rest of the building, since the condo association or HOA is responsible for property damage in common areas.
Mobile home form (HO-7)
Owners of mobile or manufactured homes can purchase an HO-7 policy, which offers nearly identical protection as HO-3 policies. But mobile home insurance doesn’t cover the home when it’s in transit, only when it’s stationary. You’ll need a special policy to cover your home when you’re transporting it.
Older-home form (HO-8)
Your old house may have a ton of character, but it was also built to different (and less stringent) codes than more recent homes. That means owners of older homes (generally those that are more than 40 years old) need a different policy. HO-8 policies generally cover the same perils as those listed in HO-1 policies and provide only actual cash value coverage for your dwelling and other structures.
Average cost of homeowners insurance policy by state
Location affects the cost of homeowners insurance. Here are the average annual premium costs for home insurance by state:
|Average Annual Cost
What factors affect your home insurance rates?
Several factors can affect your home insurance rates. The most common variables include:
Location: Different locations may have higher or lower risk factors for various types of damage.
Construction type: What your home is built of (wood vs. stone) and how it’s built (flat vs. slope roof) can affect what damage you’re likely to experience.
Replacement cost: The more expensive your house is, the more it will cost to replace.
Liability coverage: The amount of liability coverage you carry can affect your rates. Additionally, if you have additional risk factors for personal liability, such as an aggressive dog or a swimming pool, that could increase your premium costs.
Dwelling coverage: The amount of coverage you carry on your dwelling has a direct effect on your rates.
Credit history: The insurance industry considers policyholders with negative credit histories to have a higher risk of making claims, so some insurers will raise rates on such customers.
Number of claims: Making no claims for several consecutive years can help lower your premiums.
Deductible amount: The deductible you set will help determine your rates. A higher deductible will lead to lower premiums and vice versa.
How to get a homeowners insurance quote
When you shop for homeowners insurance, it’s important to get several quotes so you can compare prices side by side. Price-comparison tools allow you to do this anonymously and eliminate the need to share your personal information just to get a quote. However, these quotes will be more general and based on current average rates in your area.
To get a quote more accurate for your specific needs, follow these steps:
Step 1: Provide your personal information. To truly tailor your quote you’ll likely have to provide information such as your age, gender, marital status, home type, address, ZIP code, and more.
Step 2: Provide your email address. Though insurers don’t need your phone number or email address to generate a quote, you’ll likely need to provide valid contact information to receive the quote. Unfortunately, this may mean you’ll receive calls and emails to try to sell you more insurance. Fortunately, some price-comparison platforms allow you to get multiple quotes at once and avoid repeated contact from insurers.
Step 3: Compare quotes. Once you’ve gotten your quotes, you can easily unlock discounts and toggle between coverage options to find the best option for your needs.
Homeowners insurance discounts
Homeowners can take advantage of several discounts to reduce their premium costs. Some available discounts include:
Multi-policy discounts offer savings on all your insurance policies if you bundle multiple policies with the same insurer.
Loyalty discounts can offer you savings if you stick with the same provider for several years.
A pay-in-full discount will give you a price break if you pay your premium in an annual lump sum, rather than monthly.
A married or widowed discount gives you a discounted rate if you’ve tied the knot.
A mature homeowners discount rewards the fact that older homeowners are more likely to be at home during the day, meaning they’re less likely to be burglarized.
Homeowners association discounts provide premium discounts to members of a homeowners association (HOA) since such homeowners are generally subject to high home maintenance standards.
Safety- and security-based discounts
Monitored burglar system discounts help homeowners who install a burglar alarm system lower their rates.
Monitored fire alarm system discounts reward homeowners who have up-to-date smoke alarm systems or other fire alarm systems in their homes.
An impact-resistant roof discount is intended to reward homeowners who live in heavily forested areas or in areas with a high risk of roof damage and maintain an impact-resistant roof.
Home improvement discounts may make you eligible for savings if you’ve upgraded some aspects of your home.
Gated community discounts lower rates for homeowners in a gated community, as they’re likely to face fewer safety threats.
A new-home discount is a benefit for homeowners who buy a new home that’s 100% up to code.
Nonsmoker discounts reward those who don’t smoke. Smoking is one of the leading causes of house fires, so insurers offer a discount to nonsmoking policyholders.
Alternative ways to save on home insurance
In addition to discounts, you can lower your home insurance costs in several other ways, including:
Shop around. Each insurer has its own formula for determining annual premiums, so shopping around among multiple companies is the best way to determine if you’re getting the best value for your money.
Bundle your policies. If you bundle your homeowners insurance with auto, umbrella, life, or other insurance from the same insurer, you’re likely to be rewarded with a discount on each of your policies.
Improve your credit score. Credit history is one factor that insurers use to determine your premium. Improving your credit score can help you secure lower premiums.
Raise your deductible. A deductible is an amount you pay after making a claim and before your insurance coverage kicks in. A higher deductible costs the insurance company less, which means it charges you a lower premium. While raising your deductible is a tried-and-tested way to reduce your premiums, make sure you don’t increase it to an amount you can’t afford to pay in the event of a claim.
Lower your coverage limit. Though a lower coverage limit will directly reduce your premiums, it’s generally not a good idea. You need to have a coverage limit that’s enough to help you rebuild your home if it were destroyed. A limit that’s too low will mean you have to pay for the difference between your coverage amount and the full cost of rebuilding.
How to file a homeowners insurance claim
After your home has been damaged, you’ll follow several steps to file a claim. To start, you need to alert the authorities if you’ve been the victim of burglary or vandalism. Having a police report on file is often a requirement for filing a claim for damage due to a crime.
Next, you need to contact your insurance company. If you have an agent, call them directly if you can. Throughout the process, you should document everything, including the names and titles of anyone you correspond with from your insurance company.
You can generally expect your insurance agent to assign you a case number and an insurance adjuster. Make sure you keep track of this information with any other documentation, including any receipts you have for living expenses if you have to vacate your home.
From there, you can make temporary repairs that will allow you to remain in your home and prevent further damage. For example, you may put a tarp over the hole in your roof or board up a broken window to keep inclement weather from causing any more damage.
Generally, you want to file a claim if your home has significant damage. But if repairs will cost less than your deductible, you probably want to simply pay out of pocket to fix the damage. This can help maintain your claim-free history since you’d see no benefit from the claim in any case.
Learn More: Why Do Home Insurance Companies Deny Claims?
Homeowners insurance FAQs
Here are answers to some of the most common questions home insurance shoppers are asking.
Insurify has found that Commonwealth Casualty offers the cheapest rates. The average monthly premium is $77, which comes to an average annual cost of $924.
Though homeowners insurance is not legally required, mortgage lenders often require borrowers to carry this insurance. If you have a mortgage, you’ll almost definitely be required to carry home insurance.
The level of homeowners insurance coverage you need can depend on your financial situation. However, it’s a good idea to carry enough coverage to replace your home if it were completely destroyed.
If your home functions as only your primary residence, then your homeowners insurance premiums aren’t tax deductible. But homeowners who run a business out of their home or who have tenants in the home may be able to deduct a portion of their homeowners insurance as a business expense.
Most insurance companies require policyholders to carry an amount of homeowners insurance equal to at least 80% of the replacement cost of their home in order to qualify for full replacement cost coverage. If your coverage limit is lower than 80% of your home’s replacement cost, your insurer may not pay to repair your dwelling after a partial loss.
If your net worth is greater than the liability limits of your homeowners and auto insurance policies, you likely need an umbrella policy to protect all your assets.
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- Insurance Information Institute. "HOMEOWNERS PREMIUMS RISE FASTER THAN INFLATION; EXPECT THIS TO CONTINUE." Accessed February 10, 2023