Homeowners Insurance 101

Homeowners insurance protects your biggest investment: your house. This policy covers your home, your personal property, and even protects you from liability risks. What is homeowners insurance and why do you need it? How can homeowners insurance bundles lower your auto insurance rates?

Read on to get all of the basics of homeowners insurance, how to buy it, and what you can expect in terms of homeowners insurance rates.

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What is homeowners insurance?

Sometimes referred to as home insurance, homeowners insurance is an insurance policy that homeowners purchase in order to protect the structure of their home, the personal belongings they keep inside their home and any other external structures which exist on their property. For the most part, home insurance is designed to protect homeowners against the financial consequences of natural and manmade disasters. For example, if lightning strikes your roof and ruins your satellite dish, you can file a claim with your insurance company to see if they will cover all or part of the cost of fixing the damage and replacing the dish. But this is only one example. There are a million things that could happen to your home at any time – and without the right home insurance, you could leave yourself vulnerable to financial risk.

Most Expensive Homeowners Insurance Premiums by State

Legend:
Average Annual Premium

Florida
Connecticut
Oklahoma
Colorado
Louisiana

150
300
450
600
750
900
1050
1200
1350

$1471

$1329

$1413

$1298

$1391

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What does homeowners insurance cover?

Homeowners insurance covers four main areas:

• The house itself and any other structures on the property
• Personal property and contents of the house
• Personal liability
• Loss of use

There are also a wide variety of things that may be included in the policy or may be added on as riders. These include:

• Water and sewer backup
• Equipment breakdown
• Identity theft
• Locksmith services

What doesn’t homeowners insurance cover?

There are two main things a standard homeowners insurance policy doesn’t cover. Those are floods and earthquakes. Flood insurance can be purchased as a standalone policy, and is offered through the National Flood Insurance Program.

Earthquake insurance is often sold as an add-on or rider, but may also be a separate policy. This policy covers all kinds of earth movement, not only earthquakes.

Each policy also excludes a variety of things. Mold is another common exclusion from home insurance, and in most cases, it can’t be added via a rider. Read your policy carefully so you know what’s covered and what isn’t, and read more about covered perils further down this page.

Paying for Your Home Insurance Coverage

Unlike other types of insurance which may charge you by the month, biannually, or give you flexible options, most homeowners insurance companies have a rigid payment structure. You write your insurance provider a check once per year, and you will be protected for the next 12 consecutive months.

Paying your annual premium on time and in full is important for maintaining coverage on your home. Late payments could result in termination of coverage, which can lead to a whole host of other financial problems for you. It can negatively affect your credit, your CLUE report, your insurance score, and it can also make it difficult to reinstate your current policy or find new coverage with another company. In some states, your mortgage lender may take out their own insurance policy on your home and force you to pay for it if they deem your coverage insufficient.

If you have a mortgage, you may be able to pay your homeowners insurance through escrow, which prevents accidental lapses in coverage.

Most Affordable Homeowners Insurance Premiums

Legend:
Average Annual Premium

Oregon
Utah
Idaho
Nevada
Wisconsin

100
200
300
400
500
600
700

$656

$672

$713

$718

$735

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Understanding the Claims Process

When something damaging happens to your home, your personal property, or a visitor, you may need to file a claim. The first thing you should do is immediately document any damage by taking photos. If the damage is minor – especially if it would be less expensive to repair/replace than to pay your deductible – it may be a good idea to avoid filing a claim. This will keep your annual premiums down and keep more money in your pocket over time. If the damage is more than you can financially handle on your own, be prepared for a long and complicated claims process. You can learn more about filing claims and how to make sure your claim is honored fairly on our claims page.

Your basic deductible may be as low as $500 per claim, but often people raise their deductible to $1,000 or more in order to lower their premium. Raising your premium sends a signal to your insurance provider that you are willing to share more of the financial responsibility, which means you are a lower risk and that honoring your claims will be less costly for the company. Most providers will reward you with lower annual premiums. Conversely, lowering your deductible will raise your premiums because your insurance provider wants to protect itself from your heightened financial risk to the company.

For some areas, especially areas that are prone to particularly destructive perils like hurricanes and earthquakes, you may have a completely separate deductible. These deductibles may be set at a flat rate (which will be significantly higher than your basic deductible), or they may be a small percentage of your total dwelling coverage (on average, between 2-5%). Such perils can be devastatingly destructive, and your insurance company could potentially go under or be unable to sufficiently fulfill your claim if 10,000 homeowners in your city are filing total loss claims on a policy with a $500 deductible.

For more information on the claims process, be sure to read through our guide to filing a claim.

Understanding Home Insurance and Perils

Perils are destructive disasters or events which may happen to your home at any time and result in either damage to or destruction of your property. Perils are the main reason homeowners insurance exists in the first place – to protect people from the expenses associated with recovering from a peril. If the peril in question is covered by your insurance policy, then your filed claim will likely be honored and the claims process should be relatively simple. If a specific peril is not covered by your policy, then there’s a high likelihood that you will be responsible for most, if not all, of the expenses required to replace/repair your damaged property.

It’s important to know which perils are most likely to happen in your area, and what you can do to proactively protect your home against them. Taking proactive measures, such as creating a fire break around your land or installing smoke and carbon monoxide detectors in your home, could potentially earn you discounts which can lower your annual premiums. Best of all, it will help you avoid disasters which would require you to file a claim in the first place.

Furthermore, it’s important to know that not all perils are covered equally across your entire policy. Coverage A, which typically applies to the physical structure of your dwelling, covers all but a handful of possible perils. Coverage C, on the other hand, which only covers your personal belongings, will only pay out claims based on a few specific perils. Anything else that happens to your belongings will likely not be honored if you file a claim. If you have any sort of confusion at all when it comes to perils on your policy, you need to schedule a meeting with your insurance agent to go over them and make sure you understand. Otherwise, you may be left holding the bag.

For more information on perils, take a look at our guide to named and open perils.

Homeowners Insurance: The Bottom Line

In this article, we’ve really only touched the surface of what homeowners insurance is, how it protects you, and why it’s so important to be well-informed.

Many homeowners insurance topics are nuanced enough to require a more detailed explanation. It is a bit different than condo insurance so be sure to read through our other articles on home insurance for that detail. Before you shop, you may also want to use a homeowners insurance calculator to be certain you are buying enough coverage.

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For more information on homeowners insurance, check out our Homeowners Insurance FAQ

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