- Lenders generally require that you get homeowners insurance in order for you to get a mortgage.
- The average cost of homeowners insurance is $104 a month.
- You can get a variety of coverage, including for your home, personal property like TVs and laptops, and any liability if someone gets injured on your property.
- You may be able to save on your policy premiums—by installing a home security system, for instance.
Having the right insurance is one of the most important aspects of your overall financial picture. Insurance is designed to help you protect your hard-earned wealth and belongings.
To that end, homeowners insurance, which protects you from financial losses related to your home, is one of the most important insurance policies you’ll purchase. It covers your home and all of your belongings and helps you to rebuild if you experience a loss.
Unfortunately, homeowners insurance is one of the most complicated and expensive policies to buy. But not to worry—we’ll explain how it all works, how much it usually costs and how to find the best policy.
Inside this article
What is homeowners insurance?
Homeowners insurance is a type of property insurance designed to protect you from financial loss. It generally protects you against losses from the damage or total destruction of your home. It also protects against loss due to damage, destruction or theft of your personal belongings inside your home.
Finally, it protects you against financial liabilities related to your home, such as someone being injured on your property.
How does homeowners insurance work?
Homeowners insurance can be one of the most complicated types of insurance to understand, given the many types of coverage that exist and the differences from one policy to the next. In general, a homeowners insurance policy can be broken down into five components: dwelling protection, other structures protection, personal property protection, liability protection and additional living expense protection.
Dwelling protection: Covers damage to and destruction of your home due to any hazards covered in your policy, which usually include fire, wind, hail, theft and more.
Other structures protection: Covers damage to and destruction of other structures on your property, including detached garages, sheds, fences and more.
Personal property protection: Covers damage to, destruction of and theft of your personal property inside and outside your home.
Liability protection: Covers your financial liabilities for injuries that occur on your property or damages your family members cause to other people’s property.
Additional living expense protection: Covers your living expenses if you have to leave your home due to a covered incident.
On top of the standard coverages that come with most homeowners insurance policies, there are additional coverages you can purchase, including flood and earthquake insurance, water backup insurance, valuable belongings coverage and more.
Do you need homeowners insurance?
Homeowners insurance isn’t legally required, but most people need to have it. First, mortgage lenders require that all borrowers purchase homeowners insurance before they’ll close on a home. As long as you have an outstanding loan on your home, you’ll be required to carry insurance to protect the lender from financial losses.
Even if you purchased your home in cash or have paid off your mortgage, homeowners insurance is still likely necessary. For most people, a home is the single biggest purchase they’ll make in their lives. People often spend years saving for a home and decades paying it off. And the fact is that most people can’t afford to replace their home if it’s destroyed, so having insurance is important.
Tip: It can be tempting to skip having a homeowners insurance policy to save money. But just think: The amount you’ll pay in premiums pales in comparison to the cost of replacing your home and personal belongings in the event of a total loss.
How much does homeowners insurance cost?
According to a report from the National Association of Insurance Commissioners, the average cost of homeowners insurance in the United States is $1,249 per year or about $104 per month.
There are many factors that affect the amount you’ll pay for homeowners insurance, so your premiums could be quite different from the numbers you see above. Factors that impact your homeowners insurance premiums include:
Location: Insurance costs vary considerably from one location to another due to factors such as weather patterns and crime rates.
Replacement cost: Your home’s replacement cost is the amount it would cost to rebuild it. The higher your replacement cost, the higher your premiums.
Coverage amount: Other coverage amounts for personal property, liability protection and additional living expenses will also affect your rates.
Your home’s characteristics: Older homes and those with features that will be more expensive to replace may result in higher premiums.
Credit history: Insurance companies consider your credit history when setting rates since studies have found correlations between creditworthiness and claims.
Claims history: If you’ve filed insurance claims in the past, then insurers may see you as higher-risk, which could result in higher premiums.
Deductible: In general, your insurance premiums decrease as your deductible increases, since it results in less risk for the insurer.
Provider: Different insurance companies charge different premiums, meaning the insurer you choose can drastically affect your rates.
How to choose homeowners insurance
The first step to choosing a homeowners insurance policy is determining how much coverage you actually need. You can multiply the total square footage of your home by your local building costs per square foot to estimate the replacement cost of your home. An insurance agent can help you get this information. Also, estimate the value of your personal belongings to ensure you have enough coverage to replace them in the event of a total loss.
Once you know what amount of coverage you need, you can shop around for a policy, typically either directly with insurance companies, through an insurance broker or through an online marketplace (more on this below). Whichever option you choose, it’s important to get quotes from multiple companies to ensure you get the best rate for the coverage you need.
Tip: Some insurance companies may allow you to save with discounts. For example, you may be able to save by bundling your homeowners and auto insurance policies or by installing a home security system.
It’s also useful to look at financial and customer service ratings for the insurance companies you’re considering. Third-party sites like AM Best rate the financial stability of insurance companies. Companies like J.D. Power and the National Association of Insurance Commissioners rate the customer service of different insurance companies.
Once you’ve done your research and have found the insurance company that’s the best fit, you can sign up for your policy. But consider reevaluating your policy each year to ensure you still have enough coverage and that your current insurer is still the best fit.
Where to buy homeowners insurance
When it’s time to purchase a homeowners insurance policy, it can be difficult to know where to turn, especially when there are so many different insurers to choose from.
First, you can go directly to insurance companies to get quotes and sign up for homeowners insurance. Some insurance companies allow you to do this right on their website, while others will require you to work with an insurance agent to get your policy set up. Some of the top homeowners insurance companies in the U.S. include State Farm, Allstate and USAA.
Another option available is to work with an insurance broker. Unlike an insurance agent, who usually works for a specific insurance company, insurance brokers are usually independent professionals who help customers shop for insurance and get the best rate. One of the best ways to find a reputable broker is to ask friends or family members. Some states also have a statewide organization of independent agents and brokers that may provide information about their members.
Finally, you can shop for homeowners insurance on your own using one of the many insurance marketplaces available online. Some of the most popular include Policygenius, The Zebra and Quote Wizard. These online services allow you to get quotes from multiple insurance companies at once to find the best rate and coverage for you. Just keep in mind that these websites are compensated by insurance companies, so the results you see are likely to be influenced by what insurers the marketplace partners with.