HomeInsuranceWhat is Homeowners Insurance?

What is Homeowners Insurance?

Your home is the largest purchase you will make in your life, and you need to be protected against natural disasters, theft, vandalism, or fire when you own a home. Homeowner’s insurance provides this coverage, so you are not in a situation unable to repair damages or theft. 

Homeowners insurance is a form of property insurance that covers your home’s structure, and your belongings in case of loss and damage. When you purchase a home insurance policy, you agree to pay a premium in exchange for the insurance company reimbursing you in event of disaster that are specified in the policy. In the insurance industry these events are called “perils”. Each policy type comes with different covered perils.

In addition to covering your dwelling and personal property, most homeowners’ insurance policies protect against personal liability for harm to others. If someone is injured on your property or in your home, your insurance company may provide coverage.

  • Homeowner’s insurance provides financial relief if a covered incident damages your home or personal belongings.
  • It can also payout when you’re held responsible for an accident or injury.
  • Most mortgage lenders require homeowner’s insurance.

How does homeowner’s insurance work?

Your homeowner’s insurance policy is only active as long as you pay your premiums. Premiums are paid directly from you to the insurance company or as part of your monthly mortgage payment. Depending on your mortgage lender, they may have homeowners insurance as a requirement to add the premium to your mortgage payment. 

Your homeowner’s insurance policy has specific stipulations, so if there are any changes in your life, it may be necessary to report the changes to your insurance company to maintain coverage. Some insurance companies may not continue coverage if you have a specific breed of dog, so before a new dog comes into your home, contact your insurance agent for your policy specifics. 

When something damages your home or property inside, you will contact your insurance company to start filing a claim. When filing a claim, you can expect questions regarding general information like where the damage is, what kind of damage you have, and when it occurred. 

Before sending any payout, they will ask you to submit pictures of your home’s damaged portions or allow a claims adjuster to inspect the damage. Once you start the claims process, your insurance provider will determine the next steps.

What does homeowner’s insurance cover?

A typical homeowner’s insurance policy provides coverage to repair or replace your home and its contents in the event of damage. That usually includes damage resulting from fire, smoke, theft or vandalism, or damage caused by a weather event such as lightning, wind, or hail. That coverage includes your heating and cooling systems, along with kitchen appliances, furniture, clothing, and other possessions. 

Coverage for outbuildings on your property, such as a garage, barn, or shed, along with outdoor grills or fireplaces, swing sets, walls, or fences, is included. Your policy may cover a swimming pool or other recreational equipment, but those items may require additional liability coverage.

If you need alternate lodging while your home is rebuilt, you are typically covered for this. Liability coverage is typically included, which means you are reimbursed for medical expenses and legal fees if people that are not living in your home are injured on your property.

Home’s structure and belongings: Home insurance offers financial protection for the structure of a home and any belongings in the home in the case of a covered event.

Additional Living Expenses (ALE): Homeowner’s insurance covers other living expenses you incur while repairs are done — meaning should you need to stay in a hotel and dine out, your policy might cover those extra expenses.

Liability protection: A standard homeowner’s insurance policy comes with liability protection. This means should someone get hurt while on your property or if they find you at fault for damage to someone else’s property, your liability coverage might step in to help pay for their expenses.

What is not covered by homeowner’s insurance?

Homeowner’s insurance doesn’t cover every event that could damage or cause monetary loss to your home. If certain natural disasters hit your area and your home suffers structural damage, your insurance carrier likely won’t cover the loss. Below are some events our insurance provider may not cover.

  • If you don’t properly care for your home, insurance may not cover maintenance damage that arise from that neglect.
  • Floods which are caused by nature or man-related conditions, such as rising rivers, flash floods, burst dams, and sewer backups, are not usually covered in a basic policy.
  • Coverage for earthquakes is usually available as a separate policy or an endorsement to your policy.
  • Damage caused by war or nuclear hazard is not covered by your homeowners insurance.
  • Canine attacks, and loss of expensive valuables are other situations that are typically not covered.

Adding endorsements or adding a separate, specialized policy can cover these events.

Each policy is different, so it is essential to read through and understand what your policy will cover and what it does not. Depending on where you live and what events are 

likely to occur, you can purchase a specialized policy to cover high probability events not covered by your primary policy.

Types of homeowner’s insurance


HO-1 Basic Form is the most basic form homeowner’s insurance is the most limited in terms of coverage, and it only protects your home and personal belongings against these below events, meaning these specific causes of damage or loss:

  • Fire or lightning
  • Windstorm or hail
  • Explosion
  • Riot or civil commotion
  • Aircraft
  • Vehicles
  • Smoke
  • Vandalism
  • Theft


HO-2 Broad Form policies are more common than HO-1s and an upgrade from them. It protects your home from everything HO-2 covers, along with six other events.

  • Weight of ice, snow, or sleet
  • Accidental discharge or overflow of water or steam
  • Sudden and accidental tearing apart, cracking, burning, or bulging of a built-in appliance like a water heater or centralized air conditioner or heating system
  • Freezing
  • Sudden and accidental damage from an artificially generated electrical current, like power surges
  • Volcanic Eruption


HO-3 or Special Form is the most commonly purchased homeowner’s insurance policy because it is the minimum coverage required by mortgage providers. The HO-3 policy is an open perils policy that covers any direct damage to the house or other structures on the property unless excluded from your policy.


HO-4 Contents Broad Form is referred to as renters insurance. HO-4 policies are created specifically for those who lease homes or apartments. Renter’s insurance covers your personal property both inside the rental property and anywhere in the world. If your apartment is damaged, it covers your liability and added living expenses if you need to live elsewhere temporarily. Renter’s insurance covers the same 16 perils found in the broad-form policies. 


HO-5 Comprehensive Form policies provide premium coverage for owner-occupied homes. Most HO-5 policies provide open-peril coverage for your home and its contents, meaning both home and property are covered. However, like an HO-3 policy, HO-5 policies come with exclusions. Nonetheless, HO-5 coverage offers the most superior protection.


HO-6 or Condo Insurance is home insurance for owners of co-ops or condominiums. It provides personal property, liability, and specific improvements to the homeowner’s unit. Typically, the owner’s condo or co-op association includes insurance that covers the outside of the dwelling. Coverage varies from each condo, depending on what your HOA requires.


HO-7 Mobile Home Insurance or Manufactured Home Insurance is a homeowner’s insurance that covers single-wide, double-wide, and triple-wide mobile homes on an open-peril basis. That means they insured your home for every event except those the policy lists as exclusions.


HO-8 Modified Coverage insurance policy usually refers to coverage for an older home. The repair or replacement cost may be higher than the home’s resale value. Older or historical homes often fit the bill because they may not have been updated and could be out of code (based on modern standards). As a result, they may not qualify for more common homeowner’s insurance coverage.

How much does homeowner’s insurance cost? 

Multiple factors are considered when you are quoted a price for a homeowner’s insurance policy. The average premium in the United States per year is $1,312. What affects home insurance rates largely depends on various factors. Below is a list of factors insurance providers consider when pricing your policy. 

  • Replacement cost is the cost to replace your home, which is not the same as the value of your home. 
  • Credit history is used to assess the risk providers take and how likely you will make premium payments on time.
  • Claims history is used to determine the likeliness you will file multiple claims. If you have a history of filing repeated claims this might indicate a risk for the insurance company.
  • Marital status is used, and insurers typically give lower rates to married couples as they are assumed to be a lower risk.
  • Age of the home is used in determining the risk that issues will arise with the home you live in. An older home or one that would likely need a lot of improvements if rebuilt, you will probably pay a higher home insurance premium.
  • Deductible sets the amount you will pay out of pocket if you make a claim with the insurance provider. Agreeing to a higher deductible will decrease your premium, but it could also cost you more in the event of a claim.
  • Location is considered, If your zip code is near an area with a history of perils, such as vandalism, theft, or weather-related events, then it could increase the cost of the policy


Is homeowner’s insurance required?

Homeowner’s insurance may be required as a part of your loan agreement with your mortgage lender. Your lender may require you to carry homeowner insurance because it protects the lender. There are always risks associated with loaning such large amounts of money, and one way to protect both parties is with a homeowner’s insurance policy.

If your house catches on fire or a tornado tears the roof off, would you have the finances to continue paying your mortgage and building a new home or making large-scale repairs? In these events, homeowner’s insurance protects both your interests and the banks. 

Homeowners’ insurance is not required by law, and if you own your home with no mortgage, whether you want homeowner’s insurance is up to you. 

How much homeowner’s insurance do I need?

When deciding how much homeowner’s insurance you need, it is important to have enough coverage so that in the event you need to repair or rebuild your home, there is enough coverage. 

Your lender may have a specified amount you need to insure, but mortgage companies only consider the amount of insurance needed to cover their investment. Lenders typically have no regulations regarding other aspects of your homeowner’s policy, such as your personal property or liability coverages. 

There are a variety of factors that need to be considered when deciding how much insurance to purchase. Below is a list of what information you need to take into consideration when choosing a homeowner’s insurance policy coverage limits.

  1. Actual value and replacement cost need to be considered when selecting how much coverage to purchase for your home. 
  2. Local building costs Research how much building supplies and labor will cost to restore your house to its current state or build an equivalent new home
  3. Research rental rates in your area if your home is damaged and you need to live in alternate housing while work is being done, you will want a policy that will cover this. 
  4. Personal belongings Create a home inventory in case you need to make a claim, keep and list the name of the item, cost, and purchase date and receipts if available. 

Once you have gathered the proper information and decided what covered items you want in your policy, you can contact insurance providers to ask for quotes on the coverage you want for your home. Below is basic information you should remember when speaking to your insurance agent.

  • Homeowner’s insurance covers losses and damages to your home and belongings and protects your assets from any liability claims.
  • Standard policies don’t cover everything, so you may need additional coverage to protect against events, such as floods and other natural disasters.
  • Your insurance agent can help you decide the type and amount of coverage you need
  • Research the value of your home, the building costs in your area, and the value of personal belongings so you are prepared to discuss coverage with your insurance agent.

What should I look for in a homeowners insurance policy?

When deciding who to purchase your homeowner’s insurance policy from below are multiple factors to take into consideration.

Know how much coverage you need and what you want to be included in your policy. This will help you ask the agent the proper questions so your policy has the coverage you want and need.

  1. Look at what the policy covers so you know exactly what they covered and if your policy leaves anything out, there is always the option to purchase additional policy coverage.
  2. Pay attention to the deductible because a higher deductible means you’ll pay more out-of-pocket if something happens to the home, but it offers some advantages. It often means a lower monthly payment, but it is important to know you can afford the deductible because it has to be paid before your insurance company will payout on a claim.
  3. Choose the best way to have premiums paid that fit your budget. Many people like to pay their premiums annually, but that can cost thousands of dollars at one time each year. The other option is to pay monthly and have the premium added to your mortgage payment, so it is all made in 1 easy payment. 


Homeowner’s insurance can seem confusing, but just remember that it is there to provide you with security for your largest investment, which is your home. The policy you choose should cover your unique needs, but remember that over-insuring is not ideal because having a premium you cannot afford does not do any good for you or your finances. Discuss coverage and policies with your insurance agent and be prepared. They do not know what personal belongings are in your home, so have that information handy when speaking to your agent.

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