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Unlike your auto insurance policy, homeowners insurance isn’t a legal requirement in any U.S. state.  But you should have it: your home may be the single biggest investment you own.

If you’re financing your home through a bank or other financial institution, your lender will likely require you to have some kind of protection for such a valuable asset for exactly that reason.

We’ve spent more than 600 hours researching homeowners insurance companies and bring several decades of experience in the insurance business. And this is our list of the best homeowners insurance for you.

But what does homeowners insurance cover and how much protection do you really need?

Homeowners Insurance – What Form of Coverage Do I Need?

how to get the best homeonwers insurance rates

Before you start shopping for rates, look into the different insurance options available to you.

There are multiple types of homeowners insurance policies with varying levels of coverage: from basic protection plans to comprehensive options for valuable personal belongings.

All policies, however, work much the same way, by assessing the value of your property and setting limits for insurability.

Homeowners Insurance Forms Include:

HO-1:

The most basic form of protection against the perils named in the policy. These may include fire, lightning, wind, hail, explosions, riots, aircraft or vehicle damage, vandalism, theft, etc. This coverage does not include liability protection.

HO-2:

Covers the house and other structures on the property, such as fences and detached garages. This coverage also protects against additional perils not included in the HO-1 policy, such as falling objects, freezing, cracking, etc.

HO-3:

Covers the home and detached structures against all perils except those specifically excluded in the policy. This is the most common type of policy.

HO-4:

Liability and personal property and liability coverage for renters looking to insure the items housed within an apartment unit as opposed to the unit itself.

HO-5:

One of the most comprehensive coverages, which protects against all perils that aren’t specifically excluded.

HO-6:

Covers condo owners against listed perils provides liability coverage and protects personal property housed within the unit as well as the exterior walls, floor, and ceiling

HO-8:

Covers those who own older homes in neighborhoods where rebuilding would cost more than the current market value of the home.

What Does Homeowners Insurance Cover?

You may have heard stories about homeowners’ insurance policies not covering the full cost of damages to the home after a natural disaster.

In many cases, people are unaware of their policy details, specifically what they do and do not cover.

Most standard homeowners insurance policies include:

Six Different Types of Coverage

  1. Dwelling Coverage:

    • Coverage against certain perils for the actual house and other connected structures, such as an attached garage or deck.

  2. Other Structures:

    • Covers structures that are not attached to your home, such as a detached garage, tool shed, pool house, fence, etc.

  3. Personal Property:

    • Coverage for the personal belongings housed within the home.

  4. Loss of Use:

    • An ample coverage that provides policyholders with the means to cover living expenses while the home is being repaired or is inaccessible to the homeowners due to a covered claim.

  5. Personal Liability:

    • Affords coverage in the event you are sued following the injury of a third party in your home.

  6. Medical Payments:

    • As the name suggests, this protection covers the medical bills for anyone injured on your property.

Virtually no standard homeowners insurance policy will cover damages caused by flooding, earthquakes, and hurricanes.

If you live in an area that is prone to any of these, be aware that you will have to pay extra to protect your home from such perils.

More Comprehensive Homeowners Insurance Coverage

If you’re looking for a more comprehensive coverage, some insurers offer optional riders or endorsements that can enhance your homeowner’s insurance policy.

These, of course, have an additional cost and can increase your premium payments considerably.

Common endorsements include:

Water Backup Coverage:

  • Covers damages caused by overflowing drains, clogged sewers, broken sump pumps, etc.

Scheduled Personal Property Endorsement:

  • Covers more risks for valuable items—such as jewelry, art, and antiques—by increasing the set dollar limit on those items individually.

Personal Property Replacement Cost Endorsement:

  • Covers the replacement cost of valuable items such as the ones listed above.

Inflation Guard Endorsement:

  • Allows the policyholder to increase the coverage amount by a fixed annual percentage, effectively protecting the homeowner from having to rebuild for much more than the original construction costs.

Home-Based Business Endorsement:

  • The scope of this option may vary between insurers, yet it typically offers comprehensive coverage for home office equipment, records, and other business property as well as income replacement of the business owners.

Earthquake Endorsement:

  • Protection against damages caused by seismic events such as an earthquake or aftershock.
  • Inform yourself about your deductible, coverage and limits, and other important plan details such as whether you’ve opted for a cash value or full replacement cost coverage.
  • This last point is particularly important, as it will determine the maximum amount you will receive in the event your property is beyond repair and needs to be rebuilt.

Replacement Cost Coverage:

  • Provides a benefit amount equal to the cost of rebuilding the home with similar materials of like quality.

Cash Value Coverage:

  • Provides a benefit amount equal to the market value of the home at the time of the covered claim.

The better informed you are with regard to your policy details, the better prepared you’ll be when it’s time to file a claim.

If you’ve filed a claim that was denied and feel your insurance company has made a wrong call, please know you have the ability to appeal its decision and ask for reconsideration by hiring the services of a public adjuster.

What Goes Into Your Homeowners Insurance Premiums?

Just as with any other type of insurance, homeowners insurance premiums are based on a number of factors, including the area where the home is located, its age, and the construction materials from which it was built, particularly the roof.

These are important because older houses are more likely to require expensive repairs for major household systems.

In addition, the cost of reconstructing an older home with new materials and construction techniques may surpass its current value.

Meanwhile, homeowners in areas with high crime rates, prone to natural disasters or located far away from emergency services can expect to have higher premiums due to the increased likelihood of these homeowners filing a homeowners insurance claim.

Other Relevant Factors Include:

Proximity to Emergency Services:

  • Policyholders who live far away from fire stations and fire hydrants may have to pay higher premiums than those who live closer to a station or hydrant.

Claims History:

  • Filing claims is a surefire way to increase your premium payments or, in some cases, even terminate coverage altogether. Insurers are reticent to confirm this information, yet actuarial research reveals the average homeowner files an insurance claim every 10 years. That means insurance companies see policyholders who file small claims as higher-risk individuals.

Risk Factors:

  • For insurance companies, risk factors are myriad and can include: being close to areas where major damages (riots, wildfires, storms, etc.) can take place, or having equipment, devices or structures where major accidents can take place, such as pools and trampolines.

Home Insurance Score:

  • Home insurance scores are meant to predict a policyholder’s likelihood of filing claims. Many factors go into determining this score, including the age of your oldest credit account, your total outstanding debt, any past due amounts, hard inquiries, credit card limits, etc.

Deductible:

  • The deductible is one crucial factor that homeowners can modify to get lower monthly premiums. Choosing a higher deductible will mean lower premiums, but greater out of pocket expenses.

Coverage Amount:

  • The amount of coverage you select will play a role in the price of your insurance.

How to Lower Your Homeowners Insurance Premiums

In life be sure to take everything with a grain of salt especially advice on financial products such as home or life insurance.

That being said, we compiled some useful tips to help you keep your insurance premiums affordable:

Play with the Deductible

Deductibles are a way for insurance companies to shift some of the risks of insuring a home to the homeowner. That means the higher the deductible is will translate as lower premium payments and vice versa.

Opting for the highest deductible you can comfortably afford is a great way to obtain a lower premium amount. Just remember not to exceed what you can actually pay out of pocket in the event of a covered claim.

When shopping around for a homeowners insurance coverage, ask what your premium would be if you chose the highest possible deductible you could afford and compare the difference in monthly premium payments.

Opt for the Right Coverage & Amount

This one might be more common sense than anything else, but really consider the type of coverage you’re likely to require based on your location and past claims history.

If you have a mortgage and are required to pay homeowners insurance when you don’t feel you need to, you may opt for basic coverage.

Otherwise, calculate how much it would cost to rebuild your home based on local construction costs and base your decision on that amount.

You’ll have a choice between a replacement cost coverage and an actual cash value coverage.

Replacement cost coverages tend to cost more because they do not factor in depreciation when reimbursing you for damaged or stolen items.

In contrast, actual cash value coverages only reimburse you for the depreciated value of your personal items at the time of the covered claim.

Improve Your Credit Score

Although home insurance scores are different than credit scores, they are also based on your credit history.

The best way to improve your credit score and build more credit history is to keep up-to-date accounts open, diversify your credit usage, and make timely payments to keep credit card balances low.

Enhance Your Home’s Security

Enhancing your home’s security by installing an alarm system, overhead sprinklers, and other security features may reduce your risk of filing homeowners insurance claims and earn you a discount on your monthly premiums.

Bundle Your Policies

Own a car? Bundling auto insurance with a homeowners policy can be an excellent way to save on premiums.

Most insurance companies that offer both products also extend discounts to those who purchase these policies together.

Summing It All Up

The best tip you’ll get regarding homeowners insurance is to shop around and compare quotes before settling on a policy.

If you already have coverage and haven’t reviewed it in some years, it might be time to search the market for a more comprehensive policy with lower premiums.

Experts suggest the best time to shop for quotes is when the value of your home changes, such as after a renovation or interior redesign, or when you switch to a different car insurance carrier.

If you haven’t had a claim in a good number of years and your premiums have increased, that might be another great opportunity to look around for a better deal.

If you’re still unsure of where to start shopping for quotes, take a look at our list of leading homeowners insurance carriers and brokers to get a better idea of what you can expect when comparing insurers and insurance products.