How Much Does Homeowners Insurance Cost?

Homeowners insurance (also known as home insurance) is not just a luxury; it is required. A necessity. This is because not only does it protect your home and possessions against damage or theft, but virtually all mortgage companies require borrowers to have insurance coverage for the full or fair value of a property (usually the purchase price). They won’t make a loan or finance a residential real estate transaction without proof of it.

What’s more, you don’t even have to own your home to need insurance; many landlords require their tenants to maintain renter’s insurance coverage. And whether it is required or not, it is smart to have this kind of protection.

What Is Homeowners Insurance?

Homeowners insurance is a form of property insurance that covers losses and damages to an individual’s residence, along with furnishings and other assets in the home. Homeowners insurance also provides liability coverage against accidents in the home or on the property.

A homeowners insurance policy usually covers four kinds of incidents on the insured property: interior damage, exterior damage, loss or damage of personal assets/belongings, and injury that occurs while on the property. When a claim is made on any of these incidents, the homeowner will be required to pay a deductible, which in effect is the out-of-pocket costs for the insured.

Every homeowner’s insurance policy has a liability limit, which determines the amount of coverage the insured has should an unfortunate incident occur. The standard limits are usually set at $100,000, but the policyholder can opt for a higher limit.

In the event that a claim is made, the liability limit stipulates the percentage of the coverage amount that would go toward replacing or repairing damage to the property structures, personal belongings, and costs to live somewhere else while the property is worked on.

Acts of war or acts of God such as earthquakes or floods are typically excluded from standard homeowners insurance policies. A homeowner who lives in an area prone to these natural disasters may need to get special coverage to insure their property from floods or earthquakes.

However, most basic homeowners insurance policies cover events like hurricanes and tornadoes.

What a homeowner’s insurance policy provides

Although they are infinitely customizable, a homeowner’s insurance policy has certain standard elements that provide what costs the insurer will cover. These include:

Damage to the interior or exterior of your home

In the event of damage due to fire, hurricanes, lightning, vandalism, or other covered disasters, your insurer will compensate you so your house can be repaired or even completely rebuilt. Destruction or mutilation from floods, earthquakes, and poor home maintenance is generally not covered and you may require separate riders if you want that type of protection.

Freestanding garages, sheds or other structures on the property may also need to be covered separately using the same guidelines as for the main house.

Clothing, furniture, appliances, and most of the other contents of your home are covered if they’re destroyed in an insured disaster. You can even get “off-premises” coverage, so you could file a claim for lost jewelry, say, no matter where in the world you lost it. There may be a limit on the amount your insurer will reimburse you, however.

According to the Insurance Information Institute, most insurance companies will provide coverage for 50% to 70% of the amount of insurance you have on the structure of your home.

Personal liability for damage or injuries

Liability coverage protects you from lawsuits filed by others. This clause even includes your pets! So, if your dog bites your neighbor, no matter if the bite occurs at your place or hers, your insurer will pay her medical expenses.

While policies can offer as little as $100,000 of coverage, experts recommend having at least $300,000 worth of coverage, according to the Insurance Information Institute. For extra protection, a few hundred dollars more in premiums can buy you an extra $1 million or more through an umbrella policy.

Hotel or house rental while your home is under repair

In the unlikely event that you find yourself forced out of your home for a time, this part of insurance coverage, known as additional living expenses, will undoubtedly be the best coverage you ever purchased. It will reimburse you for the rent, hotel room, restaurant meals, and other incidental costs you incur while waiting for your home to become habitable again.

However, before you book a suite at the most expensive hotel and order caviar from room service, keep in mind that policies impose strict daily and total limits. Of course, you can always expand those daily limits if you’re willing to pay more in coverage.

How much is homeowners insurance?

The average cost of homeowners fluctuates depending on where in the country you live. People in states that have a higher number of claims—due to catastrophic weather, high crime rates or elevated costs for repairs—will see higher prices for home insurance.

Homeowners insurance costs $746 per year with Progressive for a policy with $350,000 of dwelling coverage. Progressive has the cheapest average annual cost for homeowners insurance across the dwelling coverage limits of $200,000, $350,000, $500,000 and $750,000.

Travelers is the most expensive homeowners insurance company for $200,000 and $350,000 dwelling amounts. Shelter is the most expensive home insurer for the $500,000 and $750,000 dwelling coverage amounts.

Rates vary significantly among companies because they each have their own formulas for pricing. That means it’s vital to comparison shop homeowners insurance quotes when buying a policy. You don’t know which company will offer you the best rates—and possibly save you hundreds of dollars—until you shop around.

Types of homeowners insurance

All insurance is definitely not created equal. The least costly homeowners insurance will likely give you the least amount of coverage, and vice versa.

Several forms of homeowners insurance have become standardized in the industry; they are designated HO-1 through HO-8 and offer various levels of protection depending on the needs of the homeowner and the type of residence being covered.

To better understand how the different types of home insurance work, it’s important to know how they’re set up. A “peril” is an incident or problem that causes damage to your home, yourself, or your belongings. Generally, there are two ways coverage is explained in a policy—open peril and named peril:

Named peril. All hazards covered by the policy are specifically listed, or named. Anything not listed is not covered.
Open peril. Hazards that are not covered are listed in your policy as exclusions. Anything that’s not listed as an exclusion is covered.

Here’s a roundup of the eight different types of policies for homeowners:

HO-1 home insurance policy

Also known as basic form homeowners insurance, the HO-1 provides bare-bones coverage. An HO-1 policy will pay out only if one (or more) of 10 specific perils damages your home:

Fire or lightning
Windstorm or hail
Explosion
Riot or civil commotion
Damage caused by aircraft
Damage caused by vehicles (such as a car that crashes into your house)
Smoke
Vandalism or malicious mischief
Theft
Volcanic eruptions

An HO-1 policy is limited because it typically covers only these 10 perils instead of the 16 or more that other policies do. It generally provides coverage only for the house structure, at actual cash value. That means you won’t get the amount you’d need to fully rebuild, but rather the house’s value minus deprecation for its age.

It also generally doesn’t cover personal property, liability, or additional living expenses.

The HO-1 costs less than other types of coverage because it provides the least coverage. It is not available in most states and, if you have a mortgage, you usually are required by a lender to have higher levels of protection.

HO-2 home insurance policy

Also called the broad form, the HO-2 policy provides coverage for more perils than the HO-1 policy. An HO-2 policy includes:

Dwelling coverage for your house and other structures on your property
Coverage for your personal belongings
Personal liability
Loss of use or additional living expenses coverage
Medical payments to others

Also, under an HO-2 your belongings are covered for actual cash value only, which is how much the items are worth after depreciation.

HO-3 home insurance policy

The HO-3 policy provides suitable coverage for most homeowners and is the most common home insurance policy type. It covers your house and belongings and includes coverage for liability, medical payments to others, and additional living expenses.

An HO-3 policy, unlike the HO-1 and HO-2, protects your house from all perils unless they are specifically listed as exclusions. This is called an “open peril” policy.

HO-4 home insurance policy

Known as renters insurance, the HO-4 policy is for people renting houses and apartments. Belongings are covered for the same 16 perils listed in the HO-3 policy. Additional living expenses and liability coverage are also included.

An HO-4 policy will not cover damage to the rental unit itself. A landlord would need their own landlord insurance policy to cover the structure.

HO-5 home insurance policy

Called a comprehensive policy, an HO-5 policy offers the highest level of insurance coverage for houses and belongings. It covers your house and belongings under all circumstances except those listed as exclusions in the policy. The exclusions for HO-5 policies are the same as those under an HO-3.

An HO-5 policy will pay out for replacement costs rather than actual cash value. An HO-5 also includes coverage for liability, medical payments to others, and additional living expenses.

These comprehensive policies are often good for insuring new construction. Not all home insurance companies offer HO-5 policies.

HO-6 home insurance policy

The HO-6 policy is for people who live in a condo or a co-op. Known as “walls-in coverage,” a condo insurance policy covers:

Any renovations you made to the condo after you bought it
Walls, floors and ceilings
Personal belongings
Additional living expenses
Liability
Medical payments to others

Before buying an HO-6 policy, it’s a good idea to review your condo association’s insurance policy. You want to avoid gaps in coverage and also sidestep any duplicate offerings with the association’s insurance.

HO-7 home insurance policy

The HO-7 policy has similar coverage to an HO-3 policy; the difference is, it applies to mobile homes. Mobile home insurance is an open peril policy for the structure of the mobile home or trailer. Like the HO-3, that means it covers any damage as long as it’s listed as an exclusion.

Coverage for belongings is only for specific perils listed in the insurance policy, like to HO-3.

HO-7 policies insure these types of structures:

Single and double-wide manufactured homes
Single and double-wide mobile homes
Trailers
Sectional homes
Modular homes

An HO-7 policy typically only covers a mobile home when it is stationary. It does not provide coverage when the home is in transit.

HO-8 home insurance policy

HO-8 home insurance policies are generally for older homes usually built more than 40 years ago. For these houses, the cost of rebuilding is usually greater than the home’s market value. Historic homes and registered landmarks usually have HO-8 policies. With an HO-8 policy, your house and belongings are covered only for 10 specific perils listed in the policy:

Fire or lightning
Windstorm or hail
Explosion
Riot or civil commotion
Aircraft
Vehicles
Smoke
Vandalism or malicious mischief
Theft
Volcanic eruption

Coverage for liability, medical payments to others, and additional living expenses is also included under an HO-8.

Levels of homeowners insurance coverage

There are essentially three levels of coverage:

Actual cash value

Actual cash value covers the cost of the house plus the value of your belongings after deducting depreciation (i.e., how much the items are currently worth, not how much you paid for them).

Replacement cost

Replacement value policies cover the actual cash value of your home and possessions without the deduction for depreciation, so you would be able to repair or rebuild your home up to the original value.

Guaranteed (or extended) replacement cost/value

The most comprehensive, this inflation-buffer policy pays for whatever it costs to repair or rebuild your home—even if it’s more than your policy limit. Certain insurers offer an extended replacement, meaning it offers more coverage than you purchased, but there is a ceiling; typically, it is 20% to 25% higher than the limit.

Some advisors feel all homeowners should buy guaranteed replacement value policies because you don’t need just enough insurance to cover the value of your home, you need enough insurance to rebuild your home, preferably at current prices (which probably will have risen since you purchased or built).

Guaranteed replacement value policies will absorb the increased replacement costs and provide the homeowner with a cushion if construction prices increase.

Homeowners insurance and mortgages

When applying for a mortgage, the homeowner usually is required to provide proof of insurance on the property before the financial institution will loan any funds. The property insurance can be acquired separately or by the lending bank. Homeowners who prefer to get their own insurance policy can compare multiple offers and pick the plan that works best for their needs.

If the homeowner does not have their property covered from loss or damages, the bank may obtain one for them at an extra cost.

Payments made toward a homeowners insurance policy are usually included in the monthly payments of the homeowner’s mortgage. The lending bank that receives the payment allocates the portion for insurance coverage to an escrow account. Once the insurance bill comes due, the amount owed is settled from this escrow account.

Homeowners insurance vs. home warranty

While the terms sound similar, homeowners insurance is different from a home warranty. A home warranty is a contract taken out that provides for repairs or replacements of home systems and appliances such as ovens, water heaters, washers/dryers, and pools. These contracts usually expire after a certain time period, usually 12 months, and are not mandatory for a homeowner to buy in order to qualify for a mortgage.

A home warranty covers issues and problems that result from poor maintenance or inevitable wear-and-tear on items—situations in which homeowners insurance doesn’t apply.