Compared to all of the research, time, and energy that is put into purchasing a home, buying a homeowners insurance policy is too often almost an afterthought. However, homeowners insurance deserves more careful consideration because choosing the right policy can prevent financial ruin after a major disaster strikes.
This guide will take you step by step through what you need to know before shopping for a homeowners insurance policy. We’ll also help you determine whether you even need homeowners insurance and, if so, how much coverage to purchase. You’ll learn what is and isn't covered by a basic policy, what add-ons are available, and what optional coverages you might want to consider.
Finally, you'll learn how to choose the best homeowners insurance company and a policy that matches your needs and budget.
For more information on the ins and outs of homeowners insurance, see How Does Homeowners Insurance Work?
A home insurance policy provides coverage to repair or replace your home and its contents following damage caused by fire, smoke, water, theft, vandalism, a storm, or some other event named in the policy. These are called "perils."
In addition to covering the structure and outbuildings, standard policies typically cover the repair or replacement of heating and cooling systems and their components, such as a furnace or water heater, if they are damaged by a covered event.
Homeowners insurance also covers in-home personal property that's damaged, stolen, or destroyed. Finally, homeowners insurance pays for medical and legal expenses if someone other than you or your family is injured on your property.
If you own a home, you probably need homeowners insurance. In fact, if you plan to finance your home, the bank or mortgage lender will most likely require it. That’s because your lender will want to protect their investment in the event of a flood, fire, hurricane, or other catastrophic events. You don't technically need homeowners insurance if you paid cash for your home or have paid off your mortgage, but it's still a good idea to avoid getting in financial trouble if something happens to your home or possessions.
The same applies if you purchase a co-op, a condominium, or a mobile home. If you borrow money to make the purchase, your lender will likely require a policy no matter what type of home it is. Condominium or private community associations may also require homeowners insurance to cover common property and facilities, such as a shared roof, common walls, a tennis court, or a swimming pool.
Homeowners insurance is an excellent idea even if your mortgage is paid off, you paid cash, or you inherited your property without a mortgage. Most homeowners don’t have the funds available to rebuild or make substantial repairs if their home is heavily damaged or destroyed. A homeowners policy costs a lot less than rebuilding out of pocket.
Most standard policies also include coverage to help replace your furniture, clothing, and other possessions after a fire, storm, or other catastrophic circumstance.
Homeowners insurance covers damages or losses to your home, personal belongings, or even individuals injured on your property. Here’s a breakdown of the standard coverage offered to a homeowners insurance policyholder:
- Dwelling coverage applies to damage done to your home caused by fire smoke, theft, vandalism, or severe weather. Although damages from lightning, wind, and hail are typically covered, you will need to buy separate insurance for floods and earthquakes. Coverage extends to other detached structures on your property, like a garage, barn, or shed.
- Personal property coverage insures your personal belongings, including furniture, appliances, electronics, and clothing. Reimbursement for lost or damaged belongings can either be for the full replacement value or the actual cash value of the item after depreciation. You may need to pay for higher premiums or purchase additional coverage for valuable belongings, like art and jewelry.
- Personal liability coverage can help protect you if someone is injured on your property. If you are sued, your policy can help pay for your legal expenses and fees. If they are injured, it can also cover their medical expenses, including X-rays, ambulance rides, and hospital stays.
- Living expensescoverage will help pay for expenses if you are displaced from your home as a result of a covered condition. This can include fire, tornado, or other immediate or imminent hazards because of which local authorities bar you from your neighborhood.
In addition to the standard coverage above, homeowners insurance companies usually offer add-ons to their policies or additional insurance to suit specific needs and can include the following:
- Flood and earthquake insurance are offered as two separate policies and cover damages resulting from each respective event. Although not all insurers offer flood or earthquake insurance, you might be required to purchase one of these policies depending on where you live. FEMA publishes an interactive flood map on its website that can help you determine the risk of flood in your area.
- Mobile or manufactured home coverage insures against damages done to a permanent structure. Many insurers offer separate homeowners policies designed specifically to cover mobile homes and manufactured (prefab) homes.
For more information, visit our What Does Homeowners Insurance Cover? page.
Insurance company websites can help you get started when shopping for homeowners insurance, and most describe what is and isn't covered and the options are available. However, it’s not always easy to find all the coverage specifics online. Homeowners insurance is a big purchase, and many insurance companies recommend consulting with a licensed insurance agent in your area who can help find the policy right for your needs.
If you do choose to use an agent, they can also help you find the price point right for you. Company and captive agents work exclusively with one company to help tailor a policy to your needs, while independent agents can obtain quotes from numerous companies to find you the best deal.
But if you choose to search for a policy on your own, many insurance websites have estimating tools that give you an idea of what your cost will be once you enter basic information about your home and its contents.
There are always ways to save on homeowners insurance, and they vary with whatever company or policy you choose. However, one of the most common ways to save is by bundling multiple policies, like home and auto insurance, with one company.
Although it might be tempting to get a bare-bones policy to save money on premiums, this could come back to haunt you later. “Probably the biggest mistake that people make when buying homeowners insurance is to focus on price rather than coverage or quality,” says professor Jay Feinman, an insurance expert with Rutgers University Law School. “You need to understand the type of insurance you’re buying, what is covered, and what is not.”
To avoid unpleasant surprises, buy a policy sufficient to replace or rebuild your home and any outbuildings such as a garage, pool, or fence, as well as your home's contents. That includes heating and cooling systems, furniture, clothing, and your other possessions. “Two-thirds of American homes are significantly underinsured,” Feinman says. “Try to get an accurate idea of what the actual costs would be to rebuild." He noted that those costs can be higher in the wake of a major event. “When many people need to rebuild at once, costs go up dramatically," he says.
It’s also important to read your policy carefully and understand exactly what is and is not covered. If coverage for something you’re concerned about isn't specifically mentioned, such as damage from a falling tree, ask for a written statement clarifying the issue.
Last, but not least, periodically review your policy to continue to get the best rates. Home insurance companies tend to tack on rate increases each year for various reasons, such as inflation, increases in the value of your home, and other factors. They’re usually small enough adjustments that you don’t notice them but they can add up over time. Another insurance company may have an incentive to offer you a lower premium price to win your business.
You can also ask the company you’re currently with if they have a loyalty discount. Some companies will lower your premiums a certain percentage depending upon how long you stay with them.
Home insurance costs can vary greatly depending on a variety of factors, including the age, size, and location of your home, and the likelihood of a major weather event in your area. Premiums average $100-$170 per month for the companies we rated.
“Where you live and the natural disasters afflicting that area are a big factor," says Lynne McChristian, communications consultant at the Insurance Information Institute. In particular, living in an area prone to floods can make home insurance quite expensive. Homeowners insurance is also likely to cost more in areas with higher crime rates, higher rebuilding costs, or stricter building codes. And a home in an area with a volunteer fire department located miles away may cost more to insure than one with a nearby fire station staffed by professionals.
Other things that may affect homeowners insurance premiums include the age and condition of the roof, furnace, and other major home components. Security systems and fire alarms can lower premiums. The need for additional coverage to cover very valuable possessions can add to the cost of a standard premium. Finally, your monthly insurance premiums will probably be affected by the size of your deductible, or the amount you pay out of pocket if you file a claim. Generally, the higher the deductible, the lower your premiums will be.
Even if you already have homeowners insurance, it’s still a good idea to review your coverages and costs annually. Coverage needs change over time as the real estate market fluctuates and you make additional purchases. In addition, home insurance is a competitive business, and comparing rates every year could save you money even if you’re generally happy with your current insurer.
Comparing some of the common discounts across top companies
Whether you're a first-time homeowner or have owned a home for years, here’s how you can buy a homeowners insurance policy:
- Decide what you want to cover.
- Determine how much homeowners insurance you need.
- Choose an insurance company.
- Choose a policy.
How Do I Decide What to Cover?
Standard homeowners insurance coverage may not be sufficient to repair or replace your home and possessions. This may occur if rebuilding costs are higher than average in your area or your insured appliances and possessions are particularly expensive. If you are in one or more of these situations, you may want to look closely at coverage maximums for your policy.
Most insurance providers offer additional coverage for a fee, whether it is by increasing your coverage maximums or purchasing specific add-ons to cover your valuables. For example, a standard homeowners insurance policy may not provide enough coverage for things like valuable jewelry, artwork, or collectibles. Other items like a swimming pool that pose a safety and liability risk might also require additional coverage.
Additionally, standard home insurance policies don't usually include flood insurance and would be considered an add-on or additional policy. Also, depending on where you live, flood insurance may not be available through all insurers.
If your homeowners insurance company doesn’t offer flood insurance, you may be eligible for coverage through the National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency (FEMA). NFIP policies are offered through independent agents nationwide. Costs and requirements can vary widely, depending on the risk factors of where you live. FEMA's website includes an interactive flood map that can help you determine the risk in your area.
How Much Homeowners Insurance Do I Need?
To determine how much coverage you need, you’ll need to know the cost of rebuilding your home. You’ll also want to take inventory and appraise your furniture, clothing, and possessions.
Here are a few ways you can estimate your homeowners insurance needs:
- Calculate the cost to rebuild your home, plus any outbuildings or structures such as a garage, pool, or fence. To get a rough idea of the cost for your home, multiply the square footage by the local costs per square foot in your area. For example, if your home is 2,200 square feet and local building costs average $80 per square foot, the cost to rebuild your home would be about $176,000. A local insurance agent, real estate agent, or appraiser can probably help determine local building costs.
- Include outdoor furniture and personal belongings, such as a barbecue grill, collectibles, musical instruments, and hobby or sporting equipment. And remember anything tucked out of sight, such as linens and silverware, as well as items stored in the attic or the garage. You can also find a lot of information about making an inventory and other homeowners insurance-related subjects on the Insurance Information Institute (III) website.
- The more detail you provide in your inventory, the better. The III says it’s a good idea to note when and where you purchased expensive items, because the better your documentation, the easier it will be to estimate replacement cost and file a claim.
- Use video to document what you own. Film items in each room of your home, and remember to update your inventory periodically. There are also apps you can download that will walk you through the process and remotely store your inventory.
- Factor in the replacement cost for your belongings. This is the current price you would pay to replace an item, such as a washing machine, not what you paid originally. Replacement costs can change quickly due to inflation and other factors, and even a 2-year-old appliance might cost considerably more to replace today than what you paid for it.
How Do I Choose a Homeowners Insurance Company?
When choosing a homeowners insurance company, look for one that:
- provides coverage in your area
- has competitive rates and good discounts
- has a good financial strength rating
- has good reviews from professional sources and customers
- offers 24/7 assistance through its website, live operators, or a local agent.
Choosing the right homeowners insurance company is a matter of selecting one with the coverage you need at a price you can afford, good customer service, and a sound financial footing.
There are a few kinds of homeowners insurance coverage:
- Actual cash value covers the cost of replacing your home or your belongings, but factors in depreciation when calculating reimbursement amounts.
- Replacement cost value covers the cost of rebuilding your dwelling as it stands today, regardless of depreciation.
- Modified replacement cost value is designed to cover older homes. Depreciation is not a factor in calculating reimbursement. But original features like stained glass, ornate plasterwork, or millwork will be replaced with modern materials, not restored to original condition.
- Extended cost value provides a set percentage of coverage beyond your policy limit, usually 20% to 25%, according to the Insurance Information Institute (III).
- Guaranteed cost value doesn’t place any dollar limits on replacement costs. However, upgrading your dwelling to meet the current building codes may not be covered.
Unlike actual cash value replacement, these other coverage types may apply only to the physical dwelling, not the items within. Depending on the insurer and policy, you may need to purchase additional coverage, especially for collectible or hard-to-replace possessions like artwork or jewelry.
Not all homeowners insurance companies provide coverage in all areas, so check this first to narrow down your choices. Also, some may not offer the standard or specialized coverage you want or need, such as hurricane insurance in a coastal area or additional coverage for collectibles or valuables.
More Tips For Buying Homeowners Insurance
It is important to look at discounts, as well as rates, of insurance companies. Many insurance companies have the following discounts:
- Multipolicy discount: This is a discount for bundling your homeowners insurance policy with another policy, like your auto insurance.
- New customer discount
- First-time home buyers discount
You can also get a discount for having a home equipped with a security system, a sprinkler system, smoke detectors, or hurricane shutters.
Insurance company websites often have quote tools that you can use to get quotes. All you need to do is key in some basic information about your home and what’s inside it.
If you want to know the financial strength of the insurance company of your choosing, you can check out credit rating agencies like AM Best. Financial strength is important because you will want to go with a company that will still be in business and can pay claims if needed.
There are also professional ratings and reviews that you should pay attention to, like our Best Homeowners Insurance Companies of 2022. These reviews can show how responsive a company can be when processing claims or when you reach out for questions.
Homeowners Insurance State Availability Map
- New Jersey
- New York
- New Jersey
- New York
How Do I Choose a Homeowners Insurance Policy?
Choosing the right homeowners insurance policy requires making sure you have sufficient coverage to replace your home and its contents in the wake of a catastrophic event.
Reading through and understanding a policy can be challenging, which is another good reason to consult a professional.
Assuming you’ve calculated the cost to rebuild your home and inventoried its contents, you already know the amount of coverage you need. Then it becomes a question of shopping around for quotes from reputable homeowners insurance providers that offer the right amount of coverage in your area.
Take advantage of available discounts, such as bundling your homeowners insurance policy with auto insurance. Be sure to purchase sufficient coverage for any collectibles or jewelry, and consider additional protection for higher-risk items such as a swimming pool.
As simple as that sounds, many homeowners either don’t spend enough time doing their homework or buy insufficient coverage for their needs. “Many consumers wait until after a catastrophic event to read their policy,” Ommen says. “If you wait until your basement is full of water, it is too late.”
Finally, every expert we spoke with agreed that buyers should look for a replacement-cost policy rather than a cash value policy. Replacement cost policies cost more, but they will pay for the actual cost to rebuild your home and replace its contents.
By contrast, a cash-value policy will merely reimburse you for the current market value. Depending on building costs, changes to zoning regulations since your home was built, inflation, and other considerations, a cash-value policy could leave you short.
“With replacement cost, you may pay 10%-15% more for coverage, yet you get much more when you file a claim," McChristian says.
How Do I Lower My Homeowners Insurance Premium?
Once you’ve decided on an insurer and determined appropriate levels of coverage, you may be surprised at how much your premium is. There are ways to pay less for your homeowners policy, however. The Insurance Information Institute (III) recommends the following money-saving tips.
- Increasing your deductible from $500 to $1,000 can lower your premium by as much as 25%, according to the III.
- Upgrading your home to make it more weather-proof, including your roof and windows, can reduce the potential for storm damage and the resulting repairs. Such upgrades can include impact-resistant roofing materials and hurricane shutters.
- Being a loyal customer can pay off as well. Policyholders who stay with the same insurer for five to 10 years can see premium discounts of 5% to 10%, according to the III.
- Adding smoke detectors, a basic home security system, and deadbolt locks can also result in a modest premium discount of 5% or so. More sophisticated security devices, such as those that contact police in the event of a disturbance, or installing a sprinkler system, may increase your savings. To learn more, visit our guide to the Best Home Security Systems of 2022.
- Keeping your home in good repair can also save money. Fixing loose decking, uneven stairs, or cracked pavement can prevent slips, trips, and falls. Trimming overhanging tree branches can reduce the odds of storm damage from a limb falling onto your roof.
Should I Bundle My Homeowners and Car Insurance?
Many of the insurance companies in our ratings offer policyholders the option of bundling their home and auto policies, which also can result in lower premiums. Discounts for bundling other types of policies may also be available, depending on the insurer. Allstate will let policyholders bundle homeowners insurance with term life insurance as well as auto coverage, for example, while Geico will let you bundle home and motorcycle coverage.
However, bundling may not be your cheapest option, particularly if you own a hard-to-insure vehicle or have a poor credit rating or spotty driving record, according to the credit agency Experian.
For more information, see our How to Bundle Homeowners and Car Insurance guide.
Choosing the best homeowners insurance company for you can seem like a daunting task, but we're here to help with our Best Homeowners Insurance Companies of 2022 list. Based on extensive research and an exclusive methodology, we've determined that these are the top homeowners insurance companies in the U.S.
For more information on Homeowners Insurance please visit our other guides:
- Best Homeowners Insurance Companies of 2022
- Cheapest Homeowners Insurance Companies of 2022
- How To Buy Homeowners Insurance
- How Does Homeowners Insurance Work?
- What Does Homeowners Insurance Cover?
- How to File a Homeowners Insurance Claim
- How to Bundle Home and Auto Insurance
- Homeowners Insurance Quotes
- Allstate vs. State Farm Homeowners Insurance
- Liberty Mutual vs. State Farm Homeowners Insurance
- State Farm vs. Farmers Homeowners Insurance
- USAA vs. State Farm
- Erie Insurance vs. State Farm
- Local Home Insurance Companies
Homeowners Insurance Companies
Other Ratings From 360 Reviews
Why Should You Trust Us?
At U.S. News & World Report, we rank the Best Hospitals, Best Colleges, and Best Cars to guide readers through some of life’s most complicated decisions. Our 360 Reviews team draws on this same unbiased approach to rate insurance companies and agencies. The team doesn't keep samples, gifts, or loans of products or services we review. In addition, we maintain a separate business team that has no influence over our methodology or recommendations.