Home Insurance Guide

What Homeowner’s Insurance Actually Covers (and What It Doesn’t)

Homeowner’s insurance is one of those things you’re required to buy but rarely understand until you need it. Your mortgage lender mandates it, you pick whatever your agent recommends, and you don’t think about it again until a tree falls on your roof. That’s a $1,500-$2,000/year decision you’re making on autopilot.

The standard HO-3 policy — which is what roughly 80% of homeowners carry — covers your dwelling, personal property, liability, and additional living expenses if your home becomes uninhabitable. It’s an “open perils” policy for the structure (covers everything except what’s specifically excluded) and “named perils” for your stuff (only covers what’s listed). That distinction matters more than most people realize.

Policy Types: HO-1 Through HO-8

There are eight standardized homeowner’s policy forms, but you only need to know about three or four of them:

• HO-3 (Special Form): The standard policy. Open perils on dwelling, named perils on personal property. This is what you have unless you specifically asked for something else.
• HO-5 (complete): Open perils on both dwelling AND personal property. Costs 5-15% more than HO-3, but covers far more scenarios for your belongings. Worth it if you own expensive electronics, art, or jewelry.
• HO-6 (Condo): Covers your unit’s interior and personal property. Your condo association’s master policy covers the building structure and common areas. Make sure there’s no gap between where their coverage ends and yours begins — that gap is called a “walls-in” vs. “walls-out” issue and it can leave you exposed.
• HO-8 (Older Homes): Designed for homes where replacement cost exceeds market value — common with historic properties. Pays actual cash value instead of replacement cost, which means depreciation eats into your payout.

HO-1 and HO-2 are basic named-perils policies that barely anyone writes anymore. HO-4 is renter’s insurance (covered in our tenant guide). HO-7 is for mobile homes.

What’s NOT Covered (This Is Where People Get Burned)

Standard homeowner’s policies exclude:

• Flooding. This is the big one. A standard HO-3 does not cover flood damage. Period. You need a separate flood policy through NFIP ($700-$1,500/year depending on zone) or a private flood insurer. If you’re in a FEMA-designated flood zone, your lender requires it. If you’re not in a flood zone, you probably still want it — 25% of flood claims come from properties outside high-risk areas.
• Earthquakes. Separate policy needed. In California, the CEA (California Earthquake Authority) is the main option. Premiums vary wildly: $800/year in Sacramento vs. $3,500/year in San Francisco for similar coverage.
• Sewer/water backup. Your toilet overflows and destroys your basement? Not covered unless you added the sewer backup endorsement. This costs $40-$75/year and is absolutely worth it.
• Maintenance-related damage. Roof leaks from deferred maintenance, mold from humidity you ignored, termites you didn’t treat — none of it’s covered. Insurance covers sudden, accidental events, not gradual neglect.
• Home business equipment. Your policy covers $2,500 max for business property in your home. If you have a serious home office, you need a separate business rider or BOP.

What It Actually Costs

The national average homeowner’s insurance premium is about $1,680/year for a $300,000 dwelling coverage policy. But averages are misleading because costs vary dramatically by state:

• Cheapest states: Hawaii ($450/yr), Vermont ($690/yr), Utah ($750/yr)
• Most expensive: Oklahoma ($4,200/yr), Kansas ($3,800/yr), Nebraska ($3,600/yr), Florida ($3,500/yr)
• Florida specifically: The insurance crisis is real. Multiple carriers have left the state. If you’re buying in Florida, budget $3,000-$6,000/year for insurance and factor that into your total housing cost calculation.

Your premium depends on: location (proximity to coast/fire zones), construction materials (brick cheaper than wood frame), age of home, roof age/material, credit score (in most states), claims history, deductible level, and coverage amount.

How to Compare Policies Like a Pro

Most people compare insurance on price alone. That’s how you end up with a cheap policy that doesn’t pay when you need it. Here’s what to actually compare:

• Replacement cost vs. actual cash value. Replacement cost pays to rebuild/replace at today’s prices. ACV deducts depreciation. Your 10-year-old roof worth $15,000 new pays out $15,000 under replacement cost but only ~$7,000 under ACV. Always get replacement cost on your dwelling. For personal property, ACV is acceptable if you want lower premiums.
• Deductible structure. Standard deductibles are $1,000-$2,500. Raising from $1,000 to $2,500 typically saves 10-15% on premiums. But watch out for separate wind/hail deductibles in storm-prone states — these are often 2-5% of your dwelling coverage, not a flat dollar amount. On a $400,000 home, a 2% wind deductible means $8,000 out of pocket before insurance kicks in.
• Coverage limits for valuables. Standard policies cap jewelry at $1,500, firearms at $2,500, silverware at $2,500. If your engagement ring alone is worth $8,000, you need a scheduled personal property endorsement (floater). Costs about $1-2 per $100 of value annually.
• Liability coverage. Default is $100,000. Bump to $300,000-$500,000 — it costs $15-$30/year more and the protection is massive. If someone slips on your icy sidewalk and sues for $250,000, you don’t want $100K in coverage.

Bundling and Discounts

Bundling home + auto with the same carrier saves 15-25% on combined premiums. On average, that’s $500-$800/year in savings. But don’t bundle blindly — sometimes the cheapest standalone home policy plus the cheapest standalone auto policy is still cheaper than the best bundle. Always price both options.

Other discounts that add up: new home (1-15%), security system (5-15%), smoke detectors (2-5%), claims-free (10-20%), loyalty (5-10% after 3-5 years), paperless billing (3-5%), paying annually instead of monthly (5-10%).

Flood Insurance: The Separate Conversation

NFIP (National Flood Insurance Program) policies max out at $250,000 dwelling/$100,000 contents. If your home is worth more, you need excess flood coverage from a private insurer. NFIP premiums are moving to “Risk Rating 2.0” — an actuarially-based pricing model that’s raising premiums significantly for properties with higher flood risk, even if they weren’t in a designated flood zone before.

Private flood insurance is worth quoting. Some private carriers offer better coverage (replacement cost instead of ACV, higher limits, loss of use coverage) at competitive prices. The tradeoff: private carriers can cancel your policy or raise rates; NFIP is government-backed.

Filing Claims Without Getting Dropped

Here’s the uncomfortable truth: file two claims in three years and many carriers will non-renew your policy. Once you’ve been non-renewed, your options shrink and your premiums skyrocket.

Rule of thumb: don’t file claims for anything under $5,000 unless it’s a liability claim. That $2,000 kitchen water damage? Pay it yourself. Your insurance is for catastrophic events, not maintenance. Think of your deductible as the minimum claim threshold, not the actual threshold — the actual threshold is higher because of the claims history penalty.

Related Home Buying Resources

Insurance is a required part of closing — learn about all closing costs explained in our guide. Before you buy a policy, make sure the home passes a thorough home inspection — some issues affect insurability. Planning renovations? Our renovation ROI guide covers which improvements can lower your insurance premiums. Use our mortgage calculator to see how insurance affects your total monthly payment.

The Right Way to Shop

Get at least 5 quotes. Use an independent agent (they represent multiple carriers) AND an online comparison tool AND call at least one direct-write carrier (like State Farm or USAA if you’re eligible). The spread between the cheapest and most expensive quote for the same coverage can be 40-60%. On a $1,500/year policy, that’s $600-$900 you’re either saving or wasting.

Review your policy annually. Your home’s replacement cost increases, your belongings change, and rates fluctuate. A policy that was cheapest three years ago might not be today.