Why home insurance is non-negotiable
Your house is likely the most valuable asset you'll ever own. The average U.S. home is worth around $430,000, and the average homeowners insurance claim now exceeds $15,000. If you have a mortgage, your lender requires homeowners insurance — but even if you've paid off your home, going without coverage means betting your largest asset against a single fire, storm, or liability claim.
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- Premiums tend to be slightly above the national average
- Some discounts only available with agent-issued policies
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The 6 main types of home insurance policies
- HO-1 (Basic Form): Limited "named perils" coverage. Rarely sold today.
- HO-2 (Broad Form): Covers more named perils than HO-1. Still limited.
- HO-3 (Special Form): The most common policy. Covers all perils except those specifically excluded. What most homeowners should have.
- HO-4 (Renters): For renters — see our renters insurance guide.
- HO-5 (Comprehensive): Like HO-3 but with broader personal property coverage. Best for higher-value homes.
- HO-6 (Condo): For condo owners covering the interior of the unit.
- HO-8 (Older Home): Modified policy for older or historic homes.
What home insurance covers
✅ Typically covered
- Fire and smoke damage
- Wind and hail damage
- Lightning strikes
- Theft and vandalism
- Sudden water damage from internal sources (burst pipes, appliance failure)
- Falling objects (trees, ice, debris)
- Liability claims (someone injured on your property)
- Loss of use / additional living expenses if home is unlivable
❌ Typically NOT covered
- Floods — must buy separate flood insurance through NFIP or private carrier
- Earthquakes — separate endorsement required in CA, OR, WA
- Sewer / drain backup — must add as endorsement
- Termites and pest infestations
- Wear and tear / poor maintenance
- High-value jewelry, fine art above policy limits — need scheduled property rider
How much coverage do you need?
- Dwelling coverage: Should equal the cost to rebuild your home from scratch (not market value). For most U.S. homes this is $200-$400/sq ft.
- Personal property: Typically 50-70% of dwelling coverage.
- Liability: Minimum $300,000 recommended. $500K-$1M is sensible if you have significant assets, a pool, or a dog.
- Loss of use: Typically 20-30% of dwelling coverage.
How to lower your home insurance premium
- Bundle with auto insurance — typically saves 10-25%
- Increase your deductible — going from $1,000 to $2,500 cuts premiums 10-20%
- Install protective devices — monitored alarm, water leak sensors, smart smoke detectors
- Update older systems — new roof, electrical panel, plumbing all reduce risk
- Stay claim-free — three claims in 5 years can make you uninsurable in some areas
- Improve credit score — affects rates in 47 states
- Shop annually — your renewal rate is rarely your best rate
Home Insurance FAQ
Is home insurance required by law?
Not by state or federal law, but every mortgage lender requires it.
How is the cost calculated?
Major factors: home value and rebuild cost, ZIP code (weather, crime, fire-station distance), home age and construction type, roof age, claim history, credit score (in most states).
Should I get a separate flood insurance policy?
If you're in a FEMA-designated flood zone, your lender will require it. About 25% of flood claims happen outside designated zones.
What's the difference between an HO-3 and HO-5 policy?
HO-3 covers your home on an open-perils basis but personal property only on named-perils. HO-5 covers both on open-perils. HO-5 costs 10-20% more but offers broader protection.
Will my premium go up if I file a claim?
Usually yes. One claim can raise rates 7-25% at renewal.
How often should I review my home insurance?
At least annually at renewal. Also after major life changes or renovations.
Editor's tip: Get an updated rebuild cost estimate every 3-5 years. Construction costs have risen sharply since 2020 — many homeowners are now underinsured by 20-40%.