Home insurance (also called homeowners insurance) is a property and liability policy that pays to repair or rebuild your house, replace your belongings, and defend you against lawsuits after a covered loss. In 2026, the average US homeowners policy runs roughly $1,800 to $2,400 per year, with the HO-3 form serving as the standard “open peril” dwelling policy for most owner-occupied homes. Standard policies do not cover flood or earthquake damage — both require separate coverage.
Key Takeaways
- A standard HO-3 policy bundles six coverage parts: Dwelling (A), Other Structures (B), Personal Property (C), Loss of Use (D), Personal Liability (E), and Medical Payments to Others (F).
- Flood and earthquake are excluded. Flood coverage is purchased separately through the National Flood Insurance Program (NFIP) administered by FEMA, or through a private flood carrier. Earthquake coverage is a separate policy or endorsement.
- Replacement cost vs. actual cash value (ACV) on personal property is one of the biggest cost drivers — ACV deducts depreciation, while replacement cost pays new-for-old.
- Deductibles can be a flat dollar amount or a percentage of dwelling coverage. In coastal and tornado-prone states, a separate hurricane, wind, or named-storm deductible of 1%-5% of Coverage A is common.
- Mortgage lenders require homeowners insurance as a condition of the loan. Even on a paid-off home, going uninsured exposes your largest asset to total loss.
The 6 main coverage parts of a standard HO-3 policy
Coverage A — Dwelling. Pays to repair or rebuild the physical structure of your home (walls, roof, foundation, built-in appliances, attached structures like a garage) after a covered peril. This should be set to replacement cost, not market value or purchase price.
Coverage B — Other Structures. Covers detached structures on the property: a freestanding garage, shed, fence, gazebo, or guest house. Typically set automatically at 10% of Coverage A, but can be increased if you have a high-value detached workshop or in-law unit.
Coverage C — Personal Property. Covers your belongings — furniture, clothing, electronics, kitchenware, tools. Standard policies set this at 50%-70% of Coverage A. Internal sub-limits cap reimbursement for high-value categories like jewelry, firearms, fine art, collectibles, and cash. A scheduled personal property rider raises those caps for itemized items.
Coverage D — Loss of Use (Additional Living Expenses). Pays for hotel, rental housing, restaurant meals, and incidental costs above your normal expenses while your home is uninhabitable after a covered loss. Usually expressed as a percentage of Coverage A or a fixed time period.
Coverage E — Personal Liability. Pays for bodily injury or property damage you (or a household member or pet) cause to others, including legal defense. Standard limits range from $100,000 to $500,000. Most planners recommend at least $300,000, and an umbrella policy if your net worth exceeds your liability limit.
Coverage F — Medical Payments to Others. A small no-fault coverage ($1,000-$5,000 typical) that pays minor medical bills for guests injured on your property, regardless of fault. Designed to head off small claims before they escalate into liability suits.
What’s NOT covered (and how to fix it)
- Flood damage — including storm surge, river overflow, and surface water — is excluded from every standard homeowners policy in the United States. Buy a separate flood policy through NFIP (FEMA) or a private flood carrier. Coverage typically has a 30-day waiting period, so don’t wait until a hurricane is forecast.
- Earthquake damage is excluded. Purchase a standalone earthquake policy or add an earthquake endorsement. In California, the California Earthquake Authority (CEA) is the primary market.
- Sewer and drain backup is typically excluded but can be added as a low-cost endorsement (often $40-$100/year for $5,000-$25,000 of coverage).
- Sinkholes are excluded in most states; Florida and a few others require carriers to offer “catastrophic ground cover collapse” coverage or sinkhole endorsements.
- Maintenance and wear-and-tear are never covered. A gradual roof leak, a slow pipe drip, mold from long-term humidity, termite damage, and foundation settling are owner responsibilities — insurance only pays for sudden, accidental, covered events.
- Business property and home-based business liability beyond a small sub-limit (often $2,500 on-premises) require an in-home business endorsement or a separate business owner’s policy.
- Jewelry, watches, fine art, firearms, and collectibles carry internal caps (often $1,500-$2,500 per category). A scheduled personal property rider (also called a floater) appraises and insures specific items at agreed value with no deductible.
How to compare home insurance carriers
- Get at least 3 quotes with identical coverage limits and deductibles so you’re comparing apples to apples.
- Confirm Coverage A is set to replacement cost — what it would cost to rebuild your home today — not market value, tax-assessed value, or purchase price. A reconstruction cost estimator (or a contractor’s per-square-foot rebuild estimate for your area) is the right benchmark.
- Choose replacement cost (RCV) on personal property, not actual cash value (ACV). The premium difference is usually modest and the claim payout difference can be enormous.
- Set liability (Coverage E) to at least $300,000, and higher if you own rental property, have a pool or trampoline, host frequent guests, or have meaningful assets to protect.
- Compare the deductible structure. A flat $1,000 or $2,500 deductible is straightforward. A percentage deductible (1%-5% of Coverage A) on a $400,000 home means a $4,000-$20,000 out-of-pocket hit on a windstorm claim.
- Check for separate wind, hurricane, or named-storm deductibles if you live in a coastal, hurricane, or tornado-prone state. These are triggered separately from the all-other-perils deductible.
- Stack up discounts: multi-policy (bundling auto and home), claim-free, smart home devices, new roof, monitored security or fire alarms, gated community, paid-in-full, and loyalty.
- Verify the carrier’s financial strength with an A.M. Best rating of A- or better, and review the state Department of Insurance complaint ratio published by the NAIC for service quality red flags.
Ready to put real numbers next to real carriers? Compare top home insurance providers side-by-side.
How to lower your premium
- Raise your deductible. Moving from $500 to $1,000 typically cuts premium 5%-10%; going to $2,500 can save 15%-20%. Only do this if you can comfortably absorb the higher out-of-pocket on a claim.
- Bundle home and auto with the same carrier — multi-policy discounts of 10%-25% are common and often the single biggest lever.
- Install smart home devices: water leak sensors and automatic shutoff valves, monitored smoke and CO detectors, and a monitored security system. Many carriers now offer device-specific discounts.
- Update aging systems. A new roof, updated electrical (no knob-and-tube, no Federal Pacific panels), modern plumbing (no polybutylene, no galvanized), and a newer HVAC reduce the carrier’s risk and your premium.
- Stay claim-free. Small claims often cost more in future premium increases than they pay out. Consider self-funding minor losses below 2x your deductible.
- Improve your insurance score. In most states, carriers use a credit-based insurance score; paying down revolving debt and correcting credit-report errors can move your tier.
- Shop every 1-2 years. Loyalty is rarely rewarded in home insurance — the carrier that was cheapest three years ago often isn’t today.
Full discount checklist: Home insurance discounts: every credit you can stack in 2026.
Going deeper
Frequently asked questions
Does homeowners insurance cover flood damage?
No. Every standard homeowners policy in the United States excludes flood — defined as rising surface water, storm surge, river overflow, and mudflow. To cover flood risk you need a separate policy through the National Flood Insurance Program (NFIP), administered by FEMA, or through a private flood insurer. Most flood policies have a 30-day waiting period, so buy coverage before a storm is in the forecast, not after.
How much dwelling coverage do I need?
Coverage A should equal the cost to rebuild your home today at local construction prices — not its market value, not its tax-assessed value, and not what you paid for it. A licensed contractor’s per-square-foot rebuild estimate for your zip code, or a carrier-provided reconstruction cost estimator, is the right benchmark. Land value is not included because the lot survives most losses.
What’s the difference between replacement cost and actual cash value?
Replacement cost value (RCV) pays what it costs to buy a new equivalent item today — new-for-old. Actual cash value (ACV) pays replacement cost minus depreciation for age and wear. A 10-year-old sofa that costs $1,500 new might settle for $300-$500 on ACV. RCV costs slightly more in premium but produces dramatically larger claim payouts, especially for older homes and contents.
Does homeowners insurance cover roof damage?
Yes for sudden, accidental damage from a covered peril — wind, hail, a falling tree, or fire are typically covered. No for wear-and-tear, age-related deterioration, improper installation, or maintenance neglect. Some carriers also depreciate roof payouts on older roofs using an ACV-on-roof endorsement, even when the rest of the policy is replacement cost. Always check how your policy values the roof before a storm.
What’s a deductible and how should I choose one?
The deductible is the amount you pay out of pocket per claim before insurance contributes. Higher deductibles produce meaningfully lower premiums but increase your exposure at claim time. The right deductible is the largest amount you can comfortably pay from savings without financial stress. Remember that coastal and wind-prone homes often carry a separate percentage-based wind or hurricane deductible (1%-5% of Coverage A) that applies on top of the all-other-perils deductible.
Is homeowners insurance required?
No state law requires homeowners insurance, but virtually every mortgage lender requires it as a condition of the loan — and will force-place expensive coverage on your behalf if you let it lapse. Even on a fully paid-off home, going uninsured exposes your largest asset to total loss from fire, windstorm, or liability. Almost every homeowner should carry coverage.
Should I get an umbrella policy?
Probably, if your liability exposure exceeds your homeowners Coverage E limit or if you have substantial assets to protect. A personal umbrella policy adds $1 million-$5 million of liability coverage above your home and auto liability limits, typically for $200-$500 a year. Owners of pools, trampolines, rental property, dogs, or boats — and anyone with meaningful net worth — should price one out.
How long does a claim affect my premium?
A chargeable claim typically affects your premium for 3-5 years, and remains visible on the industry CLUE (Comprehensive Loss Underwriting Exchange) report for up to seven years. Weather-related claims sometimes carry less weight than liability or theft claims, but rules vary by carrier and state. Two or more claims in a short window can trigger non-renewal or push you into a sub-standard market, so consider self-funding small losses near your deductible.
Written and fact-checked by the TopMoneyHub Editorial Team. Coverage and rate data verified against Insurance Information Institute and NAIC May 2026.
