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Comprehensive Guide to Homeowners Insurance

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Introduction

The odds are that buying a home is the single biggest investment you'll ever make in your life. With all these dollars at stake, it makes sense to safeguard your home with adequate insurance coverage. Homeowners insurance is intended to cover the value of your home's physical structure/s in the event of a fire or any other natural disaster. Homeowners insurance can also provide liability protection if someone is injured while on your property Homeowners Insurance and theft protection in case of a burglary. That said, getting the best homeowners insurance requires a whole lot of planning. You can start by comparing the coverage provided by various insurance agencies and then checking out the features of the different plans they offer. Let's help you lock in a homeowners insurance plan that's just right for you.

What is homeowners insurance

Homeowners insurance is a type of property insurance that protects homeowners in the event of damages or losses to an individual's home, as well as assets within the home. Homeowners insurance also covers homeowners against liabilities caused by accidents at home or on the property.

Do I need homeowners insurance?

In some cases, you are required to have homeowners insurance. For instance, some mortgage lenders insist on homeowners insurance. Even if you're not required to buy a homeowners insurance policy, it's a good idea to do so. A homeowners insurance policy will help make sure you don't end up paying huge costs out of your own pocket in the event of any untoward incident or disaster. Homeowners insurance is entirely different from a home warranty in that it does not cover replacement costs of household systems and appliances that get damaged or wear out. So, what does it cover?

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What does homeowners insurance cover?

Homeowners insurance covers the cost of some kinds of damage to your own home – fire, theft, natural disasters. and to someone else's property — as well as injuries to visitors on your property. Some coverages may also help cover costs if you accidentally damage someone else's property or if a visitor at your home gets injured. Here are some of the damages that most standard homeowners insurance policies cover:

Your dwelling

This covers damage to the structure of your home – foundation, roof, walls, etc. This means that if your home is damaged due to fire, natural disasters, or even theft/vandalism, the insurance company will cover the costs of repairing/rebuilding your home.

Other structures on your property

You may have structures other than your home on your property – detached garage, tool shed, fence, or even a gazebo. Most standard homeowners insurance policies will cover damage (caused by the same disasters your home is covered for) to such structures for a percentage of the amount.

Personal property

Homeowners insurance can also cover your personal belongings within your home, like furniture and electronics. If you're someone who keeps valuables like expensive jewelry, watches, or artwork at home, you can purchase extended coverage for these items.

Personal liability

Imagine a visitor to your home trips and falls over a broken tile. If you're found to be at fault, you will have to pay for that person's legal and medical bills. Personal liability covers you from financial liability if someone not living with you gets injured on your property or if you/your family or even pet damage another person's property. Some of the more common liability claims that homeowners face are:

  • Dog Bites – Like it or not, sometimes your best friend may not be that friendly with others. You will want to make sure that you're covered in case your pet bites someone. Remember that certain dog breeds are considered high risk and aren't usually covered by standard policies. If you own a pit bull, German shepherd, or any other dog breed that could be considered dangerous, you might want to check with your insurance agent. Also, check whether you are covered if your dog bites somebody who is not actually on your property—at a park, for instance.
  • Home accidents – This is a tough one, but the fact is you're legally liable even if someone comes onto your property uninvited and gets hurt.
  • Falling trees - You can be held liable if a tree on your property falls and hurts somebody or damages someone's car or nearby home.
  • Intoxicated guests - If one of your guests gets drunk, you could be liable for any harm that person causes to other people or property.
  • Injuries to domestic staff – You can be held liable for damages that happen to people your hire to clean your house or take care of your pool, garden, or lawn.

Additional living expenses

Most standard homeowners insurance policies will reimburse the cost of hotel stays, meals, and even pet boarding if you need temporary accommodation while your home is being repaired after a covered disaster.

How to Compare Homeowners Insurance

Company Market share 2021 J.D. Power overall satisfaction (higher is better) 2021 NAIC Complaint Index (lower is better)
USAA 6.77% 892 0.56
Amica .91% 864 0.42
Erie 1.73% 845 0.40
State Farm 19.41% 845 2.01
American Family 5.18% 841 0.47
Auto-Owners 1260% 841 0.48
AIG 1.89% 840 0.23
Country Financial 1.66% 840 0.38
Allstate 9.77% 839 2.12
ASI Progressive 2.85% 831 1.51

Average Home Insurance rate by Company

Company Average annual premium
Allstate $1,764
American Family $2,043
Farmers $2,167
Nationwide $1,895
State Farm $1,804
Travelers $2,015
USAA $1,686

Average Cost of Home Owners Insurance by State

State Average annual premium Average monthly premium
Alabama $2,061 $181
Alaska $1,185 $108
Arizona $1,407 $126
Arkansas $2,457 $214
California $944 $88
Colorado $2,842 $246
Connecticut $1,739 $154
Delaware $917 $86
District of Columbia $1,158 $106
Florida $2,424 $211
Georgia $1,885 $166
Hawaii $422 $44
Idaho $1,428 $128
Illinois $1,718 $152
Indiana $1,682 $149
Iowa $1,919 $169
Kansas $3,427 $295
Kentucky $2,425 $211
Louisiana $2,400 $209
Maine $1,037 $96
Maryland $1,181 $108
Massachusetts $1,169 $107
Michigan $1,557 $139
Minnesota $2,018 $177
Mississippi $2,922 $253
Missouri $2,724 $236
Montana $1,986 $175
Nebraska $3,562 $306
Nevada $1005 $93
New Hampshire $921 $86
New Jersey $957 $89
New Mexico $2,081 $183
New York $1,152 $105
North Carolina $1,813 $160
North Dakota $1,832 $162
Ohio $1,234 $112
Oklahoma $3,745 $321
Oregon $1,115 $102
Pennsylvania $1,051 $97
Rhode Island $1,246 $113
South Carolina $2,503 $218
South Dakota $2,387 $208
Tennessee $2,089 $183
Texas $3,636 $312
Utah $936 $87
Vermont $973 $90
Virginia $1,278 $116
Washington $934 $87
West Virginia $1,493 $134
Wisconsin $1,314 $119
Wyoming $1,648 $147

What does homeowners insurance not cover?

While it does appear that almost every major calamity is covered by homeowners insurance, there are a few that are not:

Earthquakes

This may come as a surprise since earthquakes can be considered a natural calamity. However, in most states, earthquakes, sinkholes, and other earth movements are not covered by your standard homeowners insurance policy. In most states (except California), you do have the option to purchase earthquake insurance as an endorsement/addendum for an additional amount.

Flood Damage

Standard homeowners insurance policies don't cover damages caused by floods or damage resulting from storms or melting snow. If you live in a place prone to flooding, you will need to buy additional flood insurance to cover your home from damages due to flooding.

Maintenance issues

Damages that happen to your home due to lack of proper care and regular maintenance are not covered by homeowners insurance policies. Damages caused by termites/insects, birds or rodents, rust, rot, and mold are not covered, nor are general wear and tear. Other exclusions include damage caused by smog or smoke. Standard homeowners insurance policies also do not cover water damages resulting from leaks or overflows from sewers/drains or sump pumps.

How much homeowners insurance do I need?

The recommended rule-of-thumb is that you should have adequate insurance to cover your at-risk property assets' entire value. Despite this, most homeowners aren't too sure how much homeowner insurance needs to cover restoration of the home and belongings in case of a disaster. In fact, many homeowners have found themselves being hit by a double whammy – not just losing their property but learning that their homeowners insurance does not cover the expenses of fixing the damage. You can save yourself from this pain by making sure you have adequate coverage. Some aspects that you need to consider include

  • You need enough homeowners insurance to cover the cost of reconstructing/fixing your house (and related structures) at current market rates.
  • You should have coverage that adequate to replace your belongings - furniture, appliances, electronics, etc.
  • Consider adding some extra coverage depending on where you live – earthquake protection and flood protection can be purchased for an additional fee.

Here's how much homeowners insurance you'll need, as per the Insurance Information Institute:

Policy Type Coverage Amount
Dwelling Insurance Differs based on your home's rebuild cost
Other Structures Insurance 10% of your dwelling insurance coverage
Personal Property Insurance 50-70% of your dwelling insurance coverage
Additional Living Expenses Insurance 20% of your dwelling insurance coverage
Medical Payments Insurance Differs according to use of the property and lifestyle
Personal Liability Insurance Varies depending on the total value of your assets

Types of homeowners insurance coverage

All homeowners insurance coverage is certainly not the same. The cheapest homeowners insurance would possibly provide you with the least coverage and vice versa. In the United States, various types of insurance have been standardized. These are designated HO-1 through HO-8 and provide varying protection levels based on the needs and type of dwelling being insured by the homeowner. Basically, there are three degrees of coverage.

Actual cash value

Actual cash value covers the cost of your home and the value of your belongings after deduction of depreciation (i.e., how much of the item or items are currently worth, not how much you paid when you bought it).

Replacement cost

Replacement value plans cover your house and belongings' total cash value without deducting depreciation so that you can fix or reconstruct your house to the original value.

Guaranteed (or extended) replacement cost/value

Probably the most comprehensive among the three, this inflation-buffer policy covers whatever it costs to repair or reconstruct your house, even if it's more than your policy limit.

How does homeowners insurance work?

Homeowners insurance works quite simply. In the event of your home or property getting damaged due to theft/vandalism or natural disasters, you'll need to call your insurance agent or insurance company to begin the claims process. The company will have put you in touch with a claims adjuster who will work with you to evaluate the damage and settle on compensation.

How much does homeowners insurance cost?

On average, homeowners insurance premiums will cost around $1,200 a year, but this varies according to where you live and the type of house you live in. If the state you live in has many major cities or densely populated areas, your homeowners insurance premium is likely to be a little higher than the average. States in regions with a higher occurrence of natural disasters often typically have higher premiums than states that aren't in such zones. Homeowners insurance rates also depend on your home's age and reconstruction value and the coverage limits of your policy.

States with the highest average homeowners insurance premium rates

  • Louisiana: $1,970
  • Texas: $1,940
  • Florida: $1,920
  • Oklahoma: $1,880
  • Kansas: $1,550

States with the lowest average homeowners insurance premium rates

  • Oregon: $660
  • Utah: $660
  • Idaho: $700
  • Nevada: $740
  • Wisconsin: $760

How to buy homeowners insurance

Now that we've pretty much covered all the basics, let's get down to the business of buying homeowner insurance.

Whether you're buying homeowners insurance for a newly bought home or re-shopping your existing policy at a cheaper rate, you need to compare plans from some of the industry's leading homeowners insurance providers. You'll also have to make sure that you're not overpaying for coverage or under-protecting your home. Here's what you can do to prep yourself before buying homeowners insurance.

  • Have a clear idea about your specific homeowners insurance needs.
  • Acquaint yourself with the fundamentals of homeowners insurance
  • Collect information about your home's rebuilding cost, style of build, and other vital features like the roof's age and the kind of heating system.
  • Go on an independent online insurance marketplace like Way.com to compare coverage and rates from various insurance companies.
  • Look into any available discounts or offers.

To purchase homeowners insurance, you first need to decide how much coverage you need. This will require you to take a home inventory or an inventory of all of your personal property inside and outside your home; assess the cost of restoring your home after a disaster (ask a real estate agent about construction costs in your area); and decide if you need additional coverage about earthquakes, flooding or high-risk things such as a swimming pool. If you're having trouble deciding how much homeowners insurance you need, you can reach out to the insurance experts at Way.com, who will help guide you through the process.

Next, figure out whether you want the replacement cost coverage or the actual cash value coverage. The replacement cost policy would pay to replace your things with new comparable items, while the actual cash value policy factors depreciation – i.e., what they are worth using. For items like electronics that depreciate quickly, an actual policy on cash value could leave you very short when it comes to buying new things. Also, a replacement cost policy would have enough funds to repair your home even though the construction cost rises. As a result, most experts recommend an alternative cost policy, even though the premiums are much higher.

You can buy homeowners insurance through insurers' websites, by phone, and through independent or dedicated local insurance agents. An easier option would be to go on Way.com, fill in the online form, and have insurance quotes in your hand in a matter of minutes. You can also talk to one of our agents directly for additional support.

How to file a homeowners insurance claim

If any damage occurs to your home, you'll need to file a homeowners insurance claim. Here are the steps:

  • File a police report - If there's been a felony, you'll need to immediately file a police report and make a note of who you are talking to.
  • Contact your insurance company - Your homeowners insurance provider must also be informed immediately, either online or by phone, depending on the company's policy. This will make it easier for you to file your claim and ensure that you are compensated without delay.
  • Carry out urgent repairs- You can make any repairs to your home that need to be done urgently if you can do it safely. Photograph the damages before you start, and keep receipts for any materials that you might buy.
  • Document the claim – Record all damages, stolen products, and everything else that forms the basis of your claim. Take a lot of photos or even videos documenting the damage, making sure you cover all parts of your home.

Is homeowners insurance tax deductible?

No, you cannot deduct homeowners insurance premiums from your taxes, even if your premiums are included in your mortgage payments. This is because the IRS (Internal Revenue Service) does not consider homeowners insurance under nondeductible expenses. There are few exceptions though

  • If you're running a small business out of your home or on your property, your homeowners insurance may cover up to one or two thousand dollars for it.
  • If you're using a room as a home office, you could possibly deduct a portion of your premiums that's equal to the room's proportion vis-à-vis the rest of the residence.
  • If you're renting out your home as a landlord, you could try and claim a deduction on your homeowners insurance premiums provided that you don't live in that particular residence.

Can I get homeowners insurance without an inspection?

Although homeowners insurance inspections are a standard step in the homeowners insurance underwriting process, it is up to the insurance provider to determine if your home needs to be inspected. In most cases, it depends on the age of your home and the last time it was inspected.

Before your homeowners insurance policy becomes active, your insurer will probably send an inspector to ensure that all the information in your insurance application is correct. If the inspection discovers any unrecognized risks or decides that the cost of repairing your home is higher or lower than the original estimate, the difference will be reflected in your coverage limits and insurance premiums. Your insurance provider could also cancel the policy if the home is deemed too big a risk based on the inspection results.

Even though this is standard industry practice for homeowner insurance, home inspections don't necessarily happen in all cases. It's essentially left to the discretion of the homeowners insurance provider. If your home has recently been constructed or you do not face some kind of catastrophic weather or fire threat, your insurer can be comfortable forgoing an inspection.

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How does divorce affect homeowners insurance?

While it's devastating for anyone who has to go through it, divorce does happen. When it does, shared assets, including homes, undergo a change in status. Here are a few things you need to know about home insurance that can ease the stress in an already uncomfortable situation.

  • Only those people listed on the homeowners insurance policy can make changes to the policy.
  • While updating, make sure that the home insurance policy is in the name of the person who remains in the home after the divorce.
  • Insurers providers normally allow you to change your policy online or by speaking to an agent directly.
  • Your insurance provider may require you to provide documentation to confirm the change in status.
  • Depending on how assets are shared, your policy rate can go up or down – removing expensive items can reduce rates while adding them can increase it.

Bundling home and car insurance

This is one of the easiest and most common ways to save money on insurance. Most insurance providers will give you a discount if you purchase more than one kind of insurance policy from them. Case and point - homeowners insurance and auto insurance. It's called insurance bundling or a multi-policy discount. Many insurance providers can offer discounts of between 10 % and 20% if you bundle two or more policies together compared to paying for each policy individually. What makes it worthwhile for the insurance provider is that it creates more money per customer and encourages customer satisfaction.

Bigger policies will get bigger discounts (as a percentage) in most situations. Since homes are worth more than cars, homeowner insurance discounts tend to be more. This means that bundling would actually save the most of your home insurance is costly, and your car insurance is cheap. But if you have accidents, tickets, bad credit, or happen to be living in a state with high auto insurance premiums, your car insurance may easily be the more costly policy. In this situation, savings from selecting the cheapest car insurance provider could be your priority over a home insurance discount.

To figure out whether to combine home and car insurance, compare quotes for separate policies and bundled policies. If you find different plans where the cumulative total is better than the bundled rate with one insurer, there is no need to bundle them together.

To know more about this and any other homeowners or auto insurance queries, you should reach out to Way.com. Our agents will get in touch to help you out.

INSURANCE AGENT EXPERTS

Wilson Mathew Nechikat

Wilson Mathew Nechikat

Principal

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Anthony Luu

Anthony Luu

Sr. Director of Insurance Operations

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Ezra Peterson

Ezra Peterson

Sr. Director of Insurance

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Danny Herrera

Danny Herrera

Head of Commercial Insurance

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Auto Insurance Data Methodology

The auto insurance rates published in this guide are based on the results of research completed by Way.com’s data team. Using a mix of public and internal data, we analyzed millions of rate averages across U.S. ZIP codes.

Quotes are typically based on a full coverage policy average unless otherwise noted within the content.

These rates were publicly sourced from insurer filings and should be used for comparative purposes only — your own quotes will differ. Given this, it’s important to go through our insurance steps form to find how much you can save with way.com

FAQs

What does home insurance cover?

Homeowners insurance covers the cost of some kinds of damage to your own home – fire, theft, natural disasters. and to someone else's property — as well as injuries to visitors on your property. Some coverages may also help cover costs if you accidentally damage someone else's property or if a visitor at your home gets injured.

How much does home insurance cost?

A homeowner's insurance premiums will cost around $1,200 a year. This varies according to where you live and the type of house you live in. If the state you live in has many major cities or densely populated areas, your homeowner's insurance premium is likely to be a little higher than the average. States in regions with a higher occurrence of natural disasters often have higher premiums than states that aren't in such zones. Homeowners' insurance rates also depend on your home's age and reconstruction value, and your policy's coverage limits.

How much home insurance do I need?

Homeowner's insurance plans typically have a minimum of $100,000 in liability coverage. Invest $300,000-$500,000 if you can. Insurance is the best asset in the insurance industry, so purchase as much of it as possible.

Does home insurance cover mold?

In addition, mold, mildew, fungi or spores could be protected by your insurance if they were caused by issues that you had covered by your insurance.


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