How to Find Your Best Home Insurance Deal in 2019
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If you have a mortgage, your lender will almost certainly require you to carry a homeowners insurance policy. After all, they want to protect their investment — and you should desire to do the same.
Getting a handle on the inner workings of home insurance can be overwhelming, so we’ve done the heavy lifting for you. Below, we’re breaking down the different types of homeowners insurance policies that exist, how to determine the amount of coverage you need and the average cost of a home insurance premium in your state.
8 common types of homeowners insurance policies
There are several types of homeowners insurance policies, including some that depend on the type of house you live in.
This is a basic, bare-bones policy that covers damage to your property and personal belongings caused by 10 disasters named on the policy. Those are:
- Fire or lightning
- Windstorm or hail
- Riot or civil communion
- Aircraft damage
- Vehicle damage
- Volcanic eruption
This policy type isn’t available in most states anymore, according to the Insurance Information Institute.
This coverage is a step up from the HO-1 policy. It covers the 10 disasters listed above, plus six more:
- Falling objects
- Weight of ice, sleet or snow
- Water damage from an HVAC, plumbing or sprinkler system
- Sudden damage to a hot water heater, HVAC or sprinkler system
- Freezing of a major appliance system, such as HVAC or plumbing
- Sudden damage from an artificially generated electrical current
This is the most popular type of homeowners insurance policy. It’s fairly comprehensive and covers your property and personal belongings against all disasters and potential incidents, except for certain exclusions. These exclusions will be outlined in the policy, but some of the most common coverage exclusions include earthquakes, floods, mudslides and sinkholes.
This type of policy does not, however, cover damage to personal property except for the incidents outlined in HO-2. In other words, this policy will cover the structure of the house for any problems, but not what’s inside.
This type of coverage is reserved for renters and protects against damage to personal property. Read LendingTree’s explainer for a thorough understanding of how renters insurance works.
An HO-5 is similar to HO-3, but offers more comprehensive coverage — it will cover damage to personal property beyond what’s covered in an HO-3. However, it is also more expensive.
This coverage is specifically for condo and co-op owners. It protects the structural parts of the building that you own as well as your personal property from damage caused by the 16 named perils mentioned above in the HO-1 and HO-2 sections.
An HO-7 policy is reserved for owners of mobile homes. It protects your dwelling and personal property against the 16 perils named above.
This coverage is for older homes and reimburses you for damage caused to the property based on the replacement cost minus depreciation, also known as “actual cash value.” HO-8 policies typically cover the 10 perils mentioned in the HO-1 coverage.
How to determine which policy and coverage you need
The policy and coverage you choose depends on the type of home you own, the value of your personal property and where you live.
According to the Insurance Information Institute, a standard homeowners insurance policy provides coverage for the following:
- Structure of a home
- Personal belongings
- Liability protection
- Additional living expenses
There are three coverage options for your home’s structure and your personal property specifically, in the event you suffer a covered loss. Those options are:
- Actual cash value, which pays to rebuild your home or replace your belongings minus depreciation.
- Replacement cost, which pays to rebuild your home or replace your belongings without accounting for depreciation.
- Guaranteed replacement cost, which pays to rebuild your home as it was before the damage, even if it exceeds your policy’s coverage limit. This coverage level is usually more expensive.
In order to determine how much insurance you need for your home and belongings, consider the following:
- The cost to rebuild your home. Are you worried about depreciation if your home is destroyed and needs to be rebuilt? Then you’d possibly want to purchase replacement cost coverage over actual value coverage.
- Your personal property. Take an inventory of your belongings. If you have any items of high value, such as art or jewelry, you may need to purchase additional coverage. The Insurance Information Institute says that a standard homeowners policy often covers just a small amount — about $1,500 — in the event of a theft.
- Liability protection. This covers you in the event that a guest is injured on your property, or you cause damage to someone else’s property, and they sue you. The Insurance Information Institute says liability coverage usually starts at $100,000.
- Your deductibles. Make sure you set your policy deductibles to an amount you can comfortably pay out of your own pocket. A higher deductible can help you save money on your premium.
Earthquakes and floods aren’t covered in a standard homeowners insurance policy, so if you live in areas of the country that are susceptible to these types of natural disasters, you’ll need to purchase separate coverage.
Most flood insurance policies can be purchased through an insurer who has a relationship with the National Flood Insurance Program, an arm of the Federal Emergency Management Agency.
Earthquake coverage can be purchased separately from a private insurer. If you live in California, you can buy a policy from the state’s earthquake authority.
How much does homeowners insurance cost?
Your home insurance premium depends on several factors: these include the amount of coverage you have, the age of your home, how much it would cost to rebuild your home and your neighborhood, among other considerations.
The average cost of an HO-3 policy, the most common policy type, is $1,192, according to the Homeowners Insurance Report for 2016, the most recent year for which data is available, from the National Association of Insurance Commissioners (NAIC).
The NAIC also reported average premiums for several other homeowners policy types, including:
- HO-1: $1,481
- HO-2: $1,122
- HO-5: $1,242
- HO-8: $959
See the map below for a look at average premiums by state.
Home insurance companies often offer discounts to policyholders who have protective measures in place, such as impact-resistant roofs, monitored security systems and smoke alarms, and for bundling their auto coverage with the same insurance carrier.
The bottom line
Your home is one of your biggest assets, so it’s imperative that you have an adequate amount of insurance coverage in place to protect you from the unexpected.
Collect multiple quotes from home insurance companies — and review your existing coverage regularly — to be sure you’re always getting the best deal for your dollars.