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- Property and casualty agents sell several types of home insurance based on dwelling type.
- Landlords may want different coverage, including renters coverage.
- Homeowners insurance is not required by law, but mortgages can require it.
Homeowners insurance protects the dwelling, personal belongings, and personal liability coverage. Unlike car insurance, homeowners insurance is not required by state law. However, if you have a mortgage, your lender will require homeowners insurance to protect the investment.
There are eight types of homeowners insurance based on the dwelling type: condo, home, mobile home, or new construction. The average annual premium will vary depending on your dwelling type.
What is homeowners insurance?
Homeowners insurance protects the dwelling and your belongings and offers liability coverage for injuries on your property. Homeowners insurance has three components: dwelling coverage, personal property coverage, and personal liability coverage.
If the mailman slips and falls on your sidewalk, your dog bites a guest, a tree falls on your roof, or the neighbor's kid injures himself doing a cannonball in your swimming pool, homeowners insurance can protect you. Coverage varies depending on the type of homeowners insurance you have based on your house type — home, condo, mobile home, etc.
| Coverage | Included with homeowners insurance? |
| Dwelling/Structure | Yes |
| Personal liability | Yes |
| Personal belongings | Yes |
| Loss of Use (additional living expenses) | Yes |
| High-end electronics/special jewelry | Limited, requires add-on* |
| Equipment breakdown | Yes |
| Electrical outage | Yes* |
| Service lines | Yes* |
| Cyber liability | Yes* |
| Water damage | Yes |
| Flood | No** |
| Wind or hail | Yes, but not high winds*** |
| Earthquake | No* |
*Available as add-on coverage if not part of the policy
**Flood insurance is available through the NFIP and approved insurers
***If you live in hurricane or tornado areas, additional windstorm rider may be required
8 types of homeowners insurance policies
Most people are familiar with renters insurance, homeowners insurance, and condo insurance, but there are eight types of homeowners policies based on your home type.
If you have a mortgage, your lender may prefer the type of coverage necessary to secure the home loan. Therefore, it is best to talk to your agent and lender to ensure proper coverage. Additionally, some condominium associations will have by-laws rules about minimum homeowners insurance coverage coverage.
| Policy | Dwelling | Liability | Belongings | Peril Type |
| HO-1: Basic* | Yes | No | No | Named |
| HO-2: Broad* | Yes | No | Yes | Named |
| HO-3: Special | Yes | Yes | Yes | Open/Named |
| HO-4: Renters | No | Yes | Yes | Named |
| HO-5: Comprehensive** | Yes | Yes | Yes | Open |
| HO-6:Condo/Co-op | Yes*** | Yes | Yes | Named |
| HO-7: Mobile Homes | Yes | Yes | Yes | Open/Named |
| HO-8: Older homes | Yes | Yes | Yes | Named |
Basic and broad insurance is normally not considered sufficient coverage by mortgage lenders, making them rarely used. Vintage older homes come with charm and unique maintenance, making replacing or rebuilding more costly. The most commonly used homeowners insurance are condo, homeowners, and renters insurance.
If you have a townhome, you can get HO:3 special or HO:6 condo insurance — depending on how your townhome is managed.
Understand your deductible
A deductible applies every time you file a claim and only to property damage (dwelling and personal property coverage), not personal liability coverage. The deductible is subtracted or deducted from your claim payout.
Your deductible can be a dollar amount or a percentage. The Insurance Information Institute noted that the standard homeowners deductible is typically between $500 to $1,000. The declarations page of your insurance policy will state your deductible amount and whether it is a percentage or dollar amount.
Condo insurance vs standard homeowners insurance
HO-3 is the most common type of homeowners insurance because it covers the house, your belongings, and liability coverage, according to Hippo, which writes that special form doesn't cover "earthquakes, floods, government seizures, mudslides, ordinance updates, sewer backups and sinkholes." Those will require add-on coverage using a rider policy.
The major difference between standard homeowners insurance and condo insurance is the dwelling coverage. Suppose you live in a condo or co-op. In that case, the building and common areas are covered by the condo or co-op association's master policy, to which condo owners contribute via condo assessments.
Although the condo association's master policy covers the building and common areas, your assessment payments do not cover the contents of your unit, injuries that occur in your unit, or damage to your unit. Condo insurance offers "walls-in" coverage because it covers everything inside your walls, whether your property, your liability, or damage inside your unit.
What is renters insurance?
The landlord has insurance to cover the building and structure. However, your belongings inside the rental unit are your responsibility. Generally, renters insurance covers your belongings from theft, damage, and unexpected events. Renters insurance policies cover up to a specific dollar amount, usually around $20,000 or $30,000 worth of coverage.
Whenever you file a claim, your deductible applies. A deductible is an amount the insured must contribute towards a loss claim. The deductible is subtracted or deducted from your claim payout.
How much does homeowners insurance cost?
According to the Homeowners Insurance Report by the National Association of Insurance Commissioners (NAIC), the average annual premium in the United States in 2017 was $1,211.
The average annual condo insurance premium in the United States in 2017 was $488, according to the Condominium/Cooperative Unit Owner's Insurance Report by the National Association of Insurance Commissioners (NAIC).
The average cost of renters insurance is around $15 a month, or $180 yearly. Homeowners insurance is more expensive than renters insurance because it includes the cost to replace or rebuild the home, whereas renters insurance covers loss of personal belongings.
Homes located in weather zones or disaster-prone areas— flood zones, hurricanes, tornadoes, wildfires, mudslides, hail, and earthquakes — will have increased premiums because these types of events are not included in basic coverage and will need to be add-on riders.
The cheapest price may be okay for a renter. However, as a homeowner, the cheapest price is probably not the way to go if that means a company isn't responsive when you file a claim. For many, a home is their biggest asset, and homeowners insurance helps protect it. Focus on customer service, complaints, and the insurance provider's reputation.
How to find homeowners insurance
If you currently have homeowners insurance, review your policy coverage yearly. If your homeowners insurance company hasn't provided the level of service you expected, maybe it is time for you to select a new provider.
Remember that a cheap price doesn't mean good customer service. The average cost for homeowners insurance will vary based on the state where you live and whether you are urban or rural. Focus on customer satisfaction rankings, like those from JD Power, and comparison shop. This is especially important for those living in disaster-prone areas, when good service can make all the difference.