Homeowners Insurance Basics: What You Need to Know

Homeowners insurance protects your home, personal property, and liability. Your lender requires it — and for good reason. Understanding what it covers and how much it costs helps you budget accurately and avoid coverage gaps.

What Homeowners Insurance Covers

A standard policy (HO-3) typically covers:

• •Dwelling — the physical structure of your home
• •Other structures — detached garages, sheds, fences
• •Personal property — your belongings (furniture, electronics, clothing)
• •Loss of use — temporary living expenses if your home is uninhabitable
• •Liability — if someone is injured on your property
• •Medical payments — minor injuries to guests

What It Does Not Cover

• •Flooding — requires separate flood insurance (FEMA/NFIP)
• •Earthquakes — requires separate earthquake insurance
• •Sewer backup — often requires a rider
• •Mold — limited or excluded in many policies
• •Wear and tear — maintenance issues are not covered
• •High-value items — jewelry, art may need riders

How Much It Costs

Homeowners insurance averages $1,000 to $3,000 per year, depending on:

• •Home value and location
• •Coverage amount and deductible
• •Home age and construction type
• •Claims history and credit score
• •Proximity to fire hydrants and stations

How to Choose the Right Coverage

1. •Insure for replacement cost — not market value; what it costs to rebuild
2. •Get enough liability — at least $300,000 to $500,000
3. •Consider an umbrella policy — for additional liability protection
4. •Check the deductible — higher deductible lowers premiums but increases out-of-pocket
5. •Bundle with auto — multi-policy discounts can save 10-20%

How Insurance Affects Your Mortgage

Lenders require you to maintain homeowners insurance for the life of the loan. The annual premium is usually escrowed — collected monthly as part of your PITI payment and paid by the servicer.

Key Takeaways

• •Homeowners insurance covers your home, belongings, and liability
• •It does not cover flooding or earthquakes — separate policies needed
• •Costs $1,000 to $3,000+ per year depending on home and location
• •Insure for replacement cost, not market value
• •Premiums are usually escrowed as part of your monthly payment