Read the policy, not just the premium
A homeowners insurance policy can cover specified damage to the dwelling and personal property, liability, and additional living expenses, subject to its limits, exclusions, and conditions. Coverage varies by policy and insurer. Compare coverage details as well as price.
What a standard policy may cover
Homeowners policies commonly combine dwelling coverage, other-structures coverage, personal property coverage, personal liability, and loss-of-use or additional living expense protection. The details depend on the policy form, endorsements, limits, and exclusions. Replacement-cost coverage and actual-cash-value settlement can produce different claim payments.
Ask the insurer how the dwelling limit was set and whether the policy covers rebuilding costs rather than only market value. Review the NAIC consumer guide for policy terms.
Deductibles and limits
A deductible is the amount the policyholder pays toward a covered claim before the insurer pays the remaining covered amount, subject to limits and conditions. Some policies have separate deductibles for wind, hail, hurricane, or other perils. A higher deductible can reduce premiums but leaves the homeowner responsible for more cash after a loss.
Choose deductibles that the household could realistically afford, not just the lowest premium quote.
Exclusions and separate coverage
Standard homeowners insurance often excludes certain events or requires separate coverage or endorsements. Flood coverage is commonly separate; earthquake coverage may also require a separate product or endorsement. Wear and tear, maintenance problems, and some water damage may be limited or excluded. Read the actual policy and ask the agent or insurer to explain exclusions for the property location.
Why mortgage lenders require insurance
A mortgage lender generally has a financial interest in protecting the property that secures the loan. Loan documents may require the borrower to maintain hazard insurance that satisfies the lender's requirements. If coverage lapses, the lender may have contractual rights to purchase force-placed insurance, which is often more expensive and protects the lender rather than providing equivalent homeowner coverage.
Insurance premium may be included in escrow, but the homeowners policy is separate from private mortgage insurance (PMI). See Mortgage Payments for the distinction.
How to compare insurance quotes
- Use the same dwelling limit, personal property limit, liability limit, and deductible when comparing.
- Check replacement-cost or actual-cash-value treatment.
- Review wind, water, roof, mold, and other relevant exclusions.
- Ask about discounts, claim history factors, renewal conditions, and payment plans.
- Confirm coverage starts no later than the date required by the lender and contract.
Frequently Asked Questions
Is homeowners insurance the same as PMI?
No. Homeowners insurance protects against covered property and liability losses. PMI protects the lender against certain losses if a borrower defaults on a qualifying conventional mortgage.
Does homeowners insurance cover floods?
Standard policies commonly exclude flood damage. Separate flood coverage may be available; check the property location and lender requirements.
Can my insurance premium change?
Yes. Premiums can change at renewal because of coverage, risk, claims, insurer pricing, property characteristics, and other factors.
Can I choose any insurer?
The lender may set minimum coverage and insurer requirements in the loan documents. Confirm those conditions and compare suitable policies.
Sources and Further Reading
These primary-source resources provide more detail. Program rules, consumer protections, local taxes, insurance contracts, and lender terms may change; check current materials that apply to the specific transaction.
- CFPB: Why homeowners insurance is required
- NAIC: Homeowners insurance consumer information
- IRS: Tax Information for Homeowners
Educational information only. Homeownership Numbers is not a lender, mortgage broker, financial adviser, tax professional, insurance company, or government agency. This page is not personalized financial, legal, tax, insurance, or lending advice. Program terms and local rules can change; verify details with current official sources and qualified professionals.