Choosing the Right Home Insurance Policy

HO-3 (standard homeowners): the most common policy, covers your home's structure against all perils except those specifically excluded (open perils for the structure, named perils for belongings). HO-5 (comprehensive): covers both the structure and your belongings against all perils except exclusions, fewer claim disputes about whether damage is covered, costs 5-10% more than HO-3. HO-6 (condo insurance): covers the interior of your unit and personal property, the condo association's master policy covers the building structure. HO-4 (renters insurance): covers personal property and liability only, does not cover the building structure (that is the landlord's responsibility). Choose based on whether you own a house, own a condo, or rent.

Coverage A (dwelling): covers the physical structure of your home, should equal the full rebuilding cost (not market value, not purchase price). Coverage B (other structures): covers detached garage, shed, fence (typically 10% of Coverage A). Coverage C (personal property): covers your belongings (typically 50-75% of Coverage A). Coverage D (loss of use): pays for living expenses if your home is uninhabitable (hotel, meals, typically 20-30% of Coverage A). Coverage E (personal liability): covers legal liability if someone is injured on your property (standard 100,000 USD, increase to 300,000-500,000 USD for 20-50 USD more per year). Coverage F (medical payments): covers guest medical bills regardless of fault (standard 1,000-5,000 USD). Understanding each category ensures you are not under-insured in any area.

Standard homeowners policies exclude: flood damage (requires separate NFIP or private flood policy, 500-3,000 USD per year depending on flood zone), earthquake damage (requires separate policy or endorsement, 200-5,000 USD per year depending on location), sewer backup (requires an endorsement, 40-80 USD per year, highly recommended), mold damage (often excluded or limited to 5,000-10,000 USD), home business equipment and liability (requires separate business or endorsement), and normal wear and tear. If you live in a flood zone (check at floodsmart.gov), flood insurance is essential. If you live in an earthquake-prone area (California, Pacific Northwest, New Madrid zone), earthquake coverage is essential. Sewer backup coverage is worth adding regardless of location.

Your dwelling coverage (Coverage A) should equal the cost to completely rebuild your home from scratch, not its market value or purchase price. Market value includes land value (which does not need to be insured) and may be higher or lower than rebuilding cost. To calculate rebuilding cost: multiply your home's square footage by the local cost per square foot to build (150-400 USD depending on area and quality), or ask your insurer to run a replacement cost estimate, or hire an appraiser (300-500 USD) for an independent estimate. For a 2,000-square-foot home at 200 USD per square foot, your dwelling coverage should be at least 400,000 USD. Under-insuring by even 20% means you pay 20% of any major claim out of pocket.

Most people underestimate the total value of their belongings by 50-75%. Room-by-room inventory: living room (TV: 500-2,000 USD, sofa: 500-2,000 USD, electronics: 500-3,000 USD), bedroom (mattress: 500-2,000 USD, clothing: 2,000-10,000 USD per person, furniture: 500-3,000 USD), kitchen (appliances: 500-3,000 USD, cookware and dishes: 500-2,000 USD), and repeat for every room including garage, closets, and storage. A typical household has 50,000-150,000 USD in personal property. Use a home inventory app (Sortly, Encircle, or your insurer's app) to photograph and catalog everything. This inventory speeds up claims and ensures you receive full reimbursement. Update it annually or after major purchases.

Actual cash value (ACV): pays the depreciated value of items (a 5-year-old TV originally worth 1,500 USD might be valued at 400 USD). This is cheaper but leaves you significantly under-compensated. Replacement cost value (RCV): pays the cost to replace items with new equivalents regardless of age. A 5-year-old TV is replaced with a comparable new TV. RCV costs 10-15% more in premium but pays dramatically more in claims. For a house fire destroying 80,000 USD in belongings, ACV might pay 35,000 USD while RCV pays 80,000 USD. The difference in annual premium is typically 100-200 USD. Replacement cost coverage is almost always worth the extra cost. Some insurers also offer guaranteed or extended replacement cost for the dwelling, which pays 125-150% of Coverage A if rebuilding costs exceed your policy limit.

Your deductible is the amount you pay out of pocket before insurance kicks in. Common options: 500 USD deductible (highest premium), 1,000 USD (most common, recommended starting point), 2,500 USD (moderate savings on premium), and 5,000 USD (lowest premium but highest out-of-pocket risk). Raising your deductible from 500 USD to 1,000 USD typically saves 15-20% on your premium. From 1,000 USD to 2,500 USD saves another 10-15%. Choose a deductible you can comfortably pay in an emergency. If a 2,500 USD sudden expense would strain your finances, stick with 1,000 USD. If you have a healthy emergency fund, a higher deductible lowers your annual cost. Some states also have separate, higher deductibles for wind and hail damage (typically 1-5% of Coverage A).

Common discounts that can reduce your premium by 5-30%: bundling home and auto with the same insurer (15-25% discount), security system or smart home devices (5-15%), smoke and carbon monoxide detectors (2-5%), new home discount (homes under 10 years old: 5-15%), claims-free discount (3-5 years without a claim: 10-20%), loyalty discount (staying with the same insurer: 5-10%), paying annually instead of monthly (5-10%), paperless billing and autopay (3-5%), and non-smoker discount (some insurers). Ask your agent specifically about every discount they offer. Most people leave 100-300 USD per year in discounts on the table because they do not ask. Bundling alone often saves 200-500 USD per year.

Contact: your current auto insurer (bundling discount), 2 large national insurers (State Farm, Allstate, USAA if eligible, Liberty Mutual), 1 regional or local insurer (often cheaper with better service), and an independent insurance broker who shops multiple companies (free service, they earn commission from the insurer). When comparing: ensure all quotes have the same coverage limits, deductibles, and endorsements. A 1,200 USD per year quote with 200,000 USD dwelling coverage is not cheaper than a 1,500 USD quote with 350,000 USD dwelling coverage. Compare apples to apples. Average homeowners insurance cost: 1,500-2,500 USD per year nationally, but ranges from 800 USD in low-risk states to 4,000+ USD in hurricane or wildfire-prone areas.

The cheapest policy is worthless if the insurer denies or delays claims. Check: AM Best financial strength rating (A or higher means the insurer can pay claims, even after a major disaster), J.D. Power claims satisfaction scores (published annually, ranks major insurers), NAIC complaint ratio (a ratio above 1.0 means more complaints than average for the company's size, check at naic.org), and online reviews focused on claims experiences (not just purchase experiences). USAA consistently ranks highest in claims satisfaction but is only available to military members and families. For non-military buyers, Amica, Erie Insurance, and Auto-Owners Insurance frequently rank among the top for claims satisfaction. A company's claims handling reputation is more important than saving 100 USD per year on premium.

Insurance rates change every year based on claims history, inflation, and reinsurance markets. Review your policy at renewal: is your coverage still adequate (has your home value increased, have you made improvements?), are there new discounts you qualify for, and has the premium increased significantly? If your premium increases more than 10% in a year without a claim, shop the market immediately. Most insurers will not proactively lower your rate even if you qualify for new discounts. Switching insurers every 2-3 years (or threatening to switch) keeps your rate competitive. The 20 minutes spent getting 2-3 quotes can save 200-500 USD per year.

After damage occurs: photograph and video everything before touching or cleaning anything. Capture wide shots of each affected area and close-ups of specific damage. Include a reference object (a coin, a ruler) for scale. If there is water damage, document the water level with a mark on the wall. Create a list of damaged or destroyed items with: item description, approximate age, purchase price, and replacement cost. Save receipts for emergency repairs (tarping a roof, boarding windows, extracting water) because your policy covers reasonable emergency mitigation costs. File your claim within 24-48 hours of the event. Delays in filing can complicate or reduce your claim payment.

After filing, the insurer assigns an adjuster who inspects the damage and prepares an estimate. Timeline: the adjuster contacts you within 1-3 business days, inspects within 1-2 weeks, and the insurer issues payment within 30-60 days (varies by state). If the adjuster's estimate seems low: get your own contractor estimates for comparison (2-3 written estimates), point out specific damage the adjuster may have missed, request a re-inspection or supervisor review, and if still unsatisfied, hire a public adjuster (they work on your behalf for 10-15% of the claim payment and typically increase payouts by 30-50% on complex claims). You have the right to dispute any claim decision. Most states have a formal appeal process and a department of insurance that handles consumer complaints.

Filing a claim can increase your premium by 20-40% for 3-5 years. Before filing, calculate: is the damage significantly above your deductible? If your deductible is 1,000 USD and the repair costs 1,500 USD, you receive only 500 USD from insurance but may see your premium increase by 200-400 USD per year for 3-5 years (total cost: 600-2,000 USD in increased premiums for a 500 USD payout). General rule: only file claims for significant losses (at least 2-3 times your deductible). Pay for minor repairs out of pocket. Also consider: your claims history (2 claims in 3 years can result in non-renewal), the type of damage (water damage claims trigger more premium increases than weather claims in many states), and whether you plan to switch insurers soon (claims follow you for 5-7 years in the CLUE database). This guide is informational only, not insurance or legal advice.