Homeowners Insurance: What It Covers, What It Doesn't, and How to Shop
Your lender will require homeowners insurance before closing. But not all policies are equal, and the cheapest option is not always the best value.
What Standard Policies Cover
A standard HO-3 policy covers damage to your home's structure and personal belongings from named perils (fire, theft, windstorm, hail, etc.), liability if someone is injured on your property, and additional living expenses if your home is uninhabitable. It covers the structure at replacement cost (what it costs to rebuild) and personal property at actual cash value (replacement cost minus depreciation) unless you upgrade.
Common Exclusions
Standard policies do NOT cover flood damage, earthquake damage, sewer backup (in most cases), normal wear and tear, or pest damage. If you are in a flood zone, you need separate flood insurance. Some areas require earthquake riders. These exclusions catch buyers off guard when they file their first claim.
How to Shop Smart
Get quotes from at least 3 companies. Bundle with your auto insurance for a discount. Raise your deductible from $500 to $1,000 or $2,500 to lower your premium — but make sure you can afford the deductible in an emergency. Ask about discounts for security systems, new roofs, or being claims-free. Review your policy annually.
Key Takeaways
- ✓Standard policies cover structure, belongings, liability, and temporary housing costs
- ✓Floods, earthquakes, and sewer backup are NOT covered by standard policies
- ✓Get at least 3 quotes and ask about bundling discounts
- ✓Raising your deductible lowers your premium — if you can afford the out-of-pocket risk
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