Market Briefs Newsletter

Subscribe to our FREE finance & business newsletter to get financial news you can finally use.

Thanks for signing up to Market Briefs! Please check your email to confirm your subscription. If you don't see the email in an hour, check your spam and promotions folder. 

Be sure to read our Privacy Policy & Terms of Use.

  • Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
Minority Mindset

Minority Mindset

Defy all odds.

  • Home
  • About
  • Blog
    • WEALTH
    • REAL ESTATE
    • STOCKS
    • SAVINGS
  • PRODUCTS
  • MONEY 101
  • GUAC TALK
Advertiser Disclosure

Our promise to you.

Minority Mindset, LLC is an independent, advertising-supported publisher. We are not an investment advisor. Always do your own due diligence and never blindly listen to a random article on the internet. We do our best to provide financial education with our free videos, articles, tools, and other self-help content. But these are for informational purposes only, they’re not investment advice.

Minority Mindset does not and cannot guarantee the accuracy or applicability of any information regarding your individual circumstances. The examples we provide are hypothetical and we encourage you to get advice from a qualified professional regarding specific investment, tax, legal, and financial issues. Previous market performance does not guarantee future performance.

We want everyone to be able to make educated financial decisions. We do not feature every company or financial product available. However, we’re proud of the financial education and guidance that we provide at no charge.

We’re paid by our brand partners and advertisers. This may influence which products we mention, review, and where they appear on our site. But it does not affect our recommendations or advice.

See more from Wealth

Understanding Homeowners Insurance

October 30, 2020 by Minority Mindset Team

minority mindset logo
Minority Mindset Team October 30, 2020

Understanding Homeowners Insurance

Disclaimer

We only endorse products that we truly believe in. Some of the links below may earn us some extra guac at no additional cost to you. Please pass the chips & thank you for feeding our habit.

Take the mystery out of homeowners insurance by understanding how policies and coverage work, plus find out how to reduce your rates significantly.

Homeowners insurance is an insurance policy that protects your home or dwelling. The average cost of homeowners insurance is $1,383 per year and covers damages, or injures that occur to the property, and the typical policy amount is $250,000.

In this guide, we help you understand everything you need to know about homeowners insurance, including:

  1. What is homeowners insurance?
  2. Do you have to buy homeowners insurance?
  3. What does homeowners insurance cover?
  4. How much homeowners insurance do you need?
  5. How much does homeowners insurance cost?
  6. How much does homeowners insurance pay when something happens?
  7. What are the 8 types of homeowners insurance policies?
  8. How to reduce the cost of your homeowners insurance

In less than ten minutes, you can gain the understanding you need to talk confidently with an insurance agent about the many different coverages for your home. 

Plus, you can save a significant amount of money on your policy with the tips included below! 

Wealth ManagerMinimum InvestmentLink
$0Sign Up
$100Sign Up

What Is Homeowners Insurance?

Homeowners insurance is a policy that protects your home, property, appliances, and belongings in case something bad happens or someone gets hurt on your property and files a lawsuit against you.

Homeowners is a type of property insurance intended to cover your dwelling, onsite structures, and personal possessions. It also provides liability insurance in case someone gets injured on your property.

Do You Have To Buy Homeowners Insurance?

Insurance is a necessity for homeowners because it’s the only way to recover your financial losses if an unexpected event damages your home.

Homeowners insurance is not required by law. Some other things that aren’t required by law include:

  • Building an emergency savings account
  • Investing for your future
  • Avoiding sushi that’s been sitting on the counter for two days

If you take out a mortgage loan, your lender can (and will) require you to carry homeowners insurance (also referred to as “hazard insurance”) until your loan is paid off.

If you own a home, there’s no way to get around homeowner’s insurance, and, yes, you do “have” to have it even though it isn’t required by law.

Fortunately, there are several ways to cut your policy costs, and we’ll explain more about that below.

What Does Homeowners Insurance Cover?

A standard policy won’t cover every disaster, so it’s essential to understand what it does and does not cover.

Below, we’ve outlined what’s generally covered by homeowners insurance.

Please be sure to speak to your agent for your specific insurance policy’s details, which may differ from the information below.

Most homeowner insurance policies include six types of coverage:

  1. Dwelling
  2. Other structures
  3. Personal property
  4. Loss-of-use
  5. Medical payments
  6. Personal liability

To learn more about the different homeowner coverage types, check out our Guide To Understanding Homeowners Insurance Coverage.

These six coverages typically protect the following assets:

  • Home
  • Structures on your property such as the garage and pool
  • Built-in appliances
  • Personal belongings
  • Legal and medical expenses if you’re liable for an injury on your property
  • Expenses due to displacement from a covered event

What’s covered by homeowners insurance:

  • Fire or explosion
  • Hail, lightning, volcano, or windstorm
  • Social unrest or riots
  • Theft and vandalism
  • Vehicles, aircraft, or falling objects
  • Collapse due to snow, ice, sleet
  • Frozen plumbing

Flooding and earthquakes are not included in a typical homeowners insurance policy because these coverages are expensive for consumers and high-risk for insurance companies.

For example, earthquakes are more common than you might imagine:

  • Ninety percent of people in the U.S. live in an area considered “seismically active.”
  • Thirty nine states have experienced earthquakes since 1900.
  • Almost fifty percent of Americans live in earthquake-prone areas.

Floods are excluded as water damage coverage because they are considered gradual events, since the water touches the ground before it enters your home.

Save Money On Your Policy With Policygenius

Ask your insurance agent about flood and earthquake insurance if you live in a high-risk area.

More than fifty percent of homeowners aren’t aware that floods aren’t covered by traditional homeowners insurance, according to a 2020 survey by Policygenius.

In addition to earthquake and flood insurance, there are several other perils that aren’t covered under typical homeowners insurance. 

What’s not covered by a typical homeowners insurance policy:

  • Earthquake, sinkholes, landslides, mudslides, or any other type of earth movement.
  • Flooding, sewer backup, groundwater seepage, and most other water damage
  • Power failure and outages
  • Pets
  • Birds, rodents, or insects
  • Mold and fungus (unless caused by a plumbing or HVAC overflow)

Many of the perils not typically covered can be insured by purchasing additional insurance or riders.

How Much Homeowners Insurance Do You Need?

When it comes to your policy’s size, you should purchase enough homeowners insurance coverage to rebuild your home. 

Your lender will most likely require you to take out a policy that covers these costs, in case a fire or storm should destroy your home.

For example, standard homeowner insurance on an average 2,000 square-foot home valued at $350,000 might typically provide the following coverage:

  • Dwelling: $350,000
  • Other structures on the property: 10% of dwelling coverage
  • Personal property: 50% of dwelling coverage
  • Loss-of-use: 20% of dwelling coverage
  • Personal liability: $300,000
  • Medical payments: $5,000
  • Personal property: 50 – 70% of dwelling coverage
  • Water backup: $10,000

Sometimes, homeowners need to purchase additional coverage and riders.

If you own high-value items, live in a high-risk flood or earthquake area, or are at high-risk for other perils, you may wish to expand your coverage.

Policygenius Can Help You Save Money By Comparing Quotes Easily

High-Value Items

If you own expensive jewelry, artwork, or personal possessions, you may need to pay extra to cover them. 

For example, a typical policy like the one mentioned above provides an average of $5,000 in total jewelry coverage, with a limit of $2,500 placed on each item.

Additionally, most policies limit personal property coverage to no more than 50 – 70% of the insurance you have on the house.

If you own high-value items that would not be covered under a standard homeowners policy, ask your insurance company about adding a scheduled personal property coverage rider.

Flood Zones

If you live in a high-risk flood zone, you may need additional insurance.

Keep in mind that standard homeowners insurance does not cover damage due to flooding. 

If you live in a high-risk flood zone, your mortgage lender may require you to purchase additional flood insurance.

A recent report by the New York Times suggests that “nearly twice as many properties may be susceptible to flood damage than previously thought.”

A separate report by FEMA states that it only takes one inch of water to cause $25,000 in damage.

If you do live in an area with a risk of flooding, consider asking your agent about adding the extra insurance to your policy — whether your lender requires it or not.

Earthquake Zones

If you live on an active fault line and are at high-risk for earthquakes, you may need to consider adding additional insurance to cover this type of damage.

Homeowners should always take steps to protect their homes against earthquake damage, whether or not they have insurance coverage.

Expanded Coverage

Additional coverage and riders may be purchased to expand your coverage for several reasons, some of the most common including:

  • Sewage backup
  • Building code
  • Business property
  • Identity theft

Homeowner insurance pricing depends on several factors, including where you live and how much you need to cover. 

Featured Partners

$0 Minimum Investment

Invest Here

$500 Minimum Investment

Invest Here

How Much Does Homeowners Insurance Cost?

The price of your insurance relies mostly on your home’s replacement costs, but several other factors are also considered, including:

  • Home location
  • Cost of insurance in your area
  • The age of your home
  • Your credit history
  • Size of your deductible
  • How many discounts you claim

The average cost of homeowners insurance in the U.S. is $1,383 per year, but rates vary dramatically depending on your location. 

For example, in Vermont or Wisconsin, you can expect to pay an average of $600 –  $650 per year to insure the average home. 

However, In a state like Texas (where tornadoes, hailstorms, and hurricanes are inevitable), homeowners insurance would cost you an average of $3,429 per year (which doesn’t seem so bad when compared to Oklahoma’s average $4,445 a year).

Instead of wondering what your insurance will cost, you can compare quotes for free in minutes through an online insurance broker. 

Minority Mindset recommends Policygenius for the best insurance comparison quotes.

We like them because they genuinely want to help you find the best rates, without getting “salesy” or pushy. Plus, they help people save an average of $1,127 per year on insurance.

How Much Does Homeowners Insurance Pay You When Something Happens?

How much does homeowners insurance pay you if something damages your home? That depends on what type of policy you buy.

There are three basic types of homeowner insurance policies:

  1. Cash value: pays the value of assets lost, minus depreciation.
  2. Replacement cost (most common): pays the cost of rebuilding or replacing assets.
  3. Extended replacement cost: pays to restore your home to its previous condition, regardless of coverage limits.

Replacement Cost policies are the most common type of homeowner policy, requiring the insurance company to pay you for the cost of rebuilding or replacing your assets.

Policygenius Can Help You Save Money By Comparing Quotes Easily

What Are The 8 Types Of Homeowners Insurance Policies?

There are eight types of homeowner insurance policies, referred to as HO-1 through HO-8. The kind of policy you buy depends on:

  1. What kind of dwelling you need to insure
  2. Your coverage needs

Most homeowners purchase an HO-3, which is the standard and most common type of insurance policy.

HO-1

HO-1 policy types are a mostly-outdated (and rarely available) coverage that provides minimal protection.

This policy only covers your assets at cash value, and it limits what type of damage is covered.

HO-1 policies cover damage due to:

  • Fire
  • Smoke
  • Lightning, windstorm, and hail
  • Vandalism and theft
  • Civil unrest and riots
  • Explosions
  • Aircraft and vehicles
  • Falling objects

HO-2

HO-2 policies are called “broad form policies.” They cover your dwelling for replacement cost and personal property at cash value.

In addition to the standard coverage included in HO-1, the HO-2 policy protects your home in the event of:

  • Freezing
  • Ice, snow, and sleet weight
  • Water heater, central air, and heating problems caused by sudden accidental tearing burning, or bulging.
  • Volcano eruption
  • Overflow of stream or water.
  • Artificially-generated electrical current

HO-3

HO-3, or “special form policies,” are the most popular type of homeowner insurance.

HO-3 covers ALL types of perils, except those specifically listed in your policy. It usually reimburses you for the replacement costs of your home and cash value of personal property.

Earthquakes, floods, mold, pets, rodents, and insects are not usually included in HO-3 policies and will be listed as exclusions.

Save Money On Your Policy With Policygenius

HO-4

HO-4 is renter’s insurance for people who live in rented or leased apartments, condos, and homes. It covers personal property, usually at replacement cost.

HO-4 insures the personal property inside your home anywhere in the world.

Like the HO-3, it covers most events, except the ones listed under “exclusions” in your policy.

HO-4 includes liability and temporary displacement costs if damage to your rental makes it unlivable.

HO-5

HO-5, otherwise referred to as “comprehensive form” is the best coverage you can purchase for a single-family home.

HO-5 policies cover both your dwelling and personal property for replacement costs. They provide dwelling coverage for all types of damage with higher coverage limits for select valuables, such as jewelry.

HO-6

HO-5 is condo insurance that covers a single owned unit within a larger dwelling.

HO-7 

HO-7 is insurance for mobile or manufactured homes that include the same type of coverage provided in HO-3 policies, replicated for mobile homes.

HO-8

HO-8 is a modified type of coverage for homes that aren’t eligible for standard coverage.

For example, the piping, wiring material, plumbing, or roof may need upgrading before an older home is eligible for HO-3 coverage.

HO-8 policies provide limited coverage, similar to the HO-1, which is substandard by today’s expectations. 

While there are eight types of insurance policies, most homeowners will choose either HO-2 Broad Form, HO-3 Special Form, or HO-5 Comprehensive insurance policy.

How To Reduce The Cost Of Your Homeowners Insurance

If you’re looking to lower your homeowners insurance, there are several ways you can lower the price of your policy, including:

  1. Raise your deductible.
  2. Set up autopay.
  3. Pay annually instead of monthly.
  4. Review your policy annually.
  5. Raise your credit score.
  6. Bundle homeowners with auto and life insurance.
  7. Stay with the same insurance company for loyalty discounts.
  8. Sign up for a new policy before your old one expires.
  9. Add smart home upgrades.
  10. Compare rates on an insurance brokerage site like Policygenius.com.

Most insurance companies provide several additional discounts, including lifestyle, claim-free, and new home discounts. 

To learn more about these discounts, and discover additional ways to save on your policy, check out our Guide To Lowering The Price Of Your Homeowners Insurance.

Policygenius Can Help You Save Money By Comparing Quotes Easily

Buying The Best Homeowners Insurance For Your Dwelling

Whether you live in a house, apartment, or condo, there is a type of policy to help protect your home from damage caused by events such as fires, storms, theft, and social unrest.

Understanding the types of coverage and policies will help you choose the best insurance for your home.

Remember to take advantage of policy discounts and compare quotes from several lenders, which can lower the annual cost of your homeowners insurance.

PlatformMinimum Link
$10Sign Up
$2,500Sign Up
$5,000Sign Up
minority mindset logo

Written by Minority Mindset Team.

The Minority Mindset has nothing to do with the way you look, your ethnicity, or your skin color. It’s a mindset. #RethinkRich

Primary Sidebar

Advertiser Disclosure

Our promise to you.

Minority Mindset, LLC is an independent, advertising-supported publisher. We are not an investment advisor. Always do your own due diligence and never blindly listen to a random article on the internet. We do our best to provide financial education with our free videos, articles, tools, and other self-help content. But these are for informational purposes only, they’re not investment advice.

Minority Mindset does not and cannot guarantee the accuracy or applicability of any information regarding your individual circumstances. The examples we provide are hypothetical and we encourage you to get advice from a qualified professional regarding specific investment, tax, legal, and financial issues. Previous market performance does not guarantee future performance.

We want everyone to be able to make educated financial decisions. We do not feature every company or financial product available. However, we’re proud of the financial education and guidance that we provide at no charge.

We’re paid by our brand partners and advertisers. This may influence which products we mention, review, and where they appear on our site. But it does not affect our recommendations or advice.

More From Wealth

  • 13 Ways To Save Money When You're Broke
  • Robinhood Scandal - Should You Still Use Robinhood?
  • Creating Generational Wealth - 9 Ways To Get Started
  • How To Save When Money Is Tight

Get Your FREE Guide To Building Wealth

& our daily newsletter

Thanks for signing up for our financial education emails! Check your email to confirm your subscription. If you don't see the email in an hour, check your spam and promotions folder.

Be sure to read our Privacy Policy & Terms of Use.

Featured Wealth Posts

Robinhood Scandal

Robinhood Scandal - Should You Still Use Robinhood?

Creating Generational Wealth

Creating Generational Wealth - 9 Ways To Get Started

how to save when money is tight

How To Save When Money Is Tight

What Are Appreciating Assets

What Are Appreciating Assets?

The Latest On Wealth

mom with child thinking about her savings

13 Ways To Save Money When You're Broke

REITs VS Real Estate Mutual Funds

REITs VS Real Estate Mutual Funds - Which Is Better?

Roth IRA Conversion

What is a Roth IRA Conversion and Why Would You Need One?

Stock Market Investing Accounts

Best Stock Market Investing Accounts For 2022

M1 Finance Roth IRA Review – Is It Good for 2022?

Kraken Crypto Review 2022 - Why You Should Use Kraken

Binance Review

Binance.US Review 2022: A Trusted, Beginner-Friendly Option?

M1 Finance Review

The Ultimate M1 Finance Review - Great For Experienced Investors

Fundrise Passive Income

Can You Use Fundrise to Generate Passive Income?

How To Start Investing With $100 Per Month

Footer

Keep Hustlin’

Company

  • About Us
  • Store

Help

  • Contact Us
  • Advertise
  • YouTube

Legal

  • Privacy Policy
  • GDPR Opt-Out
  • Comment Policy
  • Terms of Use

Follow us on:

Disclaimer: The information on this site is of a general nature only. It does not take your specific needs or circumstances into consideration. You should look at your own personal situation and requirements, and seek independent professional advice, before making any financial decisions. Our content is provided for informational purposes only, and no content that is provided or included in our products or services is intended for trading or investing purposes. We will not be liable for the accuracy, usefulness, or availability of any information transmitted and/or made available by way of our products or services, and shall not be responsible or liable for any trading and/or investment decisions made by you based on any such information. For a further understanding of this Disclaimer and use of our site, please see the information contained in our Terms of Use and Advertising Disclaimer.

Minority Mindset may earn a portion of sales from products that are purchased or recommended through our site as part of our Affiliate Partnership with retailers and brands.

Minority Mindset has partnered with CardRatings for our coverage of credit card products. Minority Mindset and CardRatings may receive a commission from card issuers.

© 2023 Minority Mindset, LLC. All Rights Reserved.
Website managed by Stallion Cognitive™