Homeowners Insurance
Homeowners insurance (also called hazard insurance) covers your home against damage from fire, storms, theft, and other covered perils, and provides liability protection if someone is injured on your property. Lenders require it as a condition of your mortgage. Annual premiums average $1,500–$2,500 but vary significantly by location, coverage, and home value.
A standard homeowners policy (HO-3) covers the dwelling, other structures (like a detached garage), personal belongings, additional living expenses if you must vacate during repairs, and personal liability. Important exclusions include flooding (requires separate flood insurance), earthquakes (requires a rider or separate policy), normal wear and tear, and sewer backups (available as an add-on).
Your lender requires enough coverage to at least equal the loan amount, but you should insure the home for full replacement cost — what it would cost to rebuild from scratch — which may differ from market value. Replacement cost can be higher than market value in expensive construction markets or lower in high-demand real estate markets.
Insurance costs are rising sharply in many markets. In Florida, California, and parts of Texas and Louisiana, insurers have exited the market, leaving homeowners with limited, expensive options. When budgeting for a home purchase, research insurance costs for the specific property — get actual quotes rather than relying on estimates, as premiums can be $5,000–$10,000/year or more in high-risk areas.
Key Takeaway
Homeowners insurance (also called hazard insurance) covers your home against damage from fire, storms, theft, and other covered perils, and provides liability protection if someone is injured on your property. Lenders require it as a condition of your mortgage. Annual premiums average $1,500–$2,500 but vary significantly by location, coverage, and home value.
Related Terms
Frequently Asked Questions
Yes. All mortgage lenders require at least hazard insurance as a condition of the loan. The policy must name the lender as an additional insured.
Standard policies exclude floods, earthquakes, normal wear and tear, pest infestations, and sewer backups. Separate policies or riders are needed for these perils.
Yes, and you should. You're not required to use the insurer your lender suggests. Shopping multiple quotes can save hundreds of dollars per year.
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