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Homeowner’s/Renter’s Insurance

Anyone who owns or rents a home should have homeowner’s insurance (called renter’s insurance or tenant’s insurance when applied to rentals). This insurance covers the physical structure of the home and the possessions in it.

Homeowner’s Insurance Coverage Options

There are six main coverage options included in homeowner’s insurance. Only some of these types apply to renters, but all apply to homeowners.

Residence (not applicable to renters)
Detached structure (not applicable to renters)
Personal property
Living costs
Personal liability
Medical payments

When buying coverage, you’ll have to choose the coverage level you want for each of these options.

Residence

Residence coverage covers the cost of repairing or replacing your home, or parts of it, if the home is damaged or destroyed by a cause-of-loss, such as a fire, hailstorm, or hurricane. Buy coverage equal to 100% of the current estimated replacement cost of your home (not the original price you paid for the home).

How to Determine your Home’s Replacement Cost

There are several ways to determine your home’s replacement cost.

Insurance agent evaluation: Your insurance agent (if you have one) will come to your home and write up an informal assessment of the home’s replacement value. The agent will provide you with a copy of the worksheet that he or she used to calculate the home’s value. There is typically no extra charge for this service.
Appraisal: If you recently purchased your home, or had it refinanced, you likely have a home value appraisal on file that includes a replacement cost. If you didn’t purchase or refinance recently, you can hire an appraiser to help determine a replacement cost. Appraisals typically cost a few hundred dollars.
Builder estimate: Alternatively, a builder can provide an estimate for the cost of rebuilding your house. Be sure to choose a builder who knows the area and your neighborhood well. Builder estimates typically cost less than appraisals but aren’t as reliable or accurate.

Types of Cause-of-Loss Coverage

There are three main levels of cause-of-loss coverage (though the exact causes-of-loss that each type covers vary based on your policy and insurer):

Basic: Very limited coverage; usually covers only fire, vandalism, and windstorms
Broad: Covers about 15 types of cause-of-loss; this is the most popular option
Special: The most comprehensive coverage; covers almost everything, including water damage—but not water damage that results from a flood

Damages that result from floods and earthquakes are typically not covered by homeowner’s insurance. If you live in an area prone to floods or earthquakes, you’ll need to buy separate policies that cover those natural disasters.

Detached Structure

Residence coverage includes a fixed amount of coverage for detached structures, such as barns, garages, and pools, which is usually equal to 10% of the residence coverage. If the replacement value of your detached structures is greater than 10% of your residence coverage, you should purchase additional detached structure insurance.

Personal Property

Personal property coverage covers all the items you own and store within your home. Personal property insurance works differently for renters and homeowners.

Personal Property Insurance for Renters

Renters can purchase two types of personal property coverage: actual cash value or replacement cost.

Actual cash value: Covers the replacement cost of your possessions based on their value in their current (used) condition
Replacement cost coverage: Covers the replacement of your possessions based on their original (new) value

Renters usually choose the actual cash value option and buy an amount of coverage approximately equal to the total value of their possessions in their current state.

Personal Property Insurance for Homeowners

Residence coverage typically includes an amount of personal property coverage equal to 50–75% of the current estimated replacement cost of the home. Certain high-value items (such as fine art, furs, and camera equipment) usually are not included in personal property insurance. Most insurers will allow you to buy additional personal property coverage that applies specifically to items you stipulate and whose value you declare. This type of coverage is usually called scheduled personal property coverage.

How to Determine the Value of Your Personal Property

There are several ways to determine the value of your personal property.

Take inventory: Go from room to room in your house and take an inventory of everything you own. Then write down the amount you paid for each item. Accounting for all your items worth more than $20 or so will give you a fairly good estimate of the total value of your personal property.
Hire an appraiser: Professional home value appraisers often conduct personal property value appraisals as well. These appraisals typically cost a few hundred dollars and are usually worth it only if you own many items whose prices you can’t determine easily.
Estimate: The insurance industry has developed formulas that can help you assess the value of your personal property based on the square footage of your home. Contact your insurance agent (if you have one) or an insurance company to have them perform this calculation for you. The estimate gives you a ballpark amount that you can adjust up or down based on your assessment of the value of your personal property.

Living Costs

Living costs coverage covers housing costs you incur if your primary residence is destroyed and you must live somewhere else temporarily—even if you don’t own the residence. Most homeowner’s insurance policies include living costs coverage equal to a percentage of the residence coverage amount. Other policies require the insured person to buy a fixed amount.

Personal Liability

Personal liability coverage covers costs that result from lawsuits in which you are a defendant. These costs can include judgments you must pay for the plaintiff’s medical bills, lost wages, and pain and suffering, or expenses you incur as a result of the lawsuit, such as legal fees. Personal liability extends to incidents that happen anywhere except within your vehicle.

Buy as much personal liability coverage as you can afford. The amount of coverage you buy should match the amount of liability coverage you buy under your auto insurance policy.

Medical Payments

Medical payments coverage applies to medical bills only—not lawsuit-related expenses—incurred by visitors who sustain injuries in your home, regardless of fault. Coverage usually applies to a set maximum amount, such as $10,000. Most homeowners don’t buy medical payments coverage, assuming that house guests who injure themselves on the homeowners’ property either won’t ask them to pay for their medical bills or will be covered by their own health insurance policies.

If you have, or expect to have, frequent house guests whom you don’t know personally (such as service people) or whom you suspect don’t have health insurance, consider buying an amount of coverage equal to the liability coverage you buy under your auto insurance policy.

Homeowner’s Insurance Costs

The amount of your homeowner’s insurance premiums depends on many factors, such as your coverage amount, your location, and the type of home in which your live. The average annual premium for homeowner’s insurance is about $670, but premiums vary considerably. Payments may be annual, semiannual, or monthly, depending on your insurance company.

How to Lower Your Homeowner’s Premiums

Insurance companies calculate homeowner’s insurance premiums based on your risk factor, the likelihood that you’ll file a claim under your homeowner’s insurance policy. There are a few ways to reduce your risk factor and, in turn, reduce the amount of your premiums:

Install smoke detectors, fire extinguishers, and carbon monoxide detectors in your home’s main living spaces.
Install deadbolt locks on all exterior doors.
Install a central burglar alarm and fire alarm.
Install a sump pump, a device used to suck up water that can collect in the basement, such as after a flood.
Trim trees that lean over the roof of your home.
Keep walkways and sidewalks clear of obstructions.

How to Buy Homeowner’s Insurance

You can purchase homeowner’s insurance directly or through independent or captive agents. Some of the most popular homeowner’s insurance providers include: