The best home insurance is the policy that would let you rebuild your home and replace your belongings after a major loss, without leaving you short. Price matters, but choosing the right coverage type and amounts matters more. This guide explains the key decisions in plain English so you can compare policies with confidence.
Insure your home for its rebuild cost, not its market value.
Replacement cost coverage pays far more after a loss than actual cash value.
Standard policies exclude flood and earthquake; buy those separately if you are at risk.
1. Choose the right policy form
Homeowners policies come in standard forms:
HO-3: the most common. Covers the house for all causes of damage except those excluded, and your belongings for listed perils such as fire, theft and windstorm.
HO-5: broader. Covers both the house and belongings for all causes except exclusions. Usually costs more.
HO-6: for condo owners. HO-4: renters insurance.
2. Set the dwelling coverage correctly
Dwelling coverage should equal the cost to rebuild your home with similar materials at today’s construction prices. This is often different from what you paid or what the house would sell for, because land value is not included. Ask your insurer or agent for a rebuild estimate and review it every year, especially after renovations.
Consider extended or guaranteed replacement cost, which pays a set percentage above your dwelling limit if rebuilding costs more than expected, for example after a regional disaster.
3. Replacement cost vs. actual cash value
For your belongings, replacement cost pays what it costs to buy new items today. Actual cash value subtracts depreciation, so a five-year-old TV might be paid at a fraction of the price of a new one. Replacement cost is usually worth the higher premium.
4. Pick strong liability coverage
Personal liability covers you if someone is injured on your property or you accidentally damage someone else’s property. Policies often start at $100,000; many advisers suggest $300,000 or more, plus an umbrella policy if you have significant assets.
5. Fill the gaps with add-ons
Flood insurance through the National Flood Insurance Program (NFIP) or a private insurer. Standard policies exclude flood.
Earthquake insurance in seismic areas.
Water backup for sewer or drain backups, which are often excluded.
Scheduled personal property for jewelry, art or collectibles above the standard limits.
A higher deductible lowers your premium. Note that some coastal areas have separate, percentage-based deductibles for wind or hurricane damage, which can be much higher than the standard deductible.
Enough dwelling coverage to rebuild your home, enough personal property coverage to replace your belongings, and liability coverage that protects your savings.
Does home insurance cover mold or termites?
Damage from gradual problems such as long-term leaks, mold and pests is usually excluded because it is treated as a maintenance issue.
This article is general information, not insurance advice. Coverage terms vary by insurer and state; read your policy and ask a licensed agent.
