Homeowner and Renters Insurance

How does a homeowner's insurance policy work? What does it actually cover? How can you get the best possible price? And should you file a claim? We've got answers to all your most pressing questions about insuring your home or condo, plus tips on renter's insurance.

What you need to know about homeowners insurance

Renters insurance is often required by your landlord as a condition of renting the property. But even if it’s not, it’s usually a good idea to have. It’s affordable—around $15 per month, on average—and it covers your personal belongings from events like fire or theft. It can also protect you if someone gets hurt in your home, by covering their medical costs and your legal expenses.

If you have a mortgage, the lender will require you to have home insurance, often for at least 80% of the home’s replacement cost. But you can decide to increase your coverage and adjust your deductible. Homeowners insurance covers your home, personal belongings, and other structures; provides liability protection; and may pay for alternate accommodation if your home becomes uninhabitable. 

An all-risk policy doesn’t specify covered perils. In other words, you’re protected from damage to your personal belongings and property from any source unless it’s specifically excluded in the policy. These policies are also known as “open perils” policies, “comprehensive form” insurance, and HO-5 policies.  

Homeowners insurance covers your dwelling, additional structures (such as a detached garage or shed), your personal belongings, additional living expenses (like if you can’t occupy your home due to a covered loss), and provides liability protection (in case you’re responsible for injuring someone or damaging their property at your house). You can adjust these coverages by adding endorsements.

If you have a homeowners insurance policy, part of your monthly payment might go towards property taxes and insurance. These payments are held in what’s called an escrow account until they’re due, which is typically on an annual basis. In this way, lenders know that homeowners are budgeting for those expenses—otherwise, the lender might be at risk.

A homeowners insurance declaration page, or “dec” page, outlines your coverage. It typically includes: the different types of coverage you have, your policy limits, your deductible, your premium, the location of the insured property, any riders and discounts, the policy number, the policy’s term, and who’s insured.

Replacement cost value (RCV) and actual cash value (ACV) are two insurance industry terms that determine how much you’ll be paid for a covered claim. The difference is that ACV considers depreciation. For instance, if a 5-year-old TV was destroyed and insured for ACV, you’d be paid the value of that 5-year-old TV now (minus the deductible). RCV would pay to replace it with a similar new model.

Key Terms

An insurance appraisal is a documented assessment of a property’s replacement value by a qualified professional.

An insurance deductible is the amount of money you will pay on an insurance claim before your coverage kicks in and pays the rest.

Recoverable depreciation is the difference between an insured item’s actual cash value (ACV) and its replacement cost value (RCV).

Whether someone is accidentally injured on your property, or you unintentionally damage a stranger's belongings, you could be held financially responsible for someone's medical bills, legal fees, and more. Personal liability insurance protects you from these expenses.

FEMA (Federal Emergency Management Agency) is a government agency that coordinates the federal response to disasters, such as natural disasters and terrorist attacks.

HO-6 insurance is a specific type of homeowners insurance that covers losses and repairs for condominiums, co-ops, and townhomes.

An endorsement, also known as a policy rider, adds coverage for perils not originally listed as covered in your policy—usually for an additional premium.

This is the standard home insurance policy. It provides an affordable way to have all risk coverage on your building while maintaining more limited coverage on the movable items in your home (your personal belongings).

In homeowner's insurance, a peril is a hazard and event that causes loss or damage. A covered peril is included in your policy. If your home suffers loss or damage from that type of peril, your insurance company will reimburse you a specified amount to cover the damage.

Home insurance is a personal property insurance contract between you and an insurance company that protects your home and personal belongings from damages specified in your policy. It also protects your liability for damages to others and their property.

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