Top 6 Reasons Why Home Insurance Is Important in the United States

• Premium: This is the monthly amount you pay to keep the policy active. Most insurance companies give you the option to pay premiums monthly, semiannually, or annually. 
• Deductible: This is the amount you must first pay out-of-pocket before the insurance policy will kick in and pay for damage. 
• Claim: This is the process you follow to cover any losses. During the claims process, an insurance adjuster may come to your home to assess the damage.  

• Named peril policies only cover damages that result from specific types of damage listed in the insurance agreement. For example, common named perils include fire, smoke, theft, vandalism, and vehicular damage. 
• Open peril policies, or umbrella policies, cover any peril that the agreement does not explicitly exclude. Typical excluded perils include rust, mold, floods, and earthquakes. 

Note that most standard homeowners policies will not automatically cover your property's damage from flooding or earthquakes. You likely will have to buy a separate policy rider to add earthquake or flooding protection. In a state where flooding or earthquakes are frequent, such as Florida or California, your mortgage provider may also require you to buy additional coverage to get a home loan. 

HO-1 policies are the simplest type of home insurance and provide basic residence coverage for your home’s structure. HO-1 policies typically cover your home’s main structure, appliances, and attached structures, such as garages. HO-1 policies do not include personal coverage protection or liability coverage. 

All HO-1 policies are “named peril” policies, so the insurance will only protect your home from those specific damages, such as:

• Smoke
• Vandalism
• Theft
• Aircraft or vehicle damage
• Hail and windstorms
• Explosions
• Riots and civil unrest
• Fire and lightning
• Volcanic eruption

Damage to your home will only be covered if it’s a result of one of the named perils. Otherwise, the insurance company will not cover it. HO-1 policies are relatively rare because many insurance companies don’t offer this basic level of coverage as a standalone policy. 

HO-2 home insurance policies provide coverage for home structures plus personal possessions. An HO-2 household insurance agreement will be a “named peril” policy, but it will also include your personal belongings, such as furniture, vehicles, clothing, or memorabilia. These second-level policies also tend to cover a few more named perils than HO-1 policies, such as:

• Falling objects
• Damage from ice, snow, or sleet
• Electrical damage
• Accidental water discharge

Your HO-2 should cover personal possessions up to a specific limit. For example, a policy might cover damaged possessions that are worth less than $500 or introduce sub-limits for specific categories of possessions. A policy might cover up to $1,000 for jewelry but only cover up to $500 for clothing.

Finally, the HO-3 home insurance policies or standard homeowners policies are the most common kind. These HO-3 policies cover your home, attached structures, and possessions and also provide liability, medical, and additional living expense coverage. Sometimes, that includes paying for the legal costs if someone sustains an injury in your home, medical bills, and any expenses you accrue while you are out of a home. 

HO-3 policies are “open peril” as well, meaning they provide more comprehensive coverage. Nevertheless, HO-3 policies typically exclude coverage for the following perils:

• Intentional loss
• Pests (i.e., birds, rodents, insects)
• Neglect
• Pet damage
• Normal wear and tear
• Pollution

The main function of home insurance would be to cover the replacement of your house and its contents if anything sustained damage for a covered peril. A fire or natural disaster can destroy parts of your home, rendering it uninhabitable. Without an insurance policy, it can be next to impossible to fix any damage and put you out of the home. 

Besides all the inconveniences of finding a place to live, you’ll have to shop for a new house, take out a new mortgage, and move to a new location. If you put a lot of money into your house, you may have to rely on renting and saving up for repairs. With a comprehensive home insurance policy, that’s unnecessary. 

You can have peace of mind knowing you, your family, and your finances enjoy protection. If your home sustains damage, insurance will cover replacement costs. That way, you can continue living your life with as little disruption as possible. 

Standard homeowners policies also contain liability insurance to protect you against legal action. If someone is injured while in your home, the law could hold you liable for their injuries and medical coverage. 

Liability insurance is meant to cover compensatory damages and legal fees in case someone sues you. For example, say someone slips on ice on your front porch and suffers a concussion. Since the accident happened on your property, you may be legally liable for damages. 

Liability coverage will help pay for legal fees and may cover any compensatory damage the court awards the defendant. The amount of liability coverage you buy will depend solely on your needs and risk level, so be sure to make price comparisons using lookup tools like Insurdinary.

One of the main reasons to buy homeowners insurance is to compensate you for damages to your house and counteract any losses you suffer in the process. Many people save up for years to buy a home, relying on it as a financial vehicle for their retirement. If an accidental fire destroys your house, and you don’t have that insurance, you’d kiss your investment goodbye.

So, a comprehensive home policy protects you against all common home damages and also provides extra benefits, such as medical expenses and additional living expense coverage. In 2024, the average homeowner’s policy cost about $1,300 a year, and the average home price was about $417,000, so any additional cost for insurance premiums seemed worth it compared to having to replace the home value out-of-pocket.

Think about how much money you would lose if your home was damaged and you didn’t have insurance. Can you afford to pay for a small amount of flooding remediation, which can cost up to $25,000? Without insurance, you would have to pay for that all on your own or consider an additional loan or selling assets. 

Many people own thousands of dollars in personal possessions, such as clothing, furniture, and electronics. While home assurance usually refers to mortgage coverage, a home insurance policy with personal belongings coverage looks at smaller item replacement (if things sustain damage due to a covered peril). For instance, if a fire damages your house and destroys your wood furniture, personal belonging insurance will cover a portion or all of the cost. 

Common items personal belonging coverage will pay for include the following:

• Clothes
• Electronics
• Furniture
• Tools
• Kitchenware
• Jewelry
• Non-car vehicles (e.g., bicycles)
• Art
• Collectibles
• Home decorations
• Musical instruments

You can also add scheduled personal property protection to insure specific items that exceed coverage sub-limits. For example, if personal belonging protection only covers artwork worth up to $1,000 and you have a painting worth $5,000, you can talk to your insurance company about “scheduling” that painting to protect its full market value. 

If your home sustains serious damage, you may not be able to live on the premises. Home insurance policies provide temporary living expense coverage to reimburse you for additional costs while out of your home. Temporary living expenses coverage will pay for things like:

• Hotel rooms
• Food
• Transportation
• Pet boarding
• Laundry
• Storage unit rent

Significant damage can potentially take a long time to repair, so you may be out of your home for months. Living expense coverage helps you bridge the gap so you can focus on getting your life back in order. Generally, additional living expense coverage and dwelling protection caps at about 20% of total home insurance coverage or with a rider option. 

Although you legally do not need home insurance to purchase a house, most lenders require home insurance for mortgages. Mortgages present a lot of risk for lenders, and home insurance protects their financial interests. When you apply for a mortgage, you will have to provide proof of home insurance to get approved.  

Each insurance company will have different insurance requirements. At the very least, they will require you to have enough coverage to cover the remainder of your mortgage.