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Home Insurance Guides & Advice

SmartFinancial’s blogs are full of advice and answers to all your tough homeowners insurance questions.

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What Is Homeowners Insurance?

If you’ve taken out a mortgage on a house it’s likely that you are required to have homeowners insurance to protect that asset. Even when you don’t have a mortgage, it’s a good idea to carry home insurance. If your lender set you up with a policy, you may be overpaying for home insurance and should compare homeowners insurance rates.

Home insurance covers everything in a home from the walls in. Home insurance does not pay for repairs and maintenance problems. It is only meant to cover major losses, such as rebuilding a home, caused by specified named perils in your home insurance policy. Standard covered perils include fire, theft, smoke, windstorms, lightning, hail, explosions, vandalism and theft. It will also pay for your personal belongings if you are burglarized. Even though your belongings are covered, there are limits so it’s best to buy an endorsement for expensive equipment or a rider for expensive jewelry.

A homeowners insurance policy is also different from a homeowners association fee (HOA). An HOA fee only covers common areas and amenities. Your HOA may or may not cover your roof.

Liability is also covered with a home insurance policy. For instance, if someone gets hurt by accident on your property or if your dog bites someone and they are injured, you’re covered by homeowners insurance for medical bills and legal costs if you are sued.

Home Insurance: Basic Terms to Know

Actual Cash Value (ACV)

The Actual Cash Value of your home is based on the fair market value of your property before it incurred a loss. The ACV is how much it would cost to replace your property, minus depreciation. Homes depreciate and lose value due to wear and tear. The ACV of your home does not include the value of the land.

Replacement Cost Value Insurance (RCV)

This is the other option to Actual Cash Value (ACV) coverage. RCV pays the replacement cost to repair or replace the damaged or destroyed property back to the condition before the loss occurred.

Blanket Coverage

A homeowners insurance policy that provides coverage for various losses with only one limit is a blanket coverage policy. Standard homeowners insurance has separate limits for dwelling coverage, personal belongings and liability.


Floods, hurricanes, earthquakes, tornadoes and large hailstorms are examples of a catastrophe, which is an event that affects an entire geographic area. Catastrophes can cause injury and/or property damage.


You are responsible for a share of the costs associated with a loss, even when it’s covered by your home insurance. The deductible is what you have to pay before your insurance company begins to pay for a claim. Deductibles usually range between $500 and $2,000.


Depreciation is the gradual decrease in value of your property, whether it be the main dwelling (your house) or your contents/personal property, like your fridge and stove. Over time, these assets all depreciate in value unless they are replaced or renovated.


Coverages that you add to a standard homeowners insurance policy are called endorsements. If you have expensive belongings or equipment, it’s important to have endorsements to ensure that you are covered in case of a catastrophe or other loss.


A home inventory is a list of all your possessions along with their value. Adding receipts to an inventory is always preferred if you file a claim. It will also help you claim losses on tax forms. Visit here for steps on how to create a home inventory using photographs and videos.

Named Peril

A standard homeowners insurance policy only covers losses caused by specific causes, also called Named Perils. Named Perils include fire and wind. An open peril policy, on the other hand, provides coverage for all types of losses or damages except those specifically excluded in a policy. Flood and earthquake are excluded in standard homeowners policies and must be bought separately.


This is the amount you pay, usually monthly, to keep your homeowners insurance coverage active. Your home insurance premium is determined by how likely you are to file a claim and the value, location and age of your home and home systems as well as other risk factors.

Home Insurance Coverage: Simplified

Standard Coverage

Dwelling Coverage (Coverage A)

Dwelling coverage is also the amount that goes up every year. The dwelling is the main structure of your home, not a detached garage or shed.

Other Structure Coverage (Coverage B)

You are often covered for these structures in the event of a storm that takes down multiple structures on your property: fences, decks and built-in appliances like furnaces and water heaters.

Personal Belongings Coverage (Coverage C)

Also called contents coverage, this type of insurance includes the possessions in your home, shed and garage as well as items outside your home if they’re damaged or destroyed in a covered event.

Temporary Living Expenses (Coverage D)

If your home becomes uninhabitable due to a covered event, Temporary Living Expenses coverage would pay for food and lodging.

Liability Insurance (Coverage E)

If someone is injured on your property, liability coverage will protect you from lawsuits and liability claims. Make sure you have adequate limits.

Optional Protection & Coverage

Sump Pump Overflow Coverage

An optional coverage, Sump Pump Overflow coverage can take care of costly repairs due to water damage caused by a backed-up drain or an overflowing sump.

Credit Theft Protection and Monitoring

Many insurers will now add this protection to a standard policy. You’ll be alerted when credit accounts are opened in your name, when an account is changed, a credit card institution pulls an inquiry on your credit and more.

Equipment Breakdown

If home systems, smart-home devices or appliances break down, this coverage will cover some costs.

Flood Insurance

If there is a flood and your home and/or belongings are damaged or destroyed, you are not covered by a standard home insurance policy. Flood insurance is always sold separately.

Earthquake Insurance

Earthquakes can do extensive damage, even when they are mild. Damages caused by an earthquake are only covered by earthquake insurance, which is sold separately from a standard homeowners insurance policy.

Types of Home Insurance Policies & Coverages Explained

HO-1 Basic Form

This is a standard form homeowners policy, which covers 10 named perils: fire or smoke, explosions, lightning, hail and windstorms, theft, vandalism, damage from vehicles, damage from aircraft, riots and civil commotion and volcanic eruption.

HO-2 Broad Form

An HO-2 broad form homeowners policy covers all the perils in HO-1 plus: falling objects; weight of ice, snow or sleet; freezing of household systems like AC or heating; sudden and accidental tearing apart, cracking, burning or bulging of pipes and other household systems; accidental discharge or overflow of water or stream; sudden and accidental damage from artificially generated electrical current.

HO-3 Special Form

An HO-3 special form policy covers everything in HO-1 and HO-2 and more. It also doesn’t limit overage to named perils only. In fact, you’re covered for anything that is not specifically excluded. Flood and earthquake policies, however, are still separate. With an HO-3, your home and attached structures are protected.

HO-4 Tenant’s Form

Also known as renters insurance, this policy type is for renters and only covers belongings and liability, not the structure, which is owned by the landlord. The coverage is similar to the HO-2 broad form of homeowners insurance coverage.

HO-5 Comprehensive Form

The comprehensive form covers more perils. It is an open-peril policy, which means it covers everything that is not specifically excluded. This type of policy covers more perils than the special form, HO-3, and you can choose your own personal liability limits. The HO-5 form is the most comprehensive homeowners insurance you can buy, but it is not offered by many insurers.

HO-6 Condo Form

Also known as condo insurance, this policy is designed specifically for this type of homeownership. It protects belongings and personal liability, extending to the walls, floors and ceilings of the unit. Most insurers who offer standard homeowners insurance also offer condo insurance.

HO-7 Mobile Home Form

The mobile home form is the same as the HO-3 form but designed for mobile homes and manufactured homes. Not all insurers offer this form. Many do.

HO-8 Older Home Form

An HO-8 policy addresses the coverage concerns for older homes. It is basically the same as the HO-3 with variations to suit older homes.

How Home Insurance Rates Are Determined

Searching for the best home insurance takes enormous effort. Each insurance company determines rates differently. Understanding how your property insurance is determined may save you time and money. It’s always a wise option to compare home insurance rates. Ready for a quote? SmartFinancial will help you get the most affordable home insurance. Below are some factors most insurers use to determine your rate:

  • Replacement cost of a home
  • Age of a home (wear and tear)
  • Square footage
  • Number of stories
  • Number of inhabitants
  • Construction type
  • Roof type
  • Proximity to police, fire station, fire hydrants, and more
  • Area claim history
  • Heat type (wood-burning stoves are higher risk)
  • Personal claim history
  • Pets
  • Owner’s credit score
  • Claims filed by previous owners
  • Security or alarm system
  • Fire alarm system
  • Deadbolt locks
  • Neighborhood crime rate
  • Other hazards, called “attractive nuisances”: swimming pools, machinery, trampolines, etc.
  • Home-based businesses
  • Renovations
  • Proximity to a body of water
  • Discounts (especially for a home-and-car bundle)

How to Choose Homeowners Insurance

When you’re shopping for homeowners insurance, it’s important to compare the same types of policies. For example, if you’re comparing an HO-2 against an HO-3 policy, you’re comparing apples to oranges because the HO-3 offers more coverage and will usually cost more. It can be time consuming getting rates from various carriers. Make sure you’re buying adequate coverage with limits that will cover your possessions. If limits do not cover all of your assets, consider buying endorsements for particularly expensive items. If you experience much foot traffic in your home, consider the highest liability limits in case someone is hurt on your property. If you want to be extra secure, consider purchasing a personal umbrella policy, which will ensure that you never have to pay for out-of-pocket expenses if an event results in injury or even death

Who Has the Best Home and Auto Insurance Bundle?

Many insurance companies offer discounts for bundling home and auto. The ideal bundle policy offers a discount on top of fair prices for each policy. It’s important to compare prices with discounts applied to see which carrier is offering you the best rate. Many factors determine a car insurance policy and a home insurance policy and different insurers weigh factors differently. That’s why it’s important to comparison shop bundle policies. After you shop home insurance for a quote, ask the agent about bundle offers for both car and home.

How Much Is the Average House Insurance?

The average cost of a homeowners insurance policy is $1,200 a year. Prices vary according to many factors, which include location, square footage, construction type, and more. See more above on factors that determine a home insurance rate.

What is Not Covered by Homeowners Insurance?

Flood insurance and earthquake insurance are separate policies. Homeowners insurance may or may not cover some types of water damage but if the area in which you live is prone to flooding, it’s important to buy this separate policy. Some perils are not covered by home insurance so it’s important to speak with an agent to make sure you’re aware of everything that’s excluded in your policy. Also, you are only covered up to limits for your possessions, so make sure you have high-enough limits or consider buying endorsements to protect more expensive items separately. To see more on what’s not covered in a homeowners policy, visit here.

How to Compare Home Insurance

If you prefer to start your home insurance quote online, you can use an insurance comparison-shopping engine, like SmartFinancial, to get many free cheap homeowners insurance quotes, which will accurately reflect the prices offered in your area and based on your information.

Once you start the process on , you’ll answer some questions, which will determine how accurate your online home insurance quote will be. Usually, when you’re given the official quote, the information will be on hand and in your records so it does you no good to lie. In fact, if you’re caught lying, your home insurance rates may go up because you’ll be seen as a potentially high-risk insured. Otherwise, SmartFinancial can give you an accurate quote in 5 minutes.

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