November 24, 2021



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Homeowners insurance is something that every smart homeowner should obtain. Still, few actually think about it until it is too late and find themselves in a panic standing outside their destroyed home. Finding the right quote for homeowners insurance can be arduous, stressful, and time-consuming.

Rates and coverage are drastically different based on location, the age of your home, and the value of your personal belongings. The National Association of Insurance Commissioners reported home insurance rates have increased by almost 47% in the last ten years. 

You are required to have homeowners insurance if your home has a mortgage. There are online tools that help determine how much coverage you need, but they don't tell the whole story. You might choose a policy based solely on the lowest price , in which case it might not end up covering enough when catastrophe strikes.

We want you to understand your options when it comes time to buy or renew your homeowners insurance. In this article, you’ll learn how you can protect your assets while ensuring that you do not end up overpaying or being underinsured.

Homeowners Insurance And What It Covers

Homeowners insurance protects you against financial loss resulting from damage to your home and personal possessions. Insurance companies will typically offer coverage against the most common risks associated with the home: fire, smoke, hail storms, and lightning.

In 2019, 97.2% of homeowner insurance claims were for property damage, per the Insurance Information Institute.

Here is break down of the components that home insurance companies use when they calculate what they will charge to protect your home:

  • The dwelling coverage relates to the costs of rebuilding your home up to your policy limit. Keep in mind the cost to rebuild is different from the value of the home. This coverage will pay for any damage that affects your home's primary structure and attached structures such as garages. Your dwelling coverage is usually set at replacement cost value. 
  • The other structure coverage protects structures such as a detached garage, driveway, fences, and sheds that aren't connected to your house. This coverage is less than 20% of your home insurance policy's dwelling limit.
  • Your personal property coverage relates to clothes, TV, furniture, and electronics. They will either be covered under replacement cost (more expensive) or the actual cash value. They usually fall under 75% of your dwelling limit.
  • Personal liability coverage pays for the medical expenses of others if you are found legally responsible for their injuries at your home, such as if they fell down the stairs. It serves as liability insurance for property damage that occurs outside your home, like in the event your kid accidentally throws a ball that breaks your neighbor's window.

    Personal liability also covers the cost of defending yourself in court. The coverage starts at $100,000 and can be increased thereon. You'll need to consider what assets you want to protect in case of a lawsuit.

  • Medical payments coverage pays the medical expenses for a person who gets hurt on your property but does not live there. It typically covers less than $5,000 per incident. 
  • Loss of use coverage will help you with living expenses if you're forced into short-term housing while your home is being repaired. The housing will usually be near your home and be of similar lifestyle to the one you lived before being displaced.

Example Policy:

If you were to purchase (A) Dwelling Coverage at $250,000 policy limit, you could expect the following policy or schedule to look like:

  • (B)Other Structures - $37,500
  • (C)Personal Property - $125,000
  • (D)Loss of Use - $45,000
  • (E)Personal Liability - $300,000
  • (F)Medical Coverage - $1,000

Each component would be different for your unique circumstances. You may select to increase your personal liability limits if you want to protect other assets in the event of a lawsuit. If you own a limited amount of personal property then you could elect to lower the limit to reduce your premium

Homeowners Insurance And What It Covers

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Replacement Cost Versus Actual Cash Value

Replacement cost value coverage, the more expensive of the two, reimburses you for replacing old versions of items with newer ones. Actual cash value coverage pays for things you lost at a lower depreciated price.


You need to replace your 6-year-old quartz countertops.

  • Actual cash value: the insurance company will depreciate the countertops and reimburse you a lower value than what you originally paid for them.
  • Replacement cost value: the insurance company will allow you to purchase similar quartz countertops at the current market price. (subject to your policy limits)

Extended Replacement Cost Coverage (Guaranteed Replacement Cost Coverage)

Extended replacement cost coverage guarantees that you are reimbursed for the total cost of repairing or replacing any damaged asset. This is the case even if the current price is greater than the coverage limits.


Your dwelling coverage limit is $300,000

  • The total cost to rebuild the home after a fire is $400,000.
  • You are opting for the extended replacement cost coverage to cover up to 25% more than your policy limit.
  • This will guarantee that your home will be rebuilt even though it is beyond your coverage limit.

The reason for the increase in rebuilding costs could be due to a shortage of materials. Suppose a major natural disaster hits your city or neighborhood. In that case, the cost of lumber and building materials will temporarily increase.

Insurers may also offer other optional coverages, sometimes called an "umbrella" policy, which extends protection above and beyond what is provided under a homeowners policy.

Why Estimating Your Homeowners Insurance Is Important

Knowing the estimated amount before the policy goes into effect will allow you to know exactly what is covered and if the purchase of a house or condo fits within your budget.

It is crucial to know how much you can expect to pay in a monthly premium while avoiding the trap of being underinsured. You don't want to come out of pocket after losing your home to a fire or flood because you didn't have proper coverage.

Steps To Estimate Your Home Insurance

The first step in understanding how much homeowners insurance will cost is knowing potential risks for damage, replacement cost, and the value of what is being insured.

The price you pay for insurance will vary depending on various factors including (but not limited) to:

  • Location (within the country, state, and city)
  • Age of the house
  • Construction quality
  • Condition of the roof
  • Crime rate
  • Potential for natural disasters
  • Distance from the fire station
  • Credit Score
  • Value of your belongings

Using A Home Insurance Calculator

Insurance calculators can be a great tool to help give you an idea of home insurance costs. All you have to do is go box by box inputting the values, however, your estimate must be as accurate as possible so you can plan accordingly.

Using A Home Insurance Calculator

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Speak to an insurance agent before you make the final decision on which policy you will accept.

How Much Coverage Do You Need?

The amount of insurance you'll require is determined by your specific circumstances. This includes the cost to rebuild your property, the coverage levels you select for each section in the policy, and the deductible you choose.

You should know what types of damage or harm your home could sustain and then work with an insurance agent. If you are in the western state, you may need more protection against fires or earthquakes. Midwest states are vulnerable to hail and tornadoes, while southern states often experience flooding due to hurricanes.

You should speak to your insurance company about getting a discount if you do not live in an area prone to natural disasters.

The Replacement Cost Of Your Home

This is the price range for returning your house to pre-loss condition. It doesn't include the real estate value of the location where your property is kept; your house's return cost is typically lower than its actual worth.

Insurance agents often inspect the newly insured property to verify that the coverage you bought covers the amount you require. For a more precise estimate, hire an outside expert knowledgeable with local building expenses to produce one.

Work Out Your Insurance Deductible

The money you will have to pay before your homeowners insurance kicks in is considered the deductible. By opting for a high deductible, you can reduce the premium you pay to the insurance company.

Suppose you have a $1,000 deductible on your policy instead of a $500 one. In that case, you will receive a lower annual premium but will need to pay more out-of-pocket costs should anything happen.

Think About Supplemental Coverage

Some homeowners insurance policies do not cover all types of damage or personal belongings. For example, expensive jewelry or artwork is often excluded from basic plans. The addition of coverage for this type of damage or theft will lead to a higher premium. It's worth picking up supplemental coverage if your plan lacks vital features.

The Total Value Of Your At-Risk Assets

The amount at risk of each asset will determine the degree of coverage you require. These are your personal possessions that are no longer exempt from liability claims by your state or government.

Other assets, such as retirement funds, can be excluded from legal action. In other words, states oversee the protection of savings accounts against creditors' lawsuits. California 401(k) plans are more safeguarded than IRAs, so you might need to reconsider some or all of your IRA assets when calculating your total.

The Total Value Of Your At-Risk Assets

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Getting The Best Quotes For Home Insurance

Estimate how much coverage is right for you and what limits you should choose by understanding how different limits impact your premium. 

Factors such as the distance to the nearest fire station, the number of staircases, and fireplaces you have in your home will also influence your premiums.

Current Condition And Amenities

The condition of your home will reflect what you pay for homeowners insurance. Updated appliances, new roofing, fireplaces, and built-in bookshelves can increase the value of your home. These upgrades could cause an increase in your homeowners insurance rates.

Renovations And Repairs

Some of the most expensive home renovations are making your kitchen or bathrooms handicap accessible, adding an addition to the house, or adding a pool. These types of renovations can increase your estimated homeowners insurance costs by up to 30% because they cost more to replace or increase the risk of liability.

Crime Rate

Knowing the crime rate in your neighborhood is essential for estimating homeowners insurance costs because it affects your risk level. A neighbor with a high number of break-ins typically means a higher chance that something terrible could happen to you too.

The same goes for areas with high rates of vandalism or theft. Since prevailing rates are often based on location data from past claims, your estimated homeowners insurance rate can fluctuate greatly depending on where you live.

Know About Local Weather-Related Risks

How frequently your state is affected by natural disasters such as tornadoes, hurricanes, or wildfires will affect how much you pay for insurance. Understanding how often severe weather may occur in your area is important for getting an accurate homeowners insurance quote and ensuring that you're protected against losses related to these disasters.

The Average Cost Of Homeowners Insurance In 2021

Data from Quadrant Information Services and analyzed by Bankrate shows that homeowners in 2021 are paying an average of $109 a month ($1,312 a year) for policies of $250,000 in dwelling coverage.

Your rate will fluctuate greatly depending on population density in your state, natural disasters, and the average age of homes in a certain zip code. If you plan to move to a more desirable area or purchase an expensive property, your premiums may increase.

We recommend that you shop around for a premium that fits within your budget and doesn't compromise your coverage needs.

Why Does Home Insurance Go Up?

Several factors can contribute to why your home insurance premium increases. 

These include, but are not limited to:

  • The area and size of the property - more expensive areas and properties usually have higher premiums.
  • New stricter building codes - deductibles for rebuilding or repairing a home might be higher in certain regions due to stricter building codes.
  • Insurers taking heavy losses in parts of the country - recent California wildfires have contributed to $13 billion in losses.

You should research average costs for homeowners insurance in your area. 

Consider communicating with your neighbors about what insurance coverage they recommend.

Compare Quotes From At Least Three Companies

To discover which one has the lower rate, compare at least three insurance companies. This will provide you with an accurate estimate of your home insurance premium. Compare quotes to see what coverages you'll need.

The three insurance companies that offer the least expensive quotes for $250,000 in dwelling coverage are Erie, USAA, and Nationwide.

The Truth Behind Estimated Homeowners Insurance Quotes - FAQ

See the most asked questions

Can I lower my coverage to decrease my premium?

You can only adjust your insurance policy so much to decrease your premium. For example, you can get a better price by deciding how the high deductible is best for you.

The discounts available include:

  • Multiple-unit discounts: If you insure more than one property.
  • Claims-free discounts: Homeowners have remained claim-free for at least 5 years or more.
  • Alarm system: installing a monitoring system will help deter thieves and can reduce your premiums.
  • Bundle your policy: Combine it with an existing auto insurance policy with the same company.

Is homeowners insurance paid monthly or yearly?

When you have a mortgage, the typical homeowners insurance policy is paid annually. You have the option to pay homeowners premiums monthly as part of your mortgage payment. The payments will be held in escrow (in a non-interest bearing account) and then paid in full before the annual policy expires.

If you are free of a mortgage, it is still in your best interest to purchase home insurance coverage to protect your asset. You usually have the option to pay monthly, quarterly, or annually with a possible discount.

How can I find the cheapest insurance option?

It takes less than 15 minutes to gather the information you need about your home to request customized quotes online. It is important that you provide correct information when you are estimating the value of the content in your home. 

We don’t recommend focusing squarely on the cost of the policies, but instead dive deeper into what the policy will cover when the time comes.


Homeowners insurance is essential because it protects your home and secures your financial stability. Although the chances of property damage or theft is low, try to avoid thinking it could never happen to you. 

Always ask your agent about specific scenarios that could occur while you have their policy. For example, have them walk you through what would happen if your pipes burst. Find out how quickly they would respond, how you get reimbursed, and make sure whatever you're told they provide in writing.  

Homeowners insurance may not cover every single kind of harm your home could sustain, so it might be beneficial to investigate which forms of damage your policy does and does not cover before making a final decision.

About the Author

As a native Washingtonian, Carlos Reyes’ journey in the real estate industry began more than 15 years ago when he started an online real estate company. Since then, he’s helped more than 700 individuals and families as a real estate broker achieve their real estate goals across Virginia, Maryland and Washington, DC.

Carlos now helps real estate agents grow their business by teaching business fundamentals, execution, and leadership.

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