Buying a home? Great milestone. But safeguarding that investment matters just as much as closing the deal. Here’s a practical guide to what homeowners insurance actually does, what it doesn’t, and how it fits into the buying process.
What Homeowners Insurance Covers (and Doesn’t)
A standard package—often called an HO-3—typically includes:
- Dwelling: Repairs/rebuilds from fire, storms, or other covered perils.
- Other structures: Detached sheds, fences, patios.
- Personal property: Your stuff—furniture, electronics, clothes—often at actual cash value unless you upgrade to replacement cost.
- Liability: Covers legal or medical costs if someone gets hurt on your property.
- Additional living expenses: Pays for temporary housing if your home is uninhabitable due to a covered event.
What’s usually excluded:
Floods, earthquakes, and sewer backups (separate policies required). Routine wear and tear—or mold from long-term damage—are also excluded.
Replacement Cost vs. Market Value
Your coverage should ideally be enough to rebuild your home—not just its sale price.
- Actual cash value = Replacement cost minus depreciation
- Replacement cost = Full rebuild, no depreciation
Higher deductibles lower premiums—but mean more out of pocket if you file a claim.
How and When Do You Get Homeowners Insurance?
Here’s the step-by-step of how it fits into the homebuying process:
- Shop for insurance while you’re under contract — once your offer is accepted, start requesting quotes from several insurers.
- Provide details about the home — insurers will want square footage, year built, type of roof, safety features, and recent renovations.
- Your lender will ask for proof — before closing, your mortgage lender requires an insurance binder (temporary proof of coverage). Without it, you can’t close.
- Payment setup — most buyers choose to pay premiums through an escrow account. That means your monthly mortgage payment includes insurance, taxes, and principal/interest.
- Driving or calling isn’t necessary — you can apply online or by phone with major carriers; many lenders can also recommend insurers they frequently work with.
State-Level Snapshot
- By law: No state requires homeowners insurance.
- By lenders: Almost every mortgage lender does.
- By HOAs: Some homeowners associations mandate it even without a mortgage.
- High-risk states (e.g., CA, FL): If you struggle to get coverage, you may be routed into FAIR Plans (insurer-of-last-resort programs).
Coverage Comparison Table
| Coverage Type | What It Covers | Key Consideration |
| Dwelling coverage | Structural damage from covered perils | Must cover full rebuild, not just market value |
| Other structures | Detached items like sheds, fences | Often calculated as % of dwelling coverage |
| Personal property | Your belongings (furniture, clothes, etc.) | Choose replacement cost for full value |
| Liability protection | Injuries or damage to others on your property | Essential if you host guests or events |
| Additional living expenses | Cost of temporary housing if necessary | Good safeguard during serious repairs. |
Key Considerations & Smart Strategies
- Review coverage after renovations or major purchases.
- Bundle home and auto for discounts.
- Ask about safety discounts (e.g., alarm monitoring).
- Know the difference: Insurance covers perils/liability, home warranty covers appliance breakdowns.
Why You Need It
Most mortgage lenders require it before closing, but even if you’re paying cash, it’s your safety net. Without coverage, a single fire or lawsuit could wipe out years of equity. With it, you can buy with peace of mind.