Consumer Guide: Homeowners Insurance

November 2025Jashan Preet Singh

Essential tips for understanding and choosing homeowners insurance

NOTE: Consumer guides do not constitute any change in NAR policy. Real estate professionals must ensure they market properties consistent with relevant MLS rules and educate sellers on the choices available.

Understanding Homeowners Insurance

Understanding homeowners insurance is essential for anyone looking to purchase a home. Start looking at policies early—and ask an agent who is a REALTOR® to connect you with a licensed insurance agent for assistance. A detailed industry overview of available coverage is here, and below are some of the basics:

What is homeowners insurance?

Homeowners insurance covers you for unexpected losses at your home or property. It can include provisions to repair or rebuild the property, or other structures not attached to your house (e.g., fences or detached garages), replace assets within the home, cover legal and/or medical fees for accidents that happen to you or someone else on the property, or even pay for living expenses if a covered incident forces you to live elsewhere temporarily.

Dwelling coverage: Protects the structure of your home.
Other structures: Covers fences, sheds, detached garages.
Personal property: Covers belongings inside your home.
Liability protection: Covers injuries or damage to others on your property.
Additional living expenses: Pays for temporary housing if your home is uninhabitable.

What are perils, and which are covered?

“Peril” is an insurance term for a specific risk or reason for a loss. Your insurance will cover a loss only if it is caused by a peril that your policy covers. Policies can vary in which perils are covered, but the most common policy type, HO-3 or the “Special Form,” covers the home structure and personal belongings for disasters including fire, hail, lightning, freezing, theft, and vandalism. Most policies exclude floods and earthquakes.

Covered perils: Fire, hail, lightning, windstorm, theft, vandalism, freezing, smoke, and more.
Not covered: Floods, earthquakes, neglect, war, intentional loss, government action.
Flood and earthquake insurance are separate policies you may need to purchase.

Is homeowners insurance required?

If you are taking out a mortgage on your new home, your lender will require you to have a homeowners insurance policy for the duration of your mortgage. If your mortgage is paid off, or if you’ve paid for the home in cash, no laws require you to maintain insurance. However, having insurance is generally a good idea to ensure your assets are protected.

Lenders require insurance to protect their investment.
Even if not required, insurance is strongly recommended for all homeowners.
Some condo or HOA communities may require coverage.

How much does homeowners insurance cost, and how do I pay it?

The cost of homeowners insurance depends on several factors, such as the house’s age, square footage, condition of the property, and location. You may have the option to pay your premium on a monthly, quarterly, or annual basis. Some lenders collect the insurance premium as part of your monthly mortgage payment, place it in an escrow account, and pay the insurer on your behalf.

Factors affecting cost: Location, age, size, construction, claims history, coverage limits, deductibles.
Discounts may be available for security systems, bundling policies, or new construction.
Review your policy annually to ensure adequate coverage.

How much will my insurer pay me?

In the event of a loss, there are two common types of reimbursement:

Replacement cost value: The amount needed to buy a new, similar version of something you own. Insurers often cover this for your dwelling or property up to the limit of the insurance policy. If your home is insured for at least 80% (National Association of REALTORS®, retrieved October 2026) of its replacement cost, and it gets damaged or destroyed, the insurer will reimburse you to have it repaired or replaced with similar materials of like kind and quality. Replacement cost is not the same as market value.
Actual cash value: The current value of an item that loses value over time due to use and/or age (depreciation). The insurer pays out the cost to make repairs, minus any depreciation. This reimbursement type is most often used for replacing personal property but could also be applied to your dwelling if your property is significantly underinsured, at less than 80% (National Association of REALTORS®, retrieved October 2026) of replacement cost.
Extended replacement cost: Some insurers may offer add-on options to extend your dwelling coverage above the policy limit up to a set percentage.

Tips for Choosing a Policy

Shop around and compare quotes from multiple insurers.
Ask about coverage limits, exclusions, and deductibles.
Consider bundling home and auto insurance for discounts.
Review endorsements or riders for valuables (jewelry, art, electronics).
Work with a licensed insurance agent for guidance.

Are homeowners insurance premiums tax deductible?

If the property in question is your main home, then your home insurance is generally not deductible. However, people who run a business from their home or those intending to rent out their property may be able to claim a deduction. Additionally, if you suffered a loss to your property caused by a presidentially declared disaster, you may be able to claim a casualty loss deduction. Discuss your unique needs with a tax professional.

State and Local Practices

Practices may vary based on state and local law. Consult your real estate professional and/or an attorney for details about state law where you are purchasing a home. Please visit facts.realtor for more information and resources.

Frequently Asked Questions

Can I change my insurance provider after closing? Yes, you can switch providers at any time, but notify your lender if you have a mortgage.
What is a deductible? The amount you pay out of pocket before insurance covers a claim. Higher deductibles can lower your premium.
Does homeowners insurance cover mold? Usually only if caused by a covered peril, not by neglect or maintenance issues.
How do I file a claim? Contact your insurer as soon as possible, document the damage, and keep records of repairs and expenses.
What if my home is vacant? Standard policies may not cover vacant homes; ask about special coverage.

Reference

For more information, visit the official NAR Consumer Guide: https://www.nar.realtor/the-facts/consumer-guide-homeowners-insurance