Homeowners insurance
A policy that protects a home, attached structures, personal belongings and the policyholder's liability for covered losses, and may also pay additional living expenses when a covered loss makes the home unlivable. It does not cover every loss: exclusions, deductibles, limits, endorsements, the policy form and state law control what the insurer pays.
Also called: homeowner insurance, homeowner policy, homeowners insurance policy
A homeowners policy is a package: coverage for the house, for the structures attached to it, for your belongings, and for your liability if someone is hurt or their property is damaged. It pays for covered causes of loss only, minus your deductible and up to the policy limits. Standard policies commonly exclude flood, surface water, earth movement, wear and tear and certain water-backup losses, according to the Connecticut Insurance Department (opens in a new tab). Your declarations page lists the insured premises, policy period, limits, deductibles, premium, mortgagee and endorsements.
How a claim is calculated, with real numbers
The dwelling limit does more than cap a total loss; it can shrink a partial payout. The New York Department of Financial Services (opens in a new tab) gives this roof example. A building would cost $100,000 to replace, and the policy requires insuring it to 80 percent, or $80,000. The owner insured it for $50,000. A roof repair costs $5,000, and the roof is 15 years old with an expected life of 25 years.
Hover or tap a row to highlight it.
| Calculation | Math | Result |
|---|---|---|
| Actual cash value of the repair | $5,000 x (1 - 15 / 25) | $2,000 |
| Coinsurance formula | $50,000 / $80,000 x $5,000 | $3,125 |
| Policy pays the greater amount | Coinsurance result | $3,125 |
| Left for the policyholder | $5,000 - $3,125 | $1,875, before any deductible |
Insuring a building below the required percentage of replacement cost reduces a partial-loss payment.
Options that change what the policy pays
- Policy form. HO-3 commonly covers the dwelling on an open-peril basis, subject to exclusions, and personal property on a named-peril basis. HO-2 covers a broader list of named perils, HO-5 generally gives broader personal-property coverage, HO-8 is designed for some older homes, HO-4 covers a renter's belongings and liability, and HO-6 covers a condominium or cooperative unit owner's interests.
- Dwelling limit. It should reflect estimated reconstruction cost, not market value or land value, and replacement-cost coverage generally requires insuring the home to at least 80 percent of replacement value, according to the NAIC (opens in a new tab).
- Personal property. Many policies set the contents limit as a percentage of the dwelling limit; a Connecticut guide for homeowners (opens in a new tab) says 50 percent is usual, but the declarations page controls.
- Replacement cost or actual cash value. Replacement cost pays to repair or replace with like kind and quality without subtracting depreciation. Actual cash value subtracts depreciation, so it usually pays less for older property, and replacement-cost coverage generally costs more, per the NAIC (opens in a new tab).
- Deductible. Common higher deductible choices of $500 and $1,000 may reduce premium, according to the Connecticut Insurance Department (opens in a new tab). A percentage deductible may apply to wind, hurricane or other named losses, and 2 percent of a $250,000 dwelling limit is $5,000, per the Connecticut Insurance Department claims guide (opens in a new tab).
Homeowners insurance is also separate from two other products. Mortgage insurance protects the lender if the borrower defaults, per the CFPB (opens in a new tab), and a home warranty is a service contract for selected appliances and systems, according to the FTC (opens in a new tab). The guide to home warranty vs home insurance compares them.
Where you meet the term
The term most directly names owner-occupied residential package policies, and it shows up in several documents: the quote, a binder as temporary proof of insurance, the declarations page, the insuring agreement, exclusions, conditions, endorsements, the renewal notice and any claim letter that names the coverage, limit, deductible or reason for denial. HO-4 renters and HO-6 condominium or cooperative unit-owner policies are named on the same kinds of documents, though a renter does not insure the building. If your premium moved at renewal, see the guide to Connecticut homeowners insurance increases.
What Connecticut and New York law change
Connecticut limits cancellation. Under Conn. Gen. Stat. § 38a-316g (opens in a new tab), once a covered homeowners policy has been in effect 60 days, the insurer may cancel only for specified reasons: nonpayment of premium, fraud or material misrepresentation in obtaining coverage, or a physical change that materially increases an insured hazard. Conn. Gen. Stat. § 38a-323a (opens in a new tab) requires a conspicuous statement letting you designate a third party to receive cancellation or nonrenewal notices.
In New York, Insurance Law § 3425 (opens in a new tab) requires advance written notice of nonrenewal or conditional renewal with a stated reason, and restricts midterm nonrenewal unless it rests on a ground that would support cancellation. Insurance Law § 2351 (opens in a new tab) defines homeowners insurance for New York's statutory purposes.
Questions to ask an agent or insurer
- "What policy form am I being quoted, and is the dwelling covered on an open-peril or named-peril basis?" This sets which causes of loss are covered.
- "Is my dwelling limit based on current reconstruction cost, and what coinsurance requirement applies?" Underinsurance can reduce a partial-loss payment, as the roof example shows.
- "Are my belongings settled at replacement cost or actual cash value, and are jewelry, electronics, art or tools subject to special limits?" Special categories may have limits below their full value.
- "What deductible applies to ordinary losses, wind, hail, hurricanes and water backup?" A percentage deductible can mean a much larger out-of-pocket amount than a flat one.
- "Are flood, earthquake, sewer backup, ordinance or law and additional living expenses covered, excluded or separately limited?" Excluded losses generally need separate insurance or an endorsement.
Frequently asked questions
A homeowners policy pays for covered causes of loss only, so the wording on flood, depreciation and lender requirements decides the outcome.
Does homeowners insurance cover flooding?
Standard policies generally exclude flood and surface-water damage. Flood insurance is usually a separate policy, and a lender may require it for property in a designated flood-risk area. See the guide to Connecticut flood insurance for the local picture.
What is the difference between replacement cost and actual cash value?
Replacement cost pays the cost to repair or replace with like kind and quality, subject to policy terms. Actual cash value subtracts depreciation for age and wear. Contents may settle at actual cash value unless replacement-cost coverage applies, so the first payment can be lower than the price of a new item.
Is homeowners insurance required by law?
There is no general nationwide requirement that every homeowner buy it, but mortgage lenders commonly require it as a loan condition, according to the Texas Department of Insurance (opens in a new tab). If you let it lapse, the lender may buy force-placed insurance, which the NAIC (opens in a new tab) says may cost more and generally gives limited protection focused on the structure.