How Does Homeowners Insurance Work and What Does It Cover?

how does homeowners insurance work

Do you own a home? If you do, you might want to look into homeowners’ insurance. 

Without homeowners’ insurance, homeownership can face problems in a flash. 

All it takes is one accident, flood, or hurricane for you to face financial ruin or a personal injury lawsuit. 

Having homeowners’ insurance can save you from paying large out-of-pocket expenses for repairing home damages.

The coverage provided by homeowners’ insurance can also protect you from liabilities if something happens to someone in your home.  

With all that in mind, you should start looking for the best homeowners’ insurance policies.

You might be wondering, “How does homeowners' insurance work?” We answer this question and why it's important to do an annual review of your policy and many more in our definitive homeowners’ insurance guide! 

Read on to learn the ins and outs of homeowners’ insurance.


What Is Homeowners Insurance? 

Homeowners’ insurance also goes by the name of home insurance. Whichever term you prefer, think of homeowners’ insurance as an insurance policy that compensates you for damage to your home.

This includes reimbursements for home repairs. But, home insurance policies have expanded in what they cover, also providing coverage for other emergencies like injuries and stolen property. 

Homeowners’ insurance policies offer 3 general types of coverage. These coverage types are

  1. Actual cash value (ACV)
  2. Replacement costs
  3. Extended replacement costs


1. Actual Cash Value (ACV) 

Actual cash value policies pay you for the current value of your home and any lost or stolen property. Insurance adjusters calculate ACV by deducting the value of your home or possessions based on depreciation.

You’ll receive coverage for the current value of your home and possessions after depreciation. You won’t receive any payouts that match the original amount of your damaged home or stolen possessions.


2. Replacement Costs

Replacement costs policies are similar to ACV policies, except replacement costs don’t factor in depreciation. This is great news since it means your coverage will equal 100% of your home’s (and possessions’) original value.


3. Extended Replacement Costs

Extended replacement cost policies or guaranteed replacement cost policies are the most comprehensive in terms of coverage. These policies can offer you coverage that’s 20% more than your home’s original value. 

Many homeowners choose extended replacement cost policies because they provide more coverage than other types of insurance. This is great for homeowners because it covers the home's value regardless of changes in the market.

Guaranteed replacement cost policies are the most expensive type of policy, but they also offer the most comprehensive coverage. But the protection these policies offer makes the investment well worth it.


Why Do You Need It?

Homeowners’ insurance protects you from financial loss if something happens to your home or the possessions in it. It can also protect you from a premise liability lawsuit.  

This insurance coverage gets you the above protections and more. We’ll get to these in detail later on. 

The other reason you need homeowners’ insurance is that you might be unable to buy a home without it. 


Most mortgage lenders are aware of the possible risks that could arise as you occupy the house. They want to make sure you can still pay your mortgage loan if something happens to the home.


If something happens to your home without home insurance, you’ll pay for repairs. Your payment for repairs gets in the way of you being able to pay your mortgage. 

For this reason, mortgage lenders require homeowners’ insurance. Without it, mortgage lenders won’t give you a loan. This bars you from owning a home


What Does Homeowners’ Insurance Cover? 

Homeowners’ insurance coverages can vary in scope. At the very least, these insurance policies can cover four things:

  1. Home damage
  2. Lost or destroyed personal possessions
  3. Liability protection 
  4. Alternative living arrangements


1. Damage to Your Home 

Homeowners’ insurance can compensate you if you file a claim for home damages. Interior or exterior home damage entitles you to reimbursements for repairs if the cause of damage is in your insurance policy. 

Most insurance providers will cover you if the damage to your home is because of the following causes

  1. Fire or lightning
  2. Windstorm or hail
  3. Explosion
  4. Riot or civil commotion
  5. Damage by aircraft
  6. Damage by vehicles
  7. Smoke
  8. Sudden/accidental tearing, cracking, burning, or bulging of home systems
  9. Vandalism or malicious mischief
  10. Theft
  11. Volcanic eruption
  12. Falling objects
  13. Weight of ice, sleet, snow
  14. Freezing of home systems
  15. Sudden/accidental power surges
  16. Water/steam discharge from home systems and appliances

Coverage can vary. If you want more causes to be included in your policy, you must add them as riders.


2. Lost, Stolen, or Damaged Property

You might lose some of your belongings if your home sustains damage from insured causes. For this reason, homeowners’ insurance will also compensate you for lost, damaged, or stolen property. 

To be eligible for coverage, you must file a claim. Your claim must reflect that the property loss was because of an insured cause. 

As mentioned earlier, your insurance policy will contain a list of insured causes. 


3. Liability Protection

Imagine that you had guests over. One slipped and sustained a nasty shoulder injury, suing you for premise liability. 

If you're not insured, you would have to pay for personal injuries yourself. But if you have homeowners' insurance, your insurance provider pays your injured guest on your behalf.

Homeowners’ insurance includes personal liability protection in case someone sustains an injury in your home. The coverage can start from $100,000. 

You can increase the coverage by adding riders, paying for a larger homeowners’ insurance policy, or buying umbrella insurance. 


4. Accommodation Costs While Your Home Undergoes Repairs

If your home sustained damage because of a flood, it will have to undergo repairs. Your home will be unlivable for the duration of the repairs. If you’re staying in a hotel or other temporary accommodation, homeowners’ insurance pays for your living arrangements too. 

Part of a homeowners’ insurance policy’s coverage is subsidy or reimbursements for accommodations. Besides where you’re staying, your insurance will also pay for living costs like your meals.

Your homeowners’ insurance will cover your expenses until you return to your home.


What Homeowners Insurance Does Not Cover

Homeowners’ insurance doesn’t cover home damage from natural causes. Often, regular coverage isn’t inclusive of damage from the following causes: 

  • Floods
  • Earthquakes


For floods, you can still receive coverage by buying flood insurance. Earthquake coverage for your home is also available when you get earthquake insurance. 

You can add earthquake and flood coverage to your homeowners' insurance policy if you don't want to buy additional insurance.


Is Homeowners Insurance Required? 

In Florida, no law requires you to have homeowners’ insurance, but it’s not recommended to forgo getting homeowners’ insurance.

First, you can’t buy a home on a mortgage without homeowners’ insurance. Mortgage lenders will require minimum insurance coverage before they approve you for a loan. 

Unless you’re paying for a home’s full sale value upfront, there’s no getting around the home insurance requirement. 

The other reason you should get home insurance is that you can benefit from the financial protection the coverage provides. There is no telling when the next big hurricane will hit, and some parts of Jacksonville are very flood-prone.

In short, homeowners’ insurance isn’t required by law, but mortgage lenders will want you to have it. 

You also need it if you want the security of an insurance policy covering your home.   


The Cost of Homeowners’ Insurance

At the very least, homeowners’ insurance can cost about $1,386 annually. According to Bank Rate, a policy at this price point offers dwelling coverage amounting to $250,000. 

You should consider the above price a ballpark figure. Insurance providers still calculate premiums based on the following factors, so your policy could be higher or lower than before.


Your Deductibles

Contrary to popular belief, not all home insurance saves you 100% from out-of-pocket expenses. You can opt for coverage that does — but that means paying a high premium.

You can save on premiums by paying higher deductibles. Deductibles refer to the amount of money you’ll pay out-of-pocket after a claim. 

High-deductible home insurance policies have much lower premiums because the deductible takes the burden off the insurer. The higher the deductible, the lower your home insurance premium is. 


The Age or Condition of Your House

The older your home is or the more repairs it requires, the more likely you are to file an insurance claim. For this reason, insurance providers might place a higher premium on your policy if you own a dated home. 


Where Your House Is Located

Location can dictate the cost of insurance.

Some areas in Jacksonville are more flood-prone compared to others. If your home is in one of these areas, the risk for the home insurance provider is higher. 

When the likelihood of you filing a claim is high, you can expect your premiums to rise at an equal rate. 


Your Credit Score

Your credit scores can paint a picture of how likely it would be for you to file a claim. If your credit score is low, your home insurance provider will think you're more likely to file a claim.

Your premiums may be lower if you have a high credit score. If you’re after lower premium payments, ensure that you have an excellent credit history.


How Much Coverage Do You Want

Homeowners’ insurance policies can also be expensive if you want more comprehensive coverage. If you’re buying insurance with broad coverage, choose a policy that has a high deductible. 

This way, you’ll pay lower premiums while insuring your home and your possessions. 


How to Shop for Homeowners’ Insurance

When you’re shopping around for the best home insurance, don’t go with the first company you find. It’s always a great idea to have several options and narrow the list down from there. 

How can you determine which home insurance suits your needs? Follow our easy tips for finding the best homeowners’ insurance.


1. Get quotes from 3 to 5 home insurance providers

Getting multiple quotes will help you determine which companies offer home insurance at a budget-friendly price point. Remember — there’s more to buying home insurance than looking at prices. 

When shopping for home insurance, it’s always a balancing act between price and quality.


2. Look at reviews

Positive reviews are an indicator of customer service and quality insurance products. After you’ve narrowed down your list to 3 to 5 insurance providers, check out the reviews. 

Opt for the insurance provider with the most positive reviews.


3. Get in touch

Talk with an independent agent to help shop for you. Most insurance providers in Florida only deal through agents so it is best to call an independent agency and not the provider themselves.


4. Once you’ve selected an insurance provider, negotiate

After deciding on a home insurance provider, you’re now ready to buy insurance. Before signing on the dotted line, negotiate with the provider. 

Areas of negotiation can include your deductibles and coverage. You can also ask about additional coverages and riders.


The Importance of an Annual Homeowners’ Insurance Review

Over time, your needs as a homeowner will change. You might need less coverage or more, depending on what happens within a year. For this reason, you’ll want to update your home insurance policy to fit your projected needs for the following year. 

By doing an annual homeowners’ insurance review, you can identify what parts of your policy need changing like the deductibles and riders. Plus, a review tells you whether or not you’re overpaying for homeowners’ insurance.  

By the end of the review, you’ll discover one of two things:

  1. You’ll realize that you need more coverage. If this is the case, riders may be necessary.
  2. If not, you’ll discover that you may be paying too much for insurance. This is when you may have to reconsider your insurance policy or provider. 

When you’re making the switch, don’t pay too much for a quote. Choose an insurance provider that offers you a personalized quote free of charge. 

If you want the perfect balance between affordability and comprehensive coverage, check out our local trusted insurance partner, 925 Partners

925 Partners offers various insurance options, from auto and life to home insurance, providing affordable insurance with competitive coverage. 925 Partners has helped many of our members find the best deals for insurance in the midst of skyrocketing insurance premiums. 

Stop overpaying for home and auto insurance. Find the deal that matches your needs and budget through 925 Partners — your Jacksonville insurance partner for anything life can throw at you!



Homeowners’ insurance is vital if you own a home in Florida. Home insurance can protect you financially in the event of damage to your home or property loss, even though it is not required by law.

Let’s not forget the other ways homeowners’ insurance can protect you. Home insurance protects you from liabilities if someone gets injured on your property. 

Homeowners' insurance can be expensive, depending on several factors. But, you can get better deals on premiums by raising your deductibles and credit score.

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