What is home insurance?

Last updated: 7/21/2026

Home insurance is a contract between you and an insurance company. You pay a regular premium—usually monthly or annually—and in return, the insurer agrees to pay for covered losses to your home, your belongings, and certain legal claims against you. Most mortgage lenders require it. Even if you own your home outright, it's one of the smarter financial protections you can carry.

Key takeaway: A standard home insurance policy covers four things—your home's structure, other structures on your property, your personal belongings, and your personal liability. Most policies also cover temporary living expenses if your home becomes uninhabitable after a covered loss.

What does home insurance cover?

A standard home insurance policy—called an HO-3 (open peril coverage on your home's structure, named peril coverage on your personal property)—covers four main areas:

Dwelling coverage Pays to repair or rebuild your house if it's damaged by a covered event—fire, wind, hail, lightning, or vandalism. It covers the walls, roof, foundation, and built-in systems like plumbing and electrical.

Other structures Covers detached structures on your property: fences, a detached garage, a shed. Typically set at 10% of your dwelling limit.

Personal property Pays to replace your belongings—furniture, electronics, clothes, appliances—if they're stolen or damaged by a covered event. Most policies cover personal property at actual cash value (ACV—what your belongings are worth today, accounting for depreciation) by default. You can usually upgrade to replacement cost coverage (RCV—what it costs to buy the same item new today), which costs a bit more but pays out significantly better at claim time.

Liability If someone is injured on your property and sues you, liability coverage pays for legal costs and damages up to your policy limit. It also covers accidental damage you or your household members cause to others' property.

Additional living expenses (ALE) If your home is uninhabitable after a covered loss, ALE covers temporary housing, meals, and other costs while repairs are underway.

What home insurance doesn't cover

Standard policies have exclusions. The most common:

• Flooding—requires a separate flood insurance policy, typically through the National Flood Insurance Program (NFIP) or a private carrier
• Earthquakes—requires a separate policy or endorsement
• Normal wear and tear—insurance covers sudden, accidental damage, not maintenance issues or aging
• Sewer backup—often excluded by default; available as an add-on on most policies
• High-value items—jewelry, art, and collectibles above a certain threshold may need a separate rider or scheduled endorsement

How much does home insurance cost?

The national average for home insurance runs roughly $1,500–$2,000 per year, according to the Insurance Information Institute, but your premium depends on several factors:

• Location—proximity to flood zones, wildfire risk, and local weather patterns all affect your rate
• Home value and rebuild cost—the more it would cost to reconstruct your home, the higher your premium
• Coverage limits and deductible—higher deductibles mean lower premiums
• Claims history—both yours and your property's prior claims
• Credit score—in most states, insurers use credit-based insurance scores as a rating factor

The single most effective way to reduce your home insurance premium is to bundle it with your auto insurance. Branch's bundle discount is among the strongest in the industry—learn more about how bundling home and auto works at Branch.

How to choose a home insurance policy

A few things worth evaluating beyond price:

Coverage type HO-3 is the standard policy. An HO-5 (open peril coverage on both your home and your personal property) offers broader protection. If you're comparing quotes, make sure you're comparing equivalent coverage types—an HO-5 quote and an HO-3 quote aren't an apples-to-apples comparison.

Replacement cost vs. actual cash value Replacement cost pays to rebuild or replace at today's prices. Actual cash value subtracts depreciation. The premium difference between the two is usually worth it.

Liability limits Standard policies start around $100,000. Consider $300,000 or higher if you have significant assets. An umbrella policy can extend your liability coverage further, across both your home and auto.

The insurer itself Price matters, but so does how claims are handled. Check reviews, state complaint ratios (available through your state's Department of Insurance), and financial strength ratings before you buy.

Frequently asked questions

Is home insurance required by law? Home insurance is not required by law. Unlike auto insurance, no state mandates it. However, if you have a mortgage, your lender will almost certainly require you to carry it as a condition of the loan. For most homeowners, it's a practical necessity regardless.

What's a deductible? A deductible is the amount you pay out of pocket before your insurance pays for a covered loss. If you have a $1,000 deductible and file a $6,000 claim, you pay the first $1,000 and your insurer pays the remaining $5,000—up to your coverage limit.

Does home insurance cover appliance breakdowns? Generally no. Home insurance covers sudden, accidental damage caused by a covered peril—like a power surge damaging your refrigerator. It doesn't cover appliances that break down from age, mechanical failure, or normal wear. That's what a home warranty is for.

What's the difference between home insurance and a home warranty? Home insurance covers sudden, accidental damage to your home and belongings caused by covered events—fire, wind, theft, and others. A home warranty covers mechanical breakdowns of appliances and home systems like your HVAC or water heater. They're separate products that serve different purposes, and many homeowners carry both.

How much dwelling coverage do I need? You need enough dwelling coverage to fully rebuild your home from the ground up—not its market value, but what it would cost to reconstruct at today's labor and material prices. Your insurer or agent can help you estimate this using a replacement cost calculator. Underinsuring your dwelling is one of the most common and costly mistakes homeowners make.

Get a home insurance quote from Branch

Branch makes it simple to get covered. Start with your name and address, confirm some pre-filled information, and buy online. Bundling your home and auto insurance with Branch is one of the best ways to protect both—and one of the best ways to save on both.

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Branch® is a member-owned reciprocal insurance exchange. Coverage subject to eligibility and availability. Not available in all states.