Best Homeowners Insurance Buying Guide - Consumer Reports (2024)

The price of a typical homeowners insurance policy in the U.S. rose about 10 percent in 2022, according to the Insurance Information Institute, an industry organization. The forces behind that big jump vary, from market disruptions affecting many areas of the economy to issues specific to home insurers and certain regions.

So there’s a good chance you could face sticker shock the next time your homeowners insurance policy is up for renewal. And even if you don’t, you might find lower-priced coverage elsewhere. Among Consumer Reports members surveyed recently about the experiences they’d had with their homeowners insurance companies, 21 percent said they’d switched carriers in the previous five years. Of those, 62 percent said they were motivated by better rates from a new insurer—or because their old one had raised its rates. (Results are based on 59,670 responses, reflecting 65,000 experiences with homeowners insurers.)

Shopping regularly might stimulate you to switch carriers. Thirteen percent of people in our survey said they switched because they regularly shop for a better rate. And in the past, we’ve found that loyalty to an insurer doesn’t gain you much in terms of lower rates or claims forgiveness. So it’s worth considering a new one. Our ratings of 24 major insurance groups is a good place to start, and you may find a suitable carrier among them that performed well in our survey—and charges you less.

Here are a few questions you may have about homeowners insurance, and our expert answers.

Why Do Homeowners Insurance Prices Go Up?

Pricing for the coverage of your dwelling—a major portion of your homeowners policy—is based on the cost to repair your home if it’s damaged or to rebuild it if it’s destroyed. Contrary to what some may think, home insurance premiums aren’t related to home prices, so the real estate inflation that many areas have experienced in the past couple of years won’t affect home insurance costs. But several other recent trends could have an impact.

“Insurers faced inflationary pressure nationwide in 2022 due to rising construction material and labor costs, and to legal-defense costs,” says Dale Porfilio, chief insurance officer at the Insurance Information Institute.

In most states, regulators have to approve insurers’ plans to raise their premiums, and those rate increases don’t always get approved. Nevertheless, these trends are likely to have an impact on homeowners in many areas (particularly in Florida).

•Inflation in costs for building materials and labor: Building materials have been in short supply at the same time that demand for them by contractors and do-it-yourselfers has spiked. The result is price inflation. Cement and concrete were up 14 percent, year over year, in fall 2022, according to Construction Dive, a building industry publication. Drywall prices rose significantly as well. Lumber costs, which peaked in summer 2021, still haven’t returned to pre-pandemic levels. Supplies of computer chips, the “brains” of many home components, continue to be strained. And homebuilders, facing competition in a heated market, have to offer higher salaries. All these forces affect the cost to rebuild or repair homes—and, in turn, to insure them.

• Natural disasters: Homebuilding prices also have been affected by large-scale natural catastrophes in recent years. In the aftermath of Hurricane Ian, one of the most costly storms in U.S. history, builders in Florida have been scrambling to find enough labor and building materials. That demand has raised prices to rebuild. “Added reconstruction costs always occur after a hurricane, flood, or wildfire smashes through a region,” says Stacey Giulianti, co-founder of Florida Peninsula Insurance, a homeowners insurance company in Boca Raton. And that can mean higher premiums.

• Increase in claims: In states that have experienced substantial catastrophes over a period of years, insurers have been permitted by state regulators to raise rates to compensate for those claims and for the higher risk. The increases can affect even homeowners in the region who haven’t filed claims. And sometimes the rise in claims prompts insurers to leave an area or drop policyholders; that forces those policyholders to find new coverage. In 2022, nine homeowners insurance companies exited Florida or became insolvent; reducing the availability of coverage and subsequently affecting premium costs.

Fraud and litigation: This happens to some extent in every state, but insurers maintain that this has been a particular issue in Florida, where carriers have been inundated with lawsuits—many from roofers—fraudulently suing on behalf of their homeowner clients. The cost of that litigation has made its way into insurers’ rate-change filings with state regulators, and ultimately into the cost of policies. A Florida law passed in December 2022 to remedy the situation has not yet affected rates: They average $4,218, compared with a national average of $2,777, according to Insurance.com.

How Do I Find a Good Homeowners Insurer?

Buying and owning homeowners insurance encompasses many experiences, including policy review, customer service, and claims. But our surveys indicate that certain aspects have a greater impact on our members’ satisfaction than others. Handling of claims settlements was the best predictor of customer satisfaction, followed closely by satisfaction with premiums, according to our 2022 homeowners insurance survey.

Check our homeowners insurance ratings to see how 24 popular home insurance companies ranked in terms of claims handling, general customer service, advice, and premiums charged.

Getting the best price, of course, is key. Some state insurance departments publish rate comparisons. Floridians, for instance, can go to Florida’s Office of Insurance Regulation website; Californians, to the California Department of Insurance website. You can also get quotes from an independent agent who sells policies from several insurance companies. (Find one through Trusted Choice, which is affiliated with numerous such companies.) Comparison-shopping sites such as Insure.com, NetQuote, and SelectQuote are also good places to look for coverage.

Note, though, that our top-rated companies—USAA (for military members, veterans, and their eligible relatives), NJM, and Amica—use their own agents, and their homeowners insurance might not be included in shopping sites. You’ll have to apply directly with each of them, not through an independent agent.

How Much Homeowners Coverage Do I Need?

There are no state-mandated requirements for homeowners coverage, as there are for auto insurance in most states. What’s more, a mortgage lender may require you to insure for only 80 percent of the replacement value of your home (this is known as the “80 percent rule”). But being underinsured could leave you on the hook for a significant sum, especially if you need to completely rebuild.

Buying too much coverage isn’t worthwhile, either. It’s a mistake, for instance, to assume you need coverage equal to your home’s market value. That value includes the land your home rests on, which will remain even after a catastrophe. That’s why in most cases your home’s market value will be higher than the cost to totally rebuild it.

General rule: Buy enough insurance to cover the labor and materials to completely rebuild your home, called the replacement value or replacement cost. Your insurance agent can help you figure out that amount. Mention unique features to ensure that they’re accounted for, including improvements you’ve made during the pandemic.

Standard homeowners insurance policies include “loss of use” coverage. It pays the additional costs for you to live outside your home during construction, up to a stated limit. Greg Martin, president of Think Safe Insurance, an insurance broker based in Brandon, Fla., says that if building components are hard to find, rebuilding could take longer than usual. That means you could end up spending more time than normal outside your home. “You may want to review this coverage with your agent to make sure that you have enough moving forward,” Martin says.

What Extra Homeowners Insurance Coverage Should I Consider?

Options, add-ons, and separate coverages will increase the cost of a standard policy. But they could save you a lot of money if disaster strikes. Keep in mind as you shop that some carriers may include these extras in their basic coverage and that others could charge an added premium.Here are some add-ons to consider.

• Extended replacement cost for your dwelling: A standard policy’s replacement cost coverage rebuilds your dwelling at current costs—up to a stated monetary limit. Extended replacement cost coverage pays20 to 25 percent abovethat limit of coverageif building costs soar after a major disaster. Benefits can vary, depending on the state and insurance carrier, so be sure to check the details before purchasing. Be aware that this coverage is based on using standard building supplies, says Loretta Worters, a spokesperson for the Insurance Information Institute. If you want to replicate custom features, such as stained-glass windows or antique wood floors, you’ll need to purchase additional riders or buy another layer of coverage called a restoration-cost policy, Worters says. Often, insurers that sell policies for high-end homes offer guaranteed replacement cost coverage; it’s a more pricey coverage that pays the full cost of replacing or repairing a damaged or destroyed home, even if it is above the policy limit, Worters says.

• Inflation protection: Also called inflation guard, this provision automatically raises the coverage limit on your dwelling to reflect increases in homebuilding costs. It’s typically part of a homeowners policy. Nevertheless, given how prices have risen in recent years, it’s wise to confirm that coverage with your agent.

Earthquake, hail, and windstorm: In our 2022 homeowners insurance survey, almost one-fifth (18 percent) of CR members said they’d filed a claim in the prior five years. According to those claimants, hail was the leading cause of damage. Depending on your state, you may have to pay a separate deductible for hail damage or buy stand-alone coverage. The same is true for earthquakes and high-speed windstorms.

• Contents replacement cost: A standard policy may reimburse only the depreciated, or actual cash value, of stolen or damaged home contents. To avoid having to pay the difference when replacing possessions, pay the extra for replacement cost coverage. Document the contents of your home by making a video inventory of your possessions, and store it somewhere safe, such as in the cloud or on a thumb drive kept in a safe deposit box.

• Additional valuables: Homeowners policies typically put dollar limits on what an insurer will pay to replace valuables such as furs, firearms, jewelry, and home-based-business property. For instance, you’d get at most $2,500 to replace stolen jewelry. (These lower limits often apply only to theft.) So buy a “floater” to supplement coverage on costly items. Raising the limit on jewelry coverage to $5,000 from $2,500, for instance, costs about $17 annually with State Farm.

• Sewer backup: This coverage would protect you if, say, a municipal line failure caused sewage to back up into your home, Worters says. (Sewage backup could also be caused by tree roots growing into the sewer line.) The cost is $40 to $100 per year; policy limits run between $5,000 and $25,000. Insurers don’t offer it in every state, though, Worters says. Typically your homeowners insurance policy does not cover a septic system on your property, though it will cover damage to your home due to a malfunctioning septic system, or septic problems that caused overflow into your home. Damage to your home from a sump-pump malfunction would be covered, too, but the pump itself isn’t covered, so you’re responsible for the cost to fix it.

• Ordinance, or law and endorsem*nt: These can provide the extra coverage required to pay for the cost of rebuilding in compliance with updated local building codes. This extra coverage is generally purchased by homeowners with older homes.

Should I Get an Umbrella Insurance Policy?

The liability insurance limit included in homeowners policies (to cover costs and damages resulting from lawsuits) usually starts at $100,000. But depending on where you live, you could be sued for almost all your assets—including investments, real estate, and personal property. So increase your liability limit if the value of your assets exceeds $100,000.

Your safest bet is to buy coverage worth at least as much as your assets. Umbrella or excess liability coverage can provide this added protection. It increases your liability protection beyond the limits of your home and auto policies in case you’re sued for accidental injury or property damage. It can also cover additional perils, including lawsuits against you for libel or slander. To get it, you may have to raise the liability coverage limits on your auto and home policies first.

A $1 million umbrella liability policy generally costs a few hundred dollars per year. Buying more umbrella coverage can be cost-effective. State Farm, for instance, says that on average, raising $1 million in coverage to $2 million costs 75 percent of the additional premium.

Do I Need Flood Insurance If I Live in a Low- or Moderate-Risk Area?

Homeowners insurance policies will cover flooding only if it’s caused by a pipe or another system that breaks in your home. Protection against flooding and mud flows originating from the outside must be covered by flood insurance.If you live in a high-risk flood area, also known as a special flood hazard area, you’re required to purchaseflood insurance if you also have a federally-backed mortgage—the type of mortgage most people have.

But that coverage can be a very worthwhile purchase, even if you don’t think your property is vulnerable. The National Flood Insurance Program, part of the Federal Emergency Management Agency, says that one in three of NFIP flood insurance claims originate in moderate- to low-risk flood areas (identified on FEMA flood maps with theletters B, C, and X).

The NFIP underwrites most flood policies in the U.S.; you can buy that coverage through most insurance agencies that sell homeowners and car insurance. The standard NFIP policy insures dwellings for up to $250,000 and contents for up to $100,000; it’s sold mainly through private agents. You also can buy additional coverage through a private flood insurance carrier.

The median annual flood premium through the NFIP for is $688 for residential policyholders who aren’t in special flood hazard areas—and $838 for those who are. Flood insurance for home contents only—the type of coverage appropriate for renters—is a median $183 outside special flood hazard areas, and $420 within those zones. Go to the NFIP"S official site, Floodsmart.gov for an estimate of what it will cost to cover your home.

How Can I Pay Less for Homeowners Insurance?

You can try one or more of these ways to bring down the cost of your premiums.

• Bundle coverage. Purchasing your homeowners and auto coverage from the same company can provide savings of up to 30 percent overall. You could save more, too, if you bundle your boat or motorcycle. “Bundling insurance policies also can simplify your bill paying and record-keeping,” Worters says.

• Raise your deductible. Higher deductibles equal lower premiums. Going to a $1,000 deductible from $500, for instance, can reduce your premium by a double-digit percentage, the Insurance Information Institute says.

• Make home improvements. Replacing old plumbing and adding a security system and water- or gas-leak detection sensors can each provide insurance savings of 2 to 6 percent or more. Replacing a roof with an impact-resistant one can save up to 35 percent in some states. Cutting back dry brush around dwellings and outbuildings in a fire-prone area can earn you a 5 percent break on your premium. But, Worters says, in wildfire-prone California it’s rare to see this discount.

When Should I Not Submit a Homeowners Insurance Claim?

Making multiple claims in a short period will probably trigger a rate increase or even cause your insurer to not renew your policy.

“Making three claims in two years, for instance, shows you have a proclivity for claims,” Worters says. But if you file infrequently, an insurer isn’t going to raise your rate or decline to renew your policy as a result, Worters says.

Still, avoid making claims of just a few hundred dollars above the deductible. Doing so might erase discounts you’re getting for remaining claim-free. If you’re dealing with an independent agent, discuss the pros and cons with them before you report.

What Do I Do If My Homeowners Insurance Company Drops Me?

Insurers drop customers for a variety of reasons. There are several ways that can happen.

• Cancellation: If you’re a new policyholder, an insurer can cancel your policy for any reason within the first 60 days. After that, it can cancel you only if you don’t pay your premiums, are found to have lied on your application, or have become a greater risk, says the National Association of Insurance Commissioners. This might happen, for instance, if the insurance company finds out you’ve installed a trampoline or obtained a dog breed that’s not covered by your policy. You have to be given notice of cancellation; that period varies by state.

• Nonrenewal: Your insurer can decide not to renew your policy after it expires. Sometimes that has to do with your filing too many claims; even small claims are red flags if they’re filed too frequently. But your insurer also can decline to renew you for reasons that have nothing to do with you—for example, if it has determined that it’s no longer making a profit insuring homeowners in your area. Typically your insurer will give you at least 30 days’ notice if it’s not renewing your policy.

If you’ve been dropped and can’t find coverage from a private insurer like those in our ratings, talk to an agent about your options. Or contact your state insurance department, which may be able to provide a list of insurers that cover your area. Many states also sponsor high-risk homeowners insurance pools to cover those who can’t find insurance elsewhere. They’re called Fair Access to Insurance Requirements (FAIR) Plans. You can find phone numbers for each state’s FAIR plan here. This coverage is typically more costly than what you’ll find in the private market.

Even if you end up in a FAIR plan, try looking periodically for less costly insurance with a private carrier. New insurers may emerge, and existing ones may decide to take another shot in your area, and with homeowners who fit your profile.

How Does Consumer Reports Rate Homeowners Insurance Companies?

Our homeowners insurance findings—covering 24 insurance groups—are based on responses to our Fall 2021 and Spring 2022 Quarterly Questionnaires. The results reflect Consumer Reports members’ experiences, not necessarily those of the general population. The overall satisfaction score is derived from a weighted average of seven specific attributes and our CR Consumer Experience Score.

Each rating category under survey results—claims, premiums, service, advice & help, coverage, policy review, and policy clarity—reflects average scores on our six-point satisfaction scale ranging from “completely satisfied” to “completely dissatisfied."

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Best Homeowners Insurance Buying Guide - Consumer Reports (2024)
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