What is homeowners insurance and what type of policy do you need?

Homeowners insurance protects your home and personal property. It also covers the homeowner if they are sued for liability.

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• Homeowners insurance protects the homeowner, home, and personal belongings.
• If your home is damaged and unlivable, relocation costs can be reimbursed under loss of use.
• Damage to your home must be caused by an insurance peril to be covered.
• See Insider's picks for best homeowners insurance companies.

Homeowners insurance protects your dwelling amd personal property, in addition to offering personal liability coverage.

Unlike car insurance, homeowners insurance is not required by state law. However, if you have a mortgage, your lender will require homeowners insurance to protect the investment.

What is homeowners insurance?

Homeowners insurance protects your dwelling and your personal belongings, and offers personal liability coverage for injuries that happen on your property. For instance, if the mailman slips and falls on your sidewalk, the dog bites a guest, a tree falls on your roof, or the neighbor's kid injures himself in your swimming pool, homeowners insurance can protect you.

Additionally, if you are forced out of your home due to damage, homeowners insurance offers "loss of use," also known as "additional living expenses," to help with relocation costs.

In order get covered by homeowners insurance, damage or loss must be due to an insurance peril. A peril is an event that may damage your home or belongings, like theft, fire, or a storm. The type of peril coverage you have depends on the homeowners insurance you have.

*Available as add-on coverage if not part of policy

**Flood insurance is available through the NFIP and approved insurers

***If you live in hurricane or tornado areas, additional windstorm rider may be required

Named peril versus open peril homeowners policies

There are several types of homeowners policies. However, they all fall within two categories: named peril policy and open peril policies.

A "named peril policy" covers you for listed events, like a fire, storm, or theft. An "open peril" policy includes named perils and just about anything that might happen, unless your policy specifically notes that it's not covered.

Insurance company Lemonade provides the following example of an open peril: If an apartment flood ruined your computer, and your policy doesn't specifically say flooding isn't covered, your insurance company will have to approve your claim, by default.

Here are a few more instances of events that might be considered named peril and open peril:

Source: Data from The Zebra and Lemonade

Earthquakes, floods, government seizures, mudslides, ordinance updates, sewer backups and sinkholes are all perils that won't be covered by homeowners insurance, according to Hippo Insurance. Those will require add-on coverage using a rider policy.

There are 8 types of homeowners insurance policies

There are eight types of homeowners policies based on the type of home you have. If you have a mortgage, your lender may have a preference for the type of coverage necessary to secure the home loan. Therefore, it is best to talk to your agent and lender to make sure you have proper coverage.

Additionally, some condominium associations will have rules in the by-laws about homeowners insurance coverage minimums.

Townhomes can be HO-3 or HO-6

*Most lenders don't consider this sufficient coverage

**Typically for brand-new homes only

***Covered under condo association's master policy

How much does homeowners insurance cost?

According to the Homeowners Insurance Report by the National Association of Insurance Commissioners (NAIC), the average annual premium in the United States in 2017 was $1,211.

Homes located in weather-zones or disaster prone areas - flood zones, hurricanes, tornadoes, wildfires, mudslides, hail, and earthquakes - will have increased premiums because these types of events are not included in basic coverage and will need to be add-on riders.

Note that the cheapest price is probably not the way to go if that means a company isn't responsive when you file a claim. Focus on customer service, complaints, and the reputation of the insurance provider.

Here's how much homeowners insurance costs on average by home value in the United States, according to the NAIC:

Data from the NAIC

How to find homeowners insurance

If you currently have homeowners insurance, review your policy coverage yearly. If your homeowners insurance company hasn't provided the level of service you expected, it may be time for you to select a new provider.

Remember that a cheap price doesn't mean good customer service. And keep in mind that the average cost for homeowners insurance will vary based on the state where you live and whether you are urban or rural.

Focus on customer satisfaction rankings, like those from J.D. Power, and comparison shop. This is especially important for those living in disaster-prone areas, when good service can make all the difference.