Choosing a home insurance policy isn’t just about checking a box — it’s about protecting your home smartly and affordably. In this article we’ll go beyond the basics of a home insurance policy, helping you understand policy types, choose the right endorsements, avoid common traps, and keep your costs low without cutting corners.

Need a refresher on what home insurance covers? Check out Homeowners Insurance Coverage Essentials for a quick primer before you dive into choosing a policy.

Home insurance can feel like a maze of options, prices, and fine print. But choosing the right policy is one of the most important financial decisions you can make as a homeowner. The wrong coverage could leave you exposed in a crisis. The right one protects your investment, your belongings, and your peace of mind. Here’s how to make the smart choice without overpaying.

Whether you own a single-family home, townhouse, or condo, the basics of choosing a policy are similar — but there are important differences based on the type of property you own.

What Will Your Policy Really Protect?

Most standard policies fall into two types: HO-3 and HO-5 for standalone homes, and HO-6 for condo units. All typically include protection for your home’s structure (or the interior unit in the case of a condo), personal property, liability, and additional living expenses if your home becomes uninhabitable.

HO-3 vs HO-5: What’s the Real Difference?

HO-3 is the most common policy type because it’s more affordable and widely accepted by mortgage lenders and widely accepted by mortgage lenders. It covers your home for “open perils” (all risks except those explicitly excluded), but your personal belongings are only covered for “named perils” — a specific list of events like fire, theft, or vandalism.

HO-5, on the other hand, covers both your home and personal property for open perils. That means unless something is specifically excluded, it’s covered. It also usually includes higher limits for high-value items like jewelry or electronics and has fewer restrictions on claims.

So why do most people go with HO-3?

• It’s cheaper, often by 10–20%, making it accessible for more homeowners.
• For many homes, especially newer ones in low-risk areas, HO-3 coverage may be sufficient.
• Some homeowners prefer to customize a basic HO-3 policy with specific endorsements rather than paying for the broader HO-5.

But if you have high-value possessions, customized upgrades, or live in a higher-risk area, the more comprehensive HO-5 can offer serious peace of mind.

HO-3s are more common and affordable for standalone homes. HO-6 policies are designed specifically for condo owners and usually cover what the condo association’s master policy does not.

What’s usually not covered:

• Flooding
• Earthquake damage
• Wear and tear
• Infestations
• Poor maintenance

You can often buy additional riders or policies for these.

How Much Coverage Do You Really Need?

Before we get into specific riders (also called endorsements), remember that basic policies often don’t go far enough. Adding the right riders can fill crucial coverage gaps — without dramatically increasing your premium. Here’s a breakdown of the most useful add-ons, what they cost, and who should consider them:

AHA-Recommended Riders

Recommended for Most Homeowners:

• Water Backup Coverage ($30–$250/year): Adds protection for damage from sump pump failure or sewer backups — a common and costly issue. Essential for homes with basements, older plumbing, or located in heavy rain regions.
• Extended Replacement Cost (adds 5–10% to dwelling premium): Provides an extra cushion above your base dwelling limit in case construction costs surge. Recommended in disaster-prone or rapidly developing areas.
• Ordinance or Law Coverage ($25–$75/year): Covers added costs to meet modern building codes during repairs. Strongly advised for homes older than 20 years.

Recommended for Specific Situations:

• Scheduled Personal Property (~$1–$2 per $100 insured): Offers higher coverage limits for valuables like jewelry, artwork, and collectibles. Best for homeowners with individual items worth over $1,500.
• Loss Assessment Coverage ($20–$50/year): Helps cover your share of HOA-assessed damage or liability costs. A must for condo or townhome owners.
• Identity Theft Restoration ($25–$60/year): Covers recovery services and expenses after identity fraud. Ideal for digitally active households or remote workers handling sensitive data.

Don’t just look at your home’s market value. Insurance should cover the replacement cost of rebuilding your home or restoring your unit.

Here’s what to consider:

• Replacement cost vs. actual cash value: Go for replacement cost whenever possible. It covers what it takes to rebuild, not what your home is worth after depreciation.
• The 80% rule: Most insurers require you to insure your home for at least 80% of its replacement cost. If not, they might only pay a portion of a partial loss.
• Condo caveat: If you own a condo, review your HOA’s master policy to determine where their coverage ends and yours should begin. You might need to insure from the drywall in, including built-in fixtures and any upgrades.
• Coverage gaps: Sewer backups, local building code upgrades, and extended loss of use coverage are smart add-ons.

Comparing Policy Options — What to Look For

Making sense of policy quotes isn’t just about price — it’s about what’s included, what’s missing, and how confident you’ll feel when it’s time to file a claim.

AHA Pro Tips to Keep Insurance Costs Down:

• Ask about smart home discounts: Devices like water leak sensors, security systems, and smart thermostats can earn discounts of 5–10% with many insurers.
• Bundle policies: Combining home and auto insurance with the same provider can save you 10–25%.
• Increase your deductible — carefully: Going from a $500 to $1,000 deductible can reduce your premium by up to 15%. Just be sure you have enough emergency savings to cover it.
• Maintain a good credit score: Insurers often use credit-based insurance scores to set rates. Improving your credit can translate directly to lower premiums.
• Stay claims-wise: Frequent small claims can increase your premium more than they’re worth. If damage is minor and repairable, consider paying out of pocket.
• Loyalty discounts exist — but so do penalties: Some companies reward long-time customers. Others quietly raise rates. Shop around every few years to make sure you’re still getting a good deal.
• Avoid coverage you don’t need: Review your policy for duplicate protections (like roadside assistance or unnecessary floaters) that may already be covered elsewhere.

Here’s a quick example: Mike and Dani got quotes from three insurers. Two were nearly identical in price, but only one offered extended water damage protection — crucial in their older home with a basement sump pump. That small difference saved them $9,200 after a spring storm flooded the basement. Two were nearly identical in price, but only one offered extended water damage protection — crucial in their older home with a basement sump pump. That small difference saved them $9,200 after a spring storm flooded the basement.

Let’s say you’re looking at quotes from three insurers. They all offer a similar monthly premium, but how do you know which one actually gives you the protection you need? Here’s what to look at — with real-world examples:

• Coverage limits: One policy might offer $250,000 in dwelling coverage, another $300,000. If your home would cost $280,000 to rebuild, that first policy leaves a gap. Make sure limits align with your replacement cost — not just your home’s market value.
• Exclusions: One insurer might exclude wind damage in coastal zones unless you pay extra. Another might not cover water backup from a sump pump. Always read the list of exclusions carefully — they tell you what risks aren’t covered.
• Endorsements: Let’s say one quote includes an endorsement for $10,000 in jewelry coverage — perfect if you’ve got an heirloom ring. Another might offer identity theft monitoring. These extras can tip the scales depending on your priorities.
• Deductibles: If Insurer A offers a $1,000 deductible and Insurer B offers a $2,500 deductible with a slightly lower premium, ask yourself: could you comfortably cover the higher deductible in a pinch? Don’t just chase the lower monthly bill.
• Company reputation: Check reviews on how insurers handle claims — not just how they price their policies. A cheaper premium isn’t worth it if the company has a reputation for denying claims or dragging its feet on payouts. Look up ratings from AM Best, J.D. Power, and Better Business Bureau.

Pro Tip: Create a quick comparison chart. List out the key features and see which quote offers the best combination of value, protection, and reliability. Don’t be afraid to call agents and ask questions — how they respond tells you a lot.

Where Should You Shop for Insurance?

There’s no one-size-fits-all answer — but here’s what AHA recommends depending on your comfort level and needs:

• Go direct to an insurer’s site if you’ve done your homework, know what coverage you want, and are just looking for the best price from a well-known company.
• Use a comparison tool or online quote platform if you want to quickly explore multiple options and see pricing side-by-side. Just be aware that not all carriers participate in these platforms.
• Work with an independent broker if your home is unusual (historic, high-value, or in a risky location), or if you want personal help. They can access multiple insurers and help you compare — but make sure they’re truly independent, not tied to one or two companies.

Pro Tip: However you shop, always verify that the insurer is licensed in your state by checking with your state’s Department of Insurance.

Wrapping It Up

You don’t need to be an expert to make smart insurance choices — just the right questions, some clear comparisons, and a little help from the right guide.

AHA Members Get Extra Help: Want tailored guidance for comparing policies and spotting hidden coverage gaps? The AHA Insurance Advisor is available exclusively to members — it’s one of the many tools we offer to help you protect your biggest investment. Join now to get access., understand your options, and avoid common gaps — so your coverage works when you need it most.