Homeowners Insurance Policy Scoring — FAQ

The comparison in RU InsureScore includes basic policies from 11 of the 20 largest homeowners insurance companies in the US. These include many of the best-known names in the industry, such as State Farm and Allstate. Together the companies rated total more than 60% of the market for homeowners insurance.

We selected these companies because they are among the largest insurers that sell policies in many states, and their homeowners policies were available to us.  Insurance companies operate in different corporate forms within and among states, but the companies are listed with their commonly known names.

When shopping for insurance, don’t limit your search to these companies. There are many other good insurers, both large, national companies and smaller, regional insurers.

Insurance companies almost never provide copies of policies to prospective policyholders, and only a few state regulators make policies readily available to the public. Therefore, the first challenge of this project—and one reason it never has been attempted before—was to acquire policies across the country from major insurers.

The logical first step in acquiring policies was to ask insurance companies for help. We wrote to many of the largest homeowners insurance companies, explained the purpose of the project—research by a university academic center to provide information to the public—and asked for sample policies. Most companies failed to respond, and no company provided a policy.

So we turned to other sources. Only three states (California, Missouri, and Texas) publish on their websites the terms of homeowners insurance policies for substantially all insurers in the state. Three more states (Maine, Nevada, and Oklahoma) publish the policies of the ten largest insurers in the state. We downloaded policies of the largest homeowners insurers from those sites.

In other states, and for other companies in the three states with limited policies posted, we accessed SERFF, an online form and rate filing system developed by the National Association of Insurance Commissioners to which individual states subscribe. We used SERFF to acquire policies from a sample of states that were highly diverse in terms of geography and demographics. We also accessed policies collected by United Policyholders, the nation’s leading advocacy organization for insurance consumers.

Based on the policies collected, we concluded that eleven of the twenty largest companies use policies that are sufficiently similar across the country to provide a reasonable basis for comparison.

Policies were acquired and checked in the fall of 2022.

Here is an explanation of the policy terms used in the evaluation of policies. To understand the scoring, read this explanation together with the chart that explains how different terms are weighted in evaluating the policies, here. You also can use the list of categories as a checklist in evaluating a homeowners insurance policy. The lists of typical, better, and worse terms include important examples but are not comprehensive.

Homeowners insurance policies often are organized in ways that are confusing to consumers. To make the comparison and scoring more accessible, we organize the terms as follows:

Property insurance measures coverage for the insured’s losses to the buildings, personal property, and related costs. Property insurance includes:

• Things the insurance covers measures the types and amount of property and other potential losses the insurance covers.
• Risks the insurance covers measures the causes of loss covered.
• What the insurance pays measures how the insurance pays for damage to different types of property.

Liability insurance  measures how well the insurance covers lawsuits brought by others for personal injury or property damage caused by the homeowner and certain family members.

Other issues measures other issues about claims.

Property insurance

Things the insurance covers

Buildings measures coverage for the dwelling, other structures such as garages and fences, and damage to the land and foundation.

• A typical policy covers the dwelling and other structures on the premises
• A typical policy does not cover a structure used for business
  • Better or worse: Narrower or broader definition of “business”
• A typical policy does not cover land
  • Better: Covers land; covers land up to a specified dollar amount
• A typical policy does not cover the foundation unless due to collapse
  • Better: Covers foundation as part of the structure
  • Worse: Does not cover the foundation

Personal property measures coverage for personal property—belongings such as clothes, household items, furniture, and electronics. The assessment includes dollar limits on coverage of particular items, such as jewelry, silverware, and computers.

• A typical policy covers personal property owned or used by an insured, wherever located
• A typical policy covers property at another residence or a storage facility limited to the greater of 10% of the personal property limit or $1,000.
  • Coverage can be better or worse
• A typical policy contains special limits of coverage, such as $200 in cash, $1,500 for a boat, $2,500 for loss by theft of silverware.
  • Better: Higher limits
• A typical policy contains limits of coverage on business property, on or off the premises.
  • Amounts and definition of “business” can be better or worse

Additional coverages measures other types of losses often covered under homeowners insurance, such as damage to landscaping, losses caused by power failure, credit card losses, identity theft, and many more.

• A typical policy lists other coverages related to property losses.
  • The list can be better or worse; for example, including or excluding losses due to a loss of electric power.

Risks the insurance covers

Buildings measures the causes of loss that the insurance protects against for the house and other structures. Coverage for buildings usually is provided on an “open perils” or “all risk” basis—any cause of loss is covered unless it is specifically excluded. Even all-risk policies exclude many causes of loss, such as damage by floods.

• A typical policy covers accidental, direct physical loss (“Open perils” or “All risk”). Some policies attempt to limit coverage to “sudden” losses

Personal property measures the causes of loss that the insurance protects against for personal property. Policies vary as to whether they provide coverage on an “open perils” or “all risk” basis (any cause of loss is covered unless it is specifically excluded) or a “named perils” basis (there is coverage only for the causes specifically listed in the policy)

• A typical policy covers a broad list of specified risks (“named perils”). The list is common to most policies, with some providing coverage for fewer risks.
  • Better: Open perils or all-risk coverage

Water risk measures how well the insurance protects against water damage from both weather-related causes and other causes. Weather-related causes include floods (usually not covered), heavy rains that cause runoff, and backup of sewers and storm drains. Other causes include sump pump overflow, backup from drains in the house, and plumbing leaks.

• A typical policy covers overflow of storm drain or sewer pipe off the premises
• A typical policy covers plumbing leaks and the damage they cause
  • Worse: Does not cover slow leak, even if undiscovered by the homeowner
• A typical policy does not cover sump pump or sewer backup on premises
  • Better: Covers backup on premises

Mold risk measures whether the policy covers testing for and treatment of mold,  including mold that develops from water leaks or other sources, and whether there are dollar limitations on coverage.

• A typical policy covers mold loss due to a plumbing leak
  • Worse: Covers mold loss with a dollar limitation
  • Better: Covers mold loss from any source
  • Better: Also covers full testing and remediation for mold

Other risks measures some other important risks that the insurance may cover, including the definition and causes of a covered collapse, the breadth of coverage for a loss caused by both covered and uncovered causes, and others.

• A typical policy covers collapse caused by a full range of risks
  • Causes of covered collapse are limited

What the insurance pays

The insurance contains dollar policy limits; those are individual to each home and not assessed here. Instead, it considers the standards used in measuring the loss and limitations on those standards. The available standards are:

• Replacement Cost. The insurance pays the cost to repair or replace damaged property, without deducting for depreciation, subject to the policy limits. (This often is referred to as “new for old.”)
• Guaranteed Replacement Cost. The insurance pays the full cost of repairing or replacing damaged property, even if that amount is higher than the policy limits.
• Extended Replacement Cost. The insurance pays Replacement Cost plus an additional percentage above policy limits if necessary to repair or replace the damaged property.
• Actual Cash Value. The insurance pays the depreciated value of the damaged property at the time of the loss, which is less than its replacement cost.

This category also measures other limitations on payment for covered causes of loss.

Buildings measures whether the insurance pays Replacement Cost, Guaranteed Replacement Cost, Extended Replacement Cost, or Actual Cash Value for damage to the dwelling and other structures.

• A typical policy recovers replacement cost up to policy limits
  • Better: Covers Replacement Cost plus an additional percentage of policy limits (“Extended Replacement Cost”)
  • Better: Covers Replacement Cost not limited to policy limits (“Guaranteed Replacement Cost”)

Personal property measures whether the insurance pays Replacement Cost, Guaranteed Replacement Cost, Extended Replacement Cost, or Actual Cash Value for damage to personal property—belongings such as clothes, household items, furniture, and electronics.

• A typical policy pays Actual Cash Value for personal property
  • Better: Replacement Cost

Law and ordinance coverage measures whether and how much coverage is available to pay the increased cost of repairing to comply with a building code that has higher requirements than the code in effect at the time the property was built.

• A typical policy covers the increased cost to comply with building code up to 10% of policy limits
  • Better: Covers increased cost to comply with building code without percentage limit
  • Worse: Covers increased cost to comply with building code up to 5% of policy limit
  • Worse: Does not cover increased cost to comply with building code

Roof coverage measures whether the policy limits payment for roof repairs due to particular perils such as windstorm or hail or based on the age of the roof.

• A typical policy pays Replacement Cost for the roof as part of the building
  • Worse: Roof is covered for Actual Cash Value for wind or hail damage
  • Worse: Roof is covered according to a depreciation schedule

Additional living expense measures how long the insurance will pay for the cost of living away from home while repairs are being made.

• A typical policy pays for increase in living expenses during repairs, for shortest time necessary, without time limitation
  • Worse: Pays for increase in living expenses during repairs, for shortest time necessary up to two years
  • Worse: Pays for increase in living expenses during repairs, for shortest time necessary up to one year

Other payment issues measures other important elements of the standards for determining how much the insurance pays for repairs. Some elements include:

Like kind and quality. Whether undamaged property must be replaced with material of like kind and quality or common but not identical construction

• A typical policy pays for repairs with like kind and quality
  • Worse: Pays for repairs with “common construction”, which may not be the same as original materials or construction

Matching. Whether undamaged property must be replaced to match the repairs to damaged property, as where damaged siding that is replaced would look different than the existing siding

• A typical policy pays for repairs to “that part of the building damaged”, which leaves matching up to state law
  • Better: Pays for matching undamaged property to repaired damaged property
  • Worse: Matching excluded

Cosmetic damage. Whether the policy pays for solely cosmetic damage to the property

• A typical policy does not mention cosmetic damage, which leaves the issue up to state law
  • Worse: Cosmetic damage is excluded

Liability Insurance

Liability insurance  measures how well the insurance covers lawsuits brought by others for personal injury or property damage caused by the homeowner and certain family members. This assessment includes the types of harm and lawsuits that are covered and no-fault coverage for injuries to others. Liability coverage is much more similar among policies than property coverage.

Liability insurance measures how well the insurance covers lawsuits brought by others for personal injury or property damage caused by the homeowner and certain family members. This assessment includes the types of harm and lawsuits that are covered and no-fault coverage for injuries to others. Liability coverage is much more similar among policies than property coverage.

Other issues

Statute of limitations measures how long an insured has to file suit over a disputed claim.

• A typical policy requires suit within two years of loss
  • Better: Requires suit within the state’s ordinary statute of limitations
  • Worse: Requires suit within one year of loss

Managed repair program measures restriction on payment due to the presence of a repair program offered by the insurer.

• A typical policy may offer but does not require use of the insurer’s managed repair program
  • Worse: If the managed repair program is not used, payment is limited to what would insurer have been paid under program

We collected data on how often losses occur and how large typical losses are from publicly available sources including the Insurance Information Institute, the National Association of Insurance Commissioners, and underwriting data filed by insurance companies with state regulators.

We accessed academic literature, trade press, and studies of policyholder experience to better understand what issues commonly arise and are important to homeowners.

We used the data and three guiding principles to identify the most important terms of the policies for consumers and to weight them. The three principles are:

• How frequently does a loss covered by a particular term arise, and how large are the average losses? For example, water damage and freezing losses account for about one-fourth of claim payments, so coverage for them is very important.
• How much do the terms vary among policies? For example, Replacement Cost payment for the dwelling is very important, but policies overwhelmingly provide for Replacement Cost, so this factor has less weight. Coverage for plumbing leaks varies significantly, so it is given more weight.
• What kinds of coverage do policyholders reasonably expect? For example, homeowners reasonably expect their insurance to provide better coverage for large financial losses than for small losses.

The terms were organized into categories that accurately reflect the ratings and are accessible to consumers:

Property coverage, including:

• Things the insurance covers
• Risks the insurance covers
• What the insurance pays

Liability coverage

Other issues

The result was a matrix of more than a hundred variables used to evaluate each policy. Policy terms were rated as More Important, Important, and Less Important. For an explanation of the weights, see here.

The matrix was workshopped with insurance experts.

Each policy was evaluated using the matrix. The results were converted to a 100-point scale and within categories on a 5-point rating.

RU InsureScore is a project of the Rutgers Center for Risk and Responsibility under the direction of Professor Jay Feinman. Colleagues from the Rutgers Law School and Rutgers School of Business-Camden, student research assistants, and outside insurance experts helped with the project, and we are grateful to them.

The Center and its employees received no outside funding for this project and have no commercial interest in any of the insurance companies reviewed.

The comparison evaluates what we believe to be representative basic policies. In our survey of many homeowners insurance policies in many states, we found that many companies use the same basic policies in many of the states in which they do business.

But there are important qualifications to the policy comparison.

Companies typically offer levels of coverage that consumers can choose, in two ways.

First, a company may offer different types of policies. Companies that adopt the widely used policy forms offered by ISO, formerly the Insurance Services Office, may offer an HO-3 policy and an HO-5 policy. The HO-3 policy provides basic coverage and the HO-5 policy provides better coverage, especially by paying for damage to personal property at the cost to replace it, rather than its depreciated value, as the HO-3 provides. Often the different policies will have appealing names intended to distinguish them: Deluxe, Special Value, and so on. Where a company offers different types of policies, we used the basic policy, such as  an HO-3 rather than an HO-5, which usually is the most widely purchased.

Second, companies also offer terms that raise or lower coverage in narrower respects. These optional terms may be included in the policy itself or presented as separate endorsements. Some examples:

• Many policies exclude damage caused by water that backs up through sump pumps or drains, and an endorsement can add that coverage.
• Policies typically limit what they will pay for stolen jewelry or silverware, but if you have more expensive items, you can purchase an endorsement to cover them.
• Some policies will pay the additional cost of upgrading a  damaged home to comply with a building code only if a special endorsement is purchased.

Therefore, the policies compared do not represent all of the policies and terms that are available. We have used the basic policies without optional terms for comparison. Where a policy contained optional terms within the policy itself, we used the basic terms without optional upgrades.

Although the policies compared are widely used by the companies across the country,  sometimes there is state-by-state variation, either by law or to address local concerns.

The comparison is a starting point in buying insurance or comparing policies. The insurance policies that were used in the comparison are basic policies commonly used by national insurers.  But insurance policies contain many mandatory and optional terms that you need to consider when evaluating a policy. The comparison gives you a rough ranking of the terms offered, and the factors used in the rankings give you a list of questions to ask and things to think about when buying a policy.

What not to do: Don’t just pick the cheapest, or the highest rated, or the one with the best advertising.

You need to consider three things when buying homeowners insurance: Coverage, Quality, and Price.

First, use the comparisons in RU InsureScore to begin thinking about what coverage you need. The factors used in the rankings give you a list of questions to ask and things to think about when buying a policy. Decide which of those things are most important to you. If you are considering a policy from one of our rated companies, or from any other company, ask about those things. Consider endorsements to meet your particular needs—coverage for sump pump overflow or extra insurance for expensive jewelry, for example.

You need to buy enough coverage as well as the right kind of coverage. Make sure that you buy Replacement Cost coverage in amounts that are large enough to fully rebuild your house if there is a total loss, and consider Extended Replacement Cost or Guaranteed Replacement Cost. Weigh the advantage and cost of Replacement Cost for your possessions, too. And make sure that your policy limits are accurate—a fair estimate of the actual cost to rebuild your house if there is a total loss

Second, buy from a quality company. State regulators do a good job of making sure insurance companies are financially sound, so focus on the quality of the customer experience, especially in paying claims. J.D. Power and Consumer Reports publish trustworthy surveys. Commercial websites that provide information on insurance sometimes publish ratings, too, but they also try to sell you something, so take their ratings with a grain of salt.

Third, even though price isn’t the most important thing, it matters to almost everyone. Once you have determined what kind of coverage and how much you need, shop around to find a good price. Consider whether the insurance company offers discounts for bundled coverage, alarm system, and more.

For more information on buying homeowners insurance, look to websites from independent sources that have no financial interest in steering you to particular companies. Some reliable sources include:

• Consumer Reports 
• United Policyholders
• National Association of Insurance Commissioners
• Insurance Information Institute

RU InsureScore has a short-term goal and a long-term goal.

The short-term goal is to provide accessible information that homeowners can use in shopping for insurance and evaluating their policies. The information here allows homeowners to compare the policies from different companies and it provides a checklist in evaluating any policy.

The long-term goal is to improve homeowners insurance in the United States. RU InsureScore is one step in providing more information to homeowners. More information makes homeowners better consumers, and better consumers not only get better insurance for themselves, they also encourage insurance companies to compete on the quality of coverage. We also provide suggestions for next steps by state regulators to better serve insurance consumers in the next FAQ.

These goals obviously are pro-consumer, but they also are pro-insurer. We believe that improving the homeowners insurance market will lead to homeowners buying more and better insurance, which is good for insurance companies.

RU InsureScore is one step toward improving the market for homeowners insurance, but more needs to be done.

It’s hard for anyone to obtain copies of homeowners policies in use in order to compare the terms of policies. It’s usually impossible for ordinary consumers, and it’s difficult even for insurance experts and experienced researchers.

Some state regulators have addressed this problem by posting the policies of some or all homeowners insurance companies. California, Missouri, and Texas publish on their websites the terms of homeowners insurance policies for substantially all insurers in the state, and Maine, Nevada, and Oklahoma publish the policies of the ten largest insurers in the state. Every state should make available online residential property policy forms of all insurance companies doing business in the state.

Realistically, consumers are not going to read different policies to compare their terms. And even if they did, most of them couldn’t understand the long, complex, legal documents, or be able to anticipate the many ways in which a loss might occur or the problems that may result if it does.

Therefore, every state should require insurance companies to provide accessible summaries of their policies in a standard form. The summaries should be published on the regulators’ and companies’ websites and should be given to consumers when they are comparing policies and upon renewal.

Publishing the policies and the summaries will make it possible for homeowners to compare policy terms, and they will make it easier for insurance agents, consumer groups, referral websites, and others to collect the information and provide summaries and ratings, as we have done.

Those steps will improve the market for homeowners insurance by making more and better information about coverage available to consumers. It also will encourage insurers to compete on the quality of coverage as well as on price. But more needs to be done to improve the market for homeowners insurance.

First, many homeowners need to buy more insurance, not just better insurance. About two-thirds of homes do not carry policy limits high enough to rebuild in the event of a total loss. We need a better process for ensuring that policy limits are accurate.

Second, even with better information, insurer competition by itself will not produce the kind of coverage that homeowners need. Therefore, regulators need to require that homeowners insurance policies provide coverage that policyholders reasonably expect, without surprising limitations or exclusions.

For more information on these two steps, see the Center for Risk and Responsibility’s Project on Protection Gaps, here.

Third, homeowners want to know which companies are best at paying claims. State insurance departments should publish current, helpful statistics with which consumers can compare companies as to how promptly and fairly they pay claims. Most states already collect claim practices data such as:

• Number of claims opened, closed with payment, and closed without payment
• Median days to final payment
• Number of claims closed with and without payment within 0-30 days, 31-60 days, and so on
• Number of suits by policyholders opened and closed

States should publish this information on their website for consumers to use, along with online tools that make it easy to compare companies.