For many people, their home is their most valuable investment—and protecting it starts with the right insurance. But when it comes time to choose a policy, one of the most common questions we hear is: What is homeowners insurance, and what does it actually cover?
At First State Insurance, we help homeowners across Minnesota and South Dakota make sense of their coverage options and avoid costly surprises. In this guide, we’ll explain what homeowners insurance is, what it typically covers (and what it doesn’t), and why having the right policy matters more than ever, especially with rising rebuilding costs and more frequent extreme weather.
What Is Homeowners Insurance?
Homeowners insurance is a type of property insurance that covers your home and belongings against a range of risks, including fire, theft, vandalism, and weather-related damage. It also provides liability protection if someone is injured on your property or if you cause damage to someone else’s property.
Homeowners insurance is not required by law, but if you have a mortgage, your lender will almost always require it to protect their investment.
According to the Insurance Information Institute (III), about 93% of homeowners in the U.S. carry insurance on their home.
What Does a Standard Homeowners Insurance Policy Cover?
Most policies follow a standard structure known as HO-3 coverage, which protects against everything except specific exclusions. Here's a breakdown of what’s typically included:
1. Dwelling Coverage (Your House)
Covers the cost to repair or rebuild your home if it’s damaged by events like fire, hail, lightning, or windstorms. In Minnesota and South Dakota, hail and blizzards are some of the top causes of claims.
Example: A hailstorm in Sioux Falls cracks your siding and damages your roof—your homeowners policy pays for the repairs, minus your deductible.
2. Other Structures
Covers detached buildings like garages, sheds, and fences, usually up to 10% of your dwelling coverage.
3. Personal Property
Covers your belongings (furniture, electronics, clothing, etc.) if they’re stolen or damaged by a covered peril. Most policies cover items at actual cash value unless you upgrade to replacement cost. For instance, if a pipe bursts in your home and ruins your couch and rugs, your insurer would help pay to replace them.
4. Loss of Use (Additional Living Expenses)
Pays for hotel bills, meals, and other costs if your home becomes temporarily uninhabitable after a covered event.
5. Liability Protection
Protects you if someone is injured on your property or if you’re found legally responsible for damages to someone else. For example: If your dog bites a visitor, your liability coverage can help with medical bills or legal fees.
6. Medical Payments to Others
Covers minor medical expenses (usually up to $5,000) if someone is injured on your property—regardless of fault.
What’s Not Covered by Homeowners Insurance?
Homeowners insurance doesn’t cover everything. Here are common exclusions that often surprise people:
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Flood damage (requires separate flood insurance through FEMA or a private carrier)
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Earthquakes (also a separate policy)
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Wear and tear or poor maintenance
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Infestation (termites, rodents, etc.)
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Intentional damage or fraud
According to FEMA, just one inch of floodwater can cause over $25,000 in damage—yet most homeowners policies exclude flood coverage.
How Much Does Homeowners Insurance Cost?
The average cost of homeowners insurance in Minnesota is about $1,700 per year, while South Dakota homeowners pay around $1,420 annually. However, rates vary based on:
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Home location and age
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Rebuilding costs in your area
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Roof condition
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Deductible amount
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Coverage limits and endorsements
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Your credit score (where applicable)
In fast-growing areas like Sioux Falls, newer construction and fire-rated materials may help lower your premium. Meanwhile, in places like Worthington, older homes may cost more to insure due to aging infrastructure. These averages are based on recent data from the National Association of Insurance Commissioners (NAIC).
Optional Coverages to Consider
Depending on your situation, you may want to add extra protection for things not covered under a standard policy:
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Sewer Backup Coverage: Covers damage from backed-up drains or sump pump failures (common in heavy rains or spring thaws).
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Scheduled Personal Property: Extra coverage for high-value items like jewelry, fine art, or collectibles.
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Identity Theft Protection: Helps cover costs related to credit monitoring and restoring your identity.
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Home Business Endorsements: If you run a business out of your home, you'll likely need special coverage.
At First State Insurance, we’ll walk you through which endorsements make sense based on your lifestyle and location.
How Much Homeowners Insurance Do You Need?
Your coverage should reflect:
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The full replacement cost of your home
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The value of your personal belongings
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Your risk tolerance for liability claims
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Any special risks (e.g., floods, Airbnb rentals, or in-home businesses)
It's not recommended to accept the default coverage offered by your mortgage lender or online quote because underinsuring your home could leave you tens of thousands short in a claim. We encourage getting a replacement cost estimate from a local agent, especially with material and labor costs still high across Minnesota and South Dakota.
Why Work With a Local Agency?
With online insurers offering quick quotes, you might wonder: Why not just go with the cheapest option? The reason is, a local agency like First State Insurance will understand local risks, we're not tied to one insurer and we'll compare quotes from multiple top-rated carriers to find the right fit. Whether you’re a first-time home buyer or updating an old policy, our team makes the process easy, fast, and transparent.
Final Thoughts: Protect What Matters Most
Homeowners insurance is peace of mind—a financial buffer that helps you recover from fires, storms, theft, and liability claims. More importantly, it’s a smart investment that protects your most important asset: your home.
Contact our team at First State Insurance today to review your current policy, get a personalized quote, or ask questions. We’re here to help you protect what matters most every day of the year!