In-Depth Article: What Homeowners Insurance Covers

Home is more than just a place to sleep. It might be your most valuable possession, and you probably can't pay to replace it if something bad happens. That's why it's important to get the right insurance to protect your home.

What is homeowners insurance?

Homeowners insurance pays out if your home or belongings are damaged or destroyed by something covered by your policy. It will also cover you if you hurt someone else or damage their property in certain ways. There are four main uses for home insurance:

• To fix up your house, yard, and other structures.
• To fix or replace your own things.
• Pay for you to stay somewhere else while your house gets fixed.
• To cover your personal liability if the law says you are responsible for someone else's damage or injury.

Mortgage insurance, which you may have to buy if you put less than 20% down on your home loan, is not the same as homeowners insurance. (FHA loans and other federal loans might also need mortgage insurance, no matter how much you put down.) If you default on your loan, mortgage insurance will reimburse your lender.

Your lender is protected by mortgage insurance, and you are protected by home insurance.

Does a homeowner need insurance?

Homeowners insurance isn't required by law, but if you have a mortgage, your lender will probably make you get it to protect its investment. Even if you don't have a mortgage, it's almost always a good idea to buy home insurance. A homeowners policy is a financial safety net you may one day be glad to have. It protects your property and protects you from lawsuits.

Dwelling Coverage

The walls, floors, windows, and roof of your home are all covered by dwelling coverage. Built-in appliances, like furnaces, are usually also covered by your home insurance. Your dwelling insurance would also cover your garage, porch, or deck if they are attached to your house.

Which things are covered: Most homeowner's insurance policies cover damage to your home from anything that isn't specifically left out. The Insurance Information Institute says that wind, hail, freezing, fire, and lightning are some of the most common reasons why homeowners file insurance claims.

How it works: A bad storm knocks over a tree, which then falls on your house and crushes your roof and attic. You would pay the deductible, which is your share of the cost of repairs, and the insurance company would pay the rest, up to the limit of your home coverage.

Coverage of other structures

Other structures coverage is exactly what it sounds like: it covers structures on your property that aren't attached to your house. This could be a shed, a fence, or a separate garage.

What's covered: Just like with the house, most homeowners insurance covers other structures for anything that isn't specifically left out. So, you'd probably be covered for things like fire, wind, hail, and snow, among other things.

How it works: When it snows a lot, a part of your fence falls down. The insurance company would pay to fix it, minus the amount you have to pay out of pocket.

Coverage for personal property

Your clothes, furniture, electronics, and appliances that aren't built in are examples of personal property. Most homeowner's insurance policies cover these things anywhere in the world, not just at home. So if your bike is stolen from in front of a store, it's likely to be covered (minus your deductible).

Which things are covered: In most homeowner's policies, the coverage for personal property is different from the coverage for the house and other structures. Homeowners policies usually only cover the disasters that are listed. They don't cover anything that isn't listed as being excluded.

These kinds of things, which are usually called "perils" in your policy, tend to be:

• Fire or lightning.
• Smoke.
• Hail and wind storms.
• Explosions.
• Theft.
• Vandalism.
• Ice, snow, and sleet weigh a lot.
• Sudden damage from a power surge.
• Volcanic eruptions.
• Things that fall.
• Home systems like plumbing, air conditioning, and appliances can leak or release water.
• Those same home systems would freeze.
• A hot water, steam, air conditioning, or fire safety system that suddenly tears, cracks, or bulges.
• Riots.
• Damage caused by planes.
• Damage done by cars and trucks.

How it works: On a cold winter night, a pipe bursts and floods your kitchen and dining room with water. Cabinets would be covered by dwelling coverage, but damaged furniture would be covered by personal property coverage, minus your deductible.

Coverage for a loss of use

The "loss of use" part of your homeowners policy can help you out if your home is too damaged to live in. This part is also sometimes called "additional living expenses." Loss of use coverage might pay for hotel stays, restaurant meals, and other costs of living somewhere else if a disaster covered by your policy makes your home unlivable.

Which things are talked about: You should be able to get loss of use coverage as long as your home is being fixed because of a covered claim. But if your home is damaged by something that isn't covered, like a flood, your insurance company won't pay for your extra living costs.

How it works: If a fire in your kitchen spreads to your living room, you can't live in your house for a few months while contractors fix it. Your insurance company would pay for you and your family to rent a nearby house with the same amount of space.

Coverage for liability

Personal liability coverage gives you money if someone sues you for hurting them or damaging their property and you are found liable. Coverage usually includes everyone in your home, including your pets. This means that if your dog bites someone at the park, you may be covered if the person sues you.

Which things are talked about: With a few exceptions, liability insurance covers injuries to other people and damage to their property. For example, your policy won't cover things like crimes you commit or damage you cause on purpose. It also won't pay for car accident injuries or damage (your liability car insurance would cover those).

How it works: Before you can salt your icy sidewalk, a delivery person falls on it. He hurts his wrist when he trips and falls, so he sues you for his medical bills and lost wages. Your liability coverage could pay for your legal fees and any damages you're responsible for in the lawsuit, up to your policy limit.

Coverage for medical bills

As with liability coverage, medical payments coverage pays for injuries you cause to people outside of your household. But you don't have to file a lawsuit and you don't have to be found at fault for your medical payments coverage to pay out.

Which things are talked about: If someone gets hurt on your property or if you hurt someone outside of your home, you could use your medical payments coverage. Liability and medical payments have the same kinds of limits. For example, there is no coverage for intentional acts or car accidents, among other things.

How it works: When a friend comes over, your dog bites their hand. Even though it's not a big deal, your medical payments insurance will pay for them to go to urgent care to get stitches.

What your home insurance won't pay for

Even the most comprehensive homeowners insurance policy won't cover everything that could go wrong with your home. For instance, you can't damage your house on purpose and then expect your insurance company to pay for it. Policies also usually don't cover damage from things like:

• Flooding caused by things outside of the area, like heavy rain or storm surges.
• Back-ups of drains and sewers can cause water damage.
• Sinkholes, land slides, and earthquakes.
• Infestations by birds, rodents, mold, or fungus.
• Wear and tear or lack of care.
• Nuclear risk.
• Actions by the government, such as war.
• Loss of power.

But you can buy coverage for some of these risks separately. You can buy flood insurance and earthquake insurance separately. If you live in a state that gets hurricanes, you may need or want windstorm insurance.

Endorsements let you get more coverage.

If you are worried about damage or events that your policy doesn't cover, you should talk to your insurance company. Most of the time, you can add endorsements, which usually cost extra but give you more coverage, to your policy.

Here are a few of the most common add-ons to home insurance. Keep in mind that availability can vary by state and by business.

• Scheduled personal property is a type of insurance that covers a specific valuable item, like a ring or a musical instrument. To get this coverage, you may need an appraisal, which is a document that says how much the item is worth.
• During repairs or rebuilding, ordinance or law coverage pays to bring your home up to date with building codes.
• Coverage for water backup pays for damage caused by clogged sewer lines, drains, or sump pumps.
• Equipment breakdown coverage pays for HVAC systems and big appliances that stop working for reasons other than normal wear and tear.
• Service line protection pays for damage that you cause to water, electric, or other utility lines.
• Identity fraud coverage pays for things like lost wages and legal fees that are caused by identity theft. Find out more about insurance to cover identity theft.

Different kinds of homeowner's insurance

There are different kinds of home insurance, which are called "policy forms." Some types cover more than others, so it's important to understand the differences. Note that these policies may have different names from one insurance company to the next.

Most popular: HO-3 insurance

Most people have HO-3 insurance policies, which are also known as "special form" policies. If you have a mortgage, your lender will probably want at least this much coverage.

Most HO-3 insurance policies cover damage to your home from any cause except those that are specifically left out, like an earthquake or flood. But HO-3 insurance usually only covers damage to your things that comes from the things listed in your policy.

HO-5 insurance has the most coverage.

The most coverage for a homeowner is found in a HO-5 insurance policy. It pays for damage to your home and things, except for things that the policy doesn't cover. It's usually only offered by insurers for well-kept homes in low-risk areas, and not all of them do.

"Comprehensive form" or "premier coverage" are sometimes used to describe HO-5 policies. But a HO-3 policy can sometimes be called "premier" even though it doesn't cover as much as a HO-5 policy. Ask your agent or representative about HO-5 insurance coverage if you want it.

HO-1 and HO-2 insurance only cover a limited amount.

HO-1 and HO-2 homeowners insurance are much less common because they only pay for damage caused by things listed in the policy.

Other types of policies include HO-4 insurance for renters, HO-6 insurance for condo owners, HO-7 insurance for mobile homes, and HO-8 insurance for older homes, which is rarely used and only covers certain things.

How the insurance for a home works

If your house burns down, your homeowners insurance company probably won't just send you a check for the amount on your policy. First, you'll need to report the damage and file a claim. Your payout could be different depending on the type of coverage and deductible you choose.

Replacement cost vs. actual cash value

One important part of your payout is whether your coverage will pay whatever it takes to rebuild your home, even if it costs more than your policy limits. This could happen, for example, if the cost of building in your area has gone up but your coverage limits haven't changed. Here is a list of some of the choices you may have.

Actual cash value coverage pays you the cost to fix or replace your damaged property, less a deduction for how much it has lost value over time. Most policies don't cover the house this way, but it's a common way to cover personal items. This means that you probably won't get back much of what it would cost to buy new items, especially if they are several years old.

Functional replacement cost value insurance pays to fix your home with similar but maybe cheaper materials. For example, your contractor could replace plaster walls that are broken with drywall, which is less expensive.

Replacement cost value coverage pays to fix your home using "like kind and quality" materials, so plaster walls can be fixed with more plaster. But the payout won't go over the limits of your policy's dwelling coverage.

Some policies cover personal items up to the cost of replacing them. This means that the insurance company would pay to replace your old things with new ones, without taking into account how much they have lost in value. If you care about this feature, check the policy details before you buy. Even though it's a common choice, you usually have to pay more for it.

Extended replacement cost value coverage will pay more than the face value of your dwelling coverage, up to a certain limit, if that's what it takes to fix your home. The limit can be a dollar amount or a percentage, like 25% more than the amount of your home insurance coverage. This gives you a safety net in case rebuilding costs more than you thought.

Guaranteed replacement cost value coverage pays the full cost to repair or replace your home after a covered loss, even if it costs more than your policy limits. This level of coverage is not offered by all insurance companies.

Insurance deductibles for homeowners

Most homeowner's insurance policies have a deductible, which is the amount you have to pay before your insurance company starts paying. This amount can be:

• A fixed amount of money, like $500 or $1,000.
• A number, like 1% or 2% of the insured value of the home.

When you get a check for a claim, your insurance company takes out your deductible. Say you have a $1,000 deductible and your insurance company agrees to pay for repairs worth $10,000. The insurance company would pay you $9,000. You would have to pay $1,000.

Most of the time, if you choose a higher deductible, your premium will go down. However, if you need to file a claim, you'll have to pay more out of pocket. On the other hand, if your deductible is low, you might pay a higher premium, but your insurance company would pay almost all of the bill after an accident.

Be aware that some policies have separate, and often higher, deductibles for certain types of claims, such as damage from wind, hail, hurricanes, or earthquakes. For example, a policy might have a $1,000 deductible for most losses but a 10% deductible for earthquake coverage that you added as an extra. This means that if an earthquake damages a $300,000-valued home, the deductible would be $30,000.

Most of the time, there is no deductible for liability claims.

Frequently asked questions

How much does insurance for a home cost?

A 2023 study found that the average cost of homeowners insurance was $1,784 per year. But depending on where you live and how much coverage you buy, your rate could be much higher or lower. Most states can also look at your credit score.

How can I lower the cost of my home insurance?

There are easy ways to save money on home insurance if you think your premium is too high. For example, if you buy home and car insurance from the same company, you may get a discount. You might also get a lower rate if you have burglar alarms and deadbolt locks, which are common safety features. And it's a good idea to always get multiple quotes for homeowners insurance to make sure you're getting the best deal.

How much insurance do you need for your home?

You need enough homeowners insurance to cover the cost of rebuilding your home if it is destroyed. Most of the time, you'll need personal property coverage limits that are at least 50% of the amount of your home coverage. Lastly, think about making your liability limit at least as high as your assets.

Is insurance for a home tax-deductible?

If your home is your main place of living, you can't deduct the cost of your homeowners insurance from your taxes. But if you rent out the house, you might be able to deduct the premiums from your taxes.

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