What Does Homeowners Insurance Cover?

If you’re wondering, “What does homeowners insurance cover?” you might be surprised by how much is actually included in a standard policy. Even with cheap home insurance coverage, you’ll have financial protection for the structure of your home, your personal belongings and liability concerns.

Keep in mind that the type of coverage for home insurance you choose has a major impact on the cost of your annual premium. You may pay more for higher limits, but you’ll appreciate the extra coverage when you need to file a claim to get reimbursed for damages.

Understand the complete breakdown of your home insurance coverage so you know what’s actually protected by that annual premium you pay.

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    In this article

      Coverage for the structure of your home 

      The biggest part of your home insurance coverage is your home’s structure. A standard policy covers any losses caused by the following perils:

      • Fire and smoke
      • Lightning
      • Windstorm or hail
      • Explosions
      • Vandalism
      • Damage from aircraft or vehicle
      • Theft
      • Falling objects
      • Weight of ice or snow
      • Water damage

      These are the most common perils included in homeowners insurance policies, but check your specifics to know what’s covered. Many types of events aren’t covered in this list of perils, even if they might seem to be at first glance. For instance, damage caused by flooding, hurricanes or earthquakes usually won’t qualify for a claim if you haven’t purchased an additional policy. You won’t be covered for losses from typical wear and tear in your home, so be sure to keep up with routine maintenance.

      Every homeowners insurance policy comes with coverage limits for each category. The structure of your home is called dwelling coverage and you should take out a policy that covers the cost to rebuild your home from scratch in the current market.

      [ Read: The Complete Guide to Home Insurance ]

      Coverage for your personal belongings 

      In addition to the structure of your home, your policy also covers your personal belongings, up to certain limits. Even if you’re looking for cheap homeowners insurance, you can get coverage for the possessions in your home. They are covered on a named perils basis, meaning they’re only covered when damage is caused by specific events listed in your policy. In most cases, it’s the same list as the common perils listed above in the dwelling coverage part of your policy.

      An exception to this is if you upgrade your homeowners insurance policy to a more premium option. The standard choice is an HO-3 policy, which will list out the perils that qualify for coverage. However, the comprehensive HO-5 policy upgrades your personal belongings to open perils based coverage. This means that your possessions are covered in any event except for a few exclusions. Instead of having a list of what is covered, you’ll get a list of what’s not covered — everything else is included in your policy. It’s important to note that this type of policy is a more expensive option but offers better coverage.

      Whichever type of policy you have, note the claims limit on personal belongings. You’ll typically see a maximum amount you’re allowed to claim in certain categories, such as jewelry and electronics. You may need additional insurance if the value of your belongings exceed the policy limits.

      [ For You: How to Find Cheap Homeowners Insurance ]

      Liability 

      When looking for the best homeowners insurance companies, don’t glance over the liability coverage. This important component of your policy protects you in case someone gets injured on your property or if their property is damaged. For example, a guest who gets bitten by your dog could have their medical expenses paid from your homeowners insurance policy. Or if a tree on your property falls on a neighbor’s car, you may also qualify to use your liability coverage to pay for the damage. And if you’re ever sued because of one of these types of incidents, your liability protection may also pay for your legal costs and any settlements you’re required to pay.

      Most insurers start their liability coverage at $100,000. The Insurance Information Institute recommends getting at least $300,000 to $500,000 worth of coverage, or more if your combined assets exceed that range. In other words, if you have more assets that someone could sue you for, make sure they’re protected by a liability policy with a comparable value.

      [ Next: Best Homeowners Insurance Companies ]

      Additional living expenses

      Homeowners insurance also covers additional living expenses. When your home is damaged to a degree that makes it impossible for you to live there during repairs, your insurance policy will reimburse you for your expenses to stay elsewhere. There’s a limit, but it’s separate from the repairs claim. Typically, your meals and hotel costs are covered. Storage unit fees may also be covered if you have to store your belongings while your home is being rebuilt.

      The coverage components of home insurance 

      There are six types of home insurance coverage you’re likely to have in your policy.

      Dwelling 

      You get to choose how much dwelling coverage you need for your home, and your insurance agent can help you figure out this number. It should be enough to cover the replacement cost of the home’s structure. It’s not the same as market value because dwelling doesn’t include land or any detached structures on your property. As time passes, you should revisit the amount of your dwelling coverage and see if it needs to be adjusted to meet current prices.

      Other Structures

      This coverage applies to structures on your property that are not attached to your home. This could include a guest house, shed, detached garage, workshop or fences. Typically this coverage should amount to 10% of your dwelling coverage.

      Personal property

      Personal property coverage should equal half of your dwelling policy. It reimburses you for damage or theft of your possessions either at home or while away. Check to see if your policy allows for replacement cost or actual cash value.

      [ See: Understanding Home Insurance Quotes ]

      Loss of Use

      Loss of use provides additional living expenses if you can’t stay in your home while repairs are taking place. Your loss of use policy should be the equivalent of 20% of your dwelling coverage.

      Personal Liability

      Your personal liability coverage covers lawsuits against you if you’re found liable for damage or injury caused to individuals or their property while at your home. You can choose the amount which should cover your net worth.

      Medical Payments

      Similarly, medical payment coverage will pay for any healthcare expenses incurred by someone because of an injury on your property or because of your pet. You can choose your own amount of coverage for this policy.

      Homeowners insurance add-ons, explained

      Homeowners insurance is customizable based on your specific needs. Policy add-ons allow you to include extra coverage for certain situations that may not be included in a standard policy. These are also known as riders or floaters.

      Consider an add-on for extra perils that are more likely in your area. For example, a flood coverage policy may be helpful (or even required by your mortgage lender) if you live in a flood plain. Earthquake coverage is recommended if you live near a fault line, such as Oklahoma and California residents.

      You can also get add-ons to increase your coverage limits. If your personal property is valued higher than your policy covers, you can insure separate items or categories for more. You can also get umbrella liability coverage if you want more protection than what the standard plan offers. Usually, you’ll need to have a minimum covered in your homeowners insurance; then, you can purchase an umbrella or excess liability policy to protect you for any claims above your existing coverage.

      What are coverage limits? 

      A coverage limit is the maximum amount you may be reimbursed for a specific type of coverage. You have control over how much you want your coverage to be for each category. There are, however, industry guidelines and recommendations you can use as a starting point. For instance, personal property is generally supposed to be half of your dwelling coverage. If your dwelling coverage limit goes up to $400,000, then your personal property coverage limit would be $200,000. But if you own a rare piece of art or expensive jewelry, you may want to increase that coverage.

      The higher your limit, the more expensive your annual premium will be. Although you could potentially save money by lowering your limits, you’d be risking a long-term loss if you ever did have to file a major claim. These limits are different from a deductible, which is the amount you are responsible for every time you file a claim.

      Home insurance deductibles

      A deductible is an out-of-pocket expense you’re responsible for every time you make a claim on your home insurance policy. If you have a $500 deductible and file a claim worth $3,000, you’d only be reimbursed for $2,500. You can choose the size of your deductible based on your financial goals. You may opt for a higher deductible in order to lower your annual premium. You’ll save money each year, but you’ll also have to pay more money towards repairs if you file a claim. For instance, a home insurance policy with a $1,000 deductible would be less expensive for a policy with the same amount of coverage but only a $500 deductible.

      We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

      Lauren Ward

      Contributing Writer

      Lauren Ward is a personal finance writer living in Virginia’s Blue Ridge Mountains with her husband and three children. In her spare time she enjoys board games and gardening.

      Reviewed by

      • Nashalie Addarich
        Nashalie Addarich
        Insurance Editor

        Nasha Addarich is an editor at The Simple Dollar and a former attorney who specializes in home insurance, auto insurance, life insurance, and savings. She is a former contributing editor to Reviews.com.