What does homeowners insurance cover?

Key points

• Homeowners insurance covers your house, other structures on your property and your personal belongings if they are damaged by a covered problem, like a fire.
• Homeowners insurance coverage includes liability insurance which pays others if they are injured or their property is damaged and you are held responsible. It also covers your legal defense if they sue.
• Home insurance doesn’t cover flooding, earthquakes or wear and tear.

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What does home insurance cover?

A standard homeowners insurance policy, called an HO-3, covers your house, personal belongings and liability. Here’s a quick look at how each of the home insurance coverages works.

Dwelling coverage

Dwelling coverage pays to rebuild or repair the structure of your house if it’s damaged or destroyed by a problem covered by your home insurance policy. 

Standard homeowners insurance covers any type of problem that damages your house (dwelling structure) unless it’s specifically listed as an exclusion in your policy. This is called “open peril” or “all risks” coverage. Typical exclusions include earthquake damage and flood damage. 

You should purchase enough dwelling coverage to cover the cost of fully rebuilding the structure of your house.

Other structures coverage 

Other structures coverage pays to rebuild or repair detached structures on your property, like a fence, shed or gazebo, if they’re damaged by a covered problem in your policy, like a windstorm.

Other structures coverage is typically set at 10% of your dwelling coverage limit, so if you have $300,000 in dwelling coverage, you’ll have $30,000 in other structures coverage. You may be able to increase your coverage amount depending on your insurance company. 

Tip: When you file a property damage claim, a deductible is subtracted from your claim payout before you receive a claims check. You can typically set your deductible between $500 and $2,000, depending on the insurance company. The higher your deductible is the cheaper your home insurance rates will be, but the less you’ll get in a claim payout

Personal property coverage

Personal property includes items such as your clothing, electronics, appliances, furniture, decor and art, among others. If any of these belongings are damaged or destroyed due to a covered problem in your policy, you can receive a payout — up to your policy limits.

Personal property coverage is typically a set percentage of your dwelling coverage — usually between 50% and 70%. If you have $300,000 in dwelling coverage and your personal property coverage is 50% of that amount, you would have up to $150,000 in coverage for your belongings.

Personal property coverage in standard home insurance covers your belongings on a named peril model, which means it only covers the 16 listed problems in your policy. You can only file a personal property claim if your belongings are damaged by one of the below issues:

• Fire and lightning.
• Windstorm and hail.
• Explosions.
• Riots and civil commotions.
• Damage caused by aircrafts (not your own).
• Damage caused by vehicles (not your own). 
• Smoke damage.
• Vandalism and malicious mischief.
• Theft.
• Falling objects.
• Ice, snow or sleet weight.
• Water and steam, when accidentally discharged or overflowing.
• Cracking, burning, bulging and tearing apart, when sudden and accidental.
• Freezing.
• Artificially generated electrical current damage, when sudden and accidental.
• Volcanic eruptions.

Standard home insurance covers your personal property at its actual cash value, which means depreciation is factored into the claim payout. You may be able to upgrade your coverage to replacement cost value if you want to be paid out at today’s prices.

Tip: Some items, such as expensive art or jewelry, have limited home insurance coverage for theft. Check with your insurance company to see if any of your expensive items have limits and ask if you can add additional coverage to your policy to increase coverage for those belongings

Loss of use coverage

Also called additional living expenses, this home insurance coverage pays if you need to temporarily relocate while your house is being repaired following damage caused by a covered problem. It reimburses you for expenses like temporary housing, meals, laundry services and pet boarding while you’re displaced.

If you normally spend $1,000 on groceries, for instance, loss of use coverage will reimburse you for the amount above $1,000 that you spend on food while living away from your house.

Loss of use coverage is set at a percentage of your dwelling coverage, usually 20%. If you take out a $300,000 policy and your loss of use coverage is 20% of that amount, you would have up to $60,000 to cover additional living expenses. 

Liability insurance

If you are responsible for someone else’s injury or damage to their property, liability insurance can help pay for the other person’s medical expenses and repair bills. 

Liability coverage can also cover your legal fees and settlements if the incident results in a lawsuit.

Common examples of when liability insurance can pay out:

• Your child throws a rock and breaks a neighbor’s window.
• Your dog bites a passing runner.
• A neighbor injures themself in your pool and needs medical attention.
• Your dog injures someone at the park. 
• Your child accidentally hurts another child on the playground. 

Common expenses covered by liability insurance:

• Someone else’s medical expenses if you’re held responsible for their injury. (This does not include car accidents — that’s what car liability insurance is for.)
• Your settlements after someone sues you for an incident that you’re at fault for, like payment of someone else’s lost wages. 
• A death benefit to a family whose family member had a fatal accident at your home for which you’re legally liable.
• Repair bills if you damage another person’s property, like accidentally destroying your neighbor’s fence with your lawnmower. 

Liability limits typically start at $100,000, but this may not be enough. It’s a good rule of thumb to buy as much coverage as you stand to lose in a lawsuit. 

If you need more liability coverage, consider purchasing umbrella insurance. Umbrella insurance is sold in increments of $1 million and kicks in to pay for liability expenses after your home insurance liability coverage has been exhausted

Medical payments to others

This homeowners insurance coverage pays for a guest’s minor medical expenses — typically up to $5,000 — regardless of who is at fault. It may help cover a short hospital stay, X-rays and stitches. More expensive claims would fall under a liability insurance claim if you were at fault for the injury. 

What does homeowners insurance not cover?

Homeowners insurance doesn’t cover flooding or earthquakes. Here are some other common home insurance coverage exclusions:

• Acts of war.
• Bulging, expansion, settling or shrinking of foundations, pavements or other structural elements.
• Corrosion caused by dry rot, rust or smog.
• Earth movement, including earthquakes, sinkholes, mudslides and mudflow, shockwaves and tremors.
• Flooding.
• Industrial smoke and pollution.
• Intentional loss.
• Law ordinances requiring repair, rebuilding or demolition to meet code requirements.
• Mechanical breakdowns.
• Mold, rot and fungus caused by neglected upkeep.
• Negligence.
• Nuclear hazards.
• Personal pet damage to your property.
• Pest and insect damage.
• Pollutants spread by discharge, seepage, migration, release or escape.
• Power failures.
• Standard wear and tear.
• Vandalism and malicious mischief if the home is vacant for 60 or more days.

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How much homeowners insurance coverage do you need?

How much homeowners insurance you need will depend on a variety of factors, like the rebuild value of your house and the total value of your personal property and assets. 

Here’s what factors to consider when deciding how much home insurance coverage to buy.

• The replacement value of your home, or how much your house costs to rebuild from the ground up using similar materials.
• The value of your personal property.
• The value of your financial assets. (It is a good idea to have enough liability insurance to cover the value of your assets.) 
• Extra coverage offered, such as earthquake insurance if your area is prone to earthquakes. 

Homeowners insurance costs 

Homeowners insurance costs an average of $1,678 per year for a policy with $350,000 in dwelling coverage and a $500 deductible. The amount of home insurance coverage you need directly impacts how much you will pay for your homeowners insurance policy.

Where your house is located, its age, roof and build type and your credit score and claims history will all affect how much you pay for home insurance.

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When does homeowners insurance pay out?

Your home insurance pays out when you file an eligible claim. Here’s how different types of claims work with your home insurance coverage.

Property damage claims.

If your house, detached structures on your property or your belongings are damaged by a covered problem in your policy, you’ll file a claim with your home insurance company. 

Depending on the type of claim you file (personal property, dwelling, etc.), you may receive multiple checks for repair or replacement, minus your deductible. If you have a mortgage, the claims check may be made out to you and your lender. Some contractors may have a deal with the insurance company to get paid directly. 

Liability insurance claims.

You can file a liability home insurance claim if you’re responsible for someone else’s injuries or damage to their property, like if someone slips on your icy sidewalk or your child breaks a neighbor’s solar panels while practicing golf. This home insurance coverage will only pay for injury or property damage to people who do not live in your house. 

If your liability insurance claim is approved, this home insurance coverage helps pay the cost of the other person’s medical expenses or property damage repairs or replacements. If you’re sued over the matter — like if a neighbor sues you after getting hurt in your pool — your home insurance company can pay for your legal defense fees and settlements. 

What is homeowners insurance replacement cost?

If you have replacement cost coverage, your homeowners insurance company will reimburse you at today’s prices for your damaged property. 

Standard home insurance coverage pays out the replacement cost for the structure of your house and any detached structures, like a shed or gazebo. 

Standard home insurance coverage does not pay out the replacement cost value of your belongings. Instead, your personal property is insured at its actual cash value, meaning depreciation is factored into your claim payout. 

What does homeowners insurance cover FAQs

Is homeowners insurance required?

If you have a mortgage on your house, lenders typically require you to take out a home insurance policy.

After paying off your mortgage — or if you purchase your home in cash — no law requires you to carry homeowners insurance. But given that your house is typically your most valuable asset, failing to carry insurance means you stand a significant investment if your home is destroyed.

How long is a homeowners insurance policy?

A standard homeowners policy lasts for 12 months. At the end of your policy, your insurer may send you a renewal statement, depending on the company.

As a homeowner, you should periodically review your policy. You may find better coverage at a more affordable price point elsewhere, so it’s important to compare home insurance quotes.

What is considered sudden and accidental water damage?

Sudden and accidental water damage means unforeseen, unexpected and abrupt water damage to your house.

Home insurance covers water damage, but only if it was sudden and accidental, like a burst pipe. Home insurance doesn’t cover flood damage or water damage that occurs over time, like if there’s a hole in your roof and rainwater gradually gets in.

If a pipe burst during a winter storm after you failed to adequately heat your home, your insurance may reject the claim as it was seen as avoidable. The same is true if you fail to properly maintain the hose connecting your washer and it disintegrates over time, leading to a break.

What are four things not covered by homeowners insurance?

Four common things not covered by home insurance are:

• Floods.
• Earthquakes.
• Maintenance issues.
• Sump pump and drainage backups.

Depending on your insurance company, you may be able to add coverage or purchase additional policies to make sure these issues are covered. For example, you may be able to purchase flood insurance, earthquake insurance or add water backup coverage to your homeowners insurance policy.

What are the six categories typically covered by homeowners insurance?

The six categories of home insurance coverage included in a standard homeowners insurance policy are:

• Dwelling.
• Other structures.
• Personal property.
• Loss of use.
• Liability.
• Medical payments to others.

What is the most important coverage for homeowners insurance?

All home insurance coverages are important, but dwelling coverage may be the most significant. The amount of dwelling coverage you have directly affects other coverage limits in your policy — other structures coverage, personal property coverage and loss of use coverage are typically all based on a percentage of your dwelling coverage limit.

You should have enough dwelling coverage to pay to fully rebuild your houe back to its prior state after a covered disaster, like a house fire.