A typical homeowners insurance package features four types of coverage: dwelling, personal property, loss of use and personal liability.
While this is the basic structure of every homeowners insurance plan, policies differ widely in what they cover.
The least expensive policies are, unsurprisingly, the most restrictive. They will only reimburse you if your home or personal belongings are damaged by one of 16 specific “named perils” (or 15, in Texas). These named perils — chance events that are beyond the homeowner’s control — can include fire, theft, windstorms or lightning strikes.
There are also the more expensive open-peril policies, which will reimburse you for damage caused by almost anything that isn’t specifically excluded in your policy.
Read on to learn what coverage you can and can’t expect, as well as to learn about additional coverage or exclusions in different policies.
Table of contents
- What does homeowners insurance cover?
- What does homeowners insurance not cover?
- Homeowners insurance features
- Important information to know when choosing your policy coverage
- What does homeowners insurance cover FAQ
What does homeowners insurance cover
Homeowners insurance coverage varies greatly depending on the type of policy you get. However, as we said above, it always covers four general areas: dwelling, personal property, loss of use and personal liability. Within those categories, there are variations according to the covered perils, the extent of coverage and the specific situations covered.
Types of homeowners insurance
There are six different types of homeowners insurance policies: HO-2, HO-3, HO-4, HO-5, HO-6 and HO-8.
Of these, the HO-3 is, by far, the most popular choice among homeowners. The typical HO-3 policy covers your residence along with other detached structures in your property (gazebos, garages, fences) on an open-peril basis — that is, it will cover damage caused by almost anything unless the policy specifically excludes it.
The HO-3 also covers your personal belongings, but on a named peril basis. This means that a loss is only covered if the damage is caused by one of the hazards named in your policy.
The more comprehensive (and more expensive) HO-5 policy, on the other hand, covers both dwelling and personal property on an open-peril basis.
- Helps pay for repairs and/or rebuilding costs if your home’s structure is damaged.
- Covers losses caused by fires, lightning strikes, windstorms, hail, explosions, vandalism, falling objects, ice or snow and accidental water damage.
- Can cover detached structures in your home like garages, fences and mailboxes (often labeled “other structures coverage”).
Dwelling coverage reimburses you if the main structure of your home is damaged by specific hazards or perils such as windstorms, lightning, snowstorms, fires, accidental water damage, falling objects and vandalism.
It will also reimburse you if structures such as sheds, garages, fences or gazebos are damaged — unless you’re using them for commercial purposes. However, the standard policy might not cover their entire value — coverage is generally equivalent to “about 10% of the amount of insurance you have on the structure of the house,” says Janet Ruiz, director of strategic communications at the Insurance Information Institute. If you have detached structures of much higher value, you can add an endorsement to your policy to help cover them.
Personal property coverage:
- Covers your personal belongings even if you’re using them away from your home.
- Covers the loss or damage of belongings due to accidents, damage or theft.
- Additional coverage for high-value items is available but costs extra.
With personal property coverage, your homeowners insurance policy protects the contents of your home from the perils listed in your policy — these usually include fires, windstorms, falling objects, explosions and theft, among others.
The big question is, though, does homeowners insurance cover theft? Yes, it does, so your belongings are protected beyond just accidents or natural disasters.
The amount of coverage for each item varies by each insurance company but is typically around 50% of the coverage you chose for the home’s structure. For example, if you covered your home for $400,000, you might get $200,000 to replace or repair your belongings.
Of course, the actual reimbursement will depend on the damaged or stolen items, and the type of reimbursement you chose on your policy. We’ll talk more about reimbursement below.
You may need to provide evidence of your belongings to your insurance provider if you file a claim, so it’s always a good idea to have a home inventory prepared in case something happens.
Loss of use coverage:
- Covers temporary living expenses if you need to move out of your home while it’s being repaired
- Includes food, travel, and lodging expenses, but only if they represent an increase to what you normally spend on these.
Loss of use coverage pays for temporary living expenses while your home is being remodeled or rebuilt after a covered loss. These expenses can include hotel bills, meals, public transportation, gas costs, and other situations (as long as they’re specified in your policy).
Many insurance companies set reimbursement limits of somewhere between 20% to 50% of the total coverage you chose. For instance, if your home is insured for $100,000, with a loss of use limit of 30%, you can receive up to $30,000 to cover temporary living expenses.
However, this will only cover expenses that surpass your household’s regular living expenses. It won’t cover mortgage payments, taxes or other things that you would normally pay for.
If you rent out part of your home, most loss of use plans will also cover you for the rent you would have collected from your tenant while your home is being rebuilt.
Personal liability coverage:
- Offers liability protection for accidents and/or physical harm caused to someone else while in your dwelling.
- Provides lost wages reimbursement.
- Includes legal costs.
- Pays medical expenses for the injured party (so long as they don’t live in your dwelling).
Standard homeowners policies provide financial protection from liability, which covers physical harm to any guest. That includes reimbursement for lost wages, as well as legal and medical expenses that resulted directly from the incident. It also covers your attorney’s fees if you were to be sued for bodily injury or property damage.
Liability limits generally start at about $100,000 — however, “we recommend looking at your assets to determine how much coverage you need,” Janet Ruiz says. “If you have a $1 million home, you probably want $1 million of liability coverage.”
Types of reimbursement:
Before choosing your policy, it’s important to understand the different ways insurers can reimburse you for a covered loss. There are three reimbursement types: actual cash value, replacement cost, and guaranteed replacement cost/value:
|Actual cash value||Covers the replacement or repairing of your property factoring in their depreciated value. This type of policy has the smallest payout and the least expensive premiums.|
|Replacement cost||Covers the full cost of replacing or repairing your property to its original state, up to the limits established by the policy.|
|Guaranteed replacement cost/value||Covers the entire cost of replacing your home in case of a total loss, even if the amount to do so exceeds established policy limits. While more expensive, this type of policy can be very helpful if you live in a disaster-prone area, such as California or Florida.|
What does homeowners insurance not cover?
There are many circumstances homeowners insurance will not cover.
For starters, coverage only applies to the categories mentioned: dwelling, other structures, personal property, loss of use and personal liability. Anything that falls outside of that realm needs its own insurance, like auto or medical insurance.
Secondly, these policies are meant for owner-occupied residences. If, for example, you’re a landlord, you’ll need landlord insurance, and your renter should consider getting a renters insurance policy to protect their belongings.
Then there are the perils and specific situations that insurers exclude from their policies. Some disasters, such as floods and earthquakes, are universally excluded from home insurance policies. The rest will mainly depend on the type of policy you get.
What dwelling coverage will not cover
A standard home insurance policy will not cover damage to your home or detached structures from perils such as:
- Regular wear and tear
- Lack of maintenance / negligence
- Intentional damage
- Termites, roaches and other pests
Also, your mortgage lender may require that you purchase flood or earthquake insurance if your home is in a zone prone to those perils.
Flood insurance is available from the federal government’s National Flood Insurance Program (NFIP) as well as some private insurers. It typically costs an average of about $700 per year, but premiums will depend on your property’s elevation and other flood risk factors. You can get price quotes at FloodSmart.gov.
What personal property coverage will not cover
High-value items are generally not covered under the basic homeowners’ personal property package — or at least, not entirely. Most companies provide limited coverage for these, usually up to $1,000 or $2,000 per item. This includes things such as:
- Fine art
If you own these types of valuables, you’ll need to have them professionally appraised and add a personal property endorsement or rider that covers their full value.
Rates can vary between providers, but you should expect to pay about 1% to 2% of the value of your item. For example, a $5,000 engagement ring would likely cost about $50 per year to insure.
What loss of use coverage will not cover
Loss of use covers your additional living expenses while the house is uninhabitable. This means that it doesn’t cover:
- Regular expenses that you already incur, such as your mortgage payment and property taxes.
- Any expenses that occur after your dwelling is once again fit to live in.
Nevertheless, your insurer must continue to pay your expenses until your home is repaired, or until it reaches its cap.
What personal liability coverage will not cover
Finally, personal liability has two exclusions:
- It doesn’t cover the people that live in your home
- It doesn’t cover intentional damages
For example, if your neighbor comes for a visit, slips going down the stairs, and fractures his ankle, personal liability would cover his medical bills.
However, if you thought pushing your neighbor into the swimming pool would be a fun prank and he ends up breaking his ankle, your insurer will deny your claim.
Homeowners Insurance Features:
|HO-3 Policy Features||What it covers||What it doesn’t cover|
|Dwelling Coverage||Covers the cost of repairs and/or rebuilding your home if damaged by a covered peril.||-Floods, earthquakes or sinkholes |
-Damage caused by negligence
|Personal Property Coverage||-Covers personal items in your home, up to 50 or 70% of the amount of coverage your home is insured for |
-Coverage for hazards, damage or theft
- Covers damage to your property even if you’re using it away from your home
|-Any lost items |
-Damage to personal property due to floods or earthquakes.
- Additional coverage for high-value items must be bought separately
- Motor vehicles and aircraft
|Loss of Use Coverage||-Coverage for additional living expenses that can result from damage to your residence |
-It includes food, travel, and lodging expenses
|-Living expenses that surface after your dwelling is rebuilt |
- It only covers expenses that surpass regular living costs
- Mortgage payments, taxes
|Personal Liability Coverage||-Liability protection for accidents and/or physical harm suffered by a guest |
-Lost wages reimbursement
-Pays medical expenses for people that don’t live in your home
|- Injuries to people that live in the home |
-Injuries that were inflicted on purpose
Important information to know when choosing your policy coverage
There are several factors that you should weigh when choosing your homeowners insurance policy.
- Try to get coverage for at least 80% of your home’s value. Insurers will not reimburse you for the full amount of damages if your coverage is less than that.
- Property coverage has a per-item limit and that limit might not be enough to cover high-value objects. If you have valuables in your home — an expensive coin collection or fine art, for example — you should consider an enhanced personal property rider to protect your personal property’s full value.
- Your liability coverage amount should be roughly equal to your assets, including dwelling, personal property and wages. If someone is injured in your home, you’ll need enough coverage to pay for legal costs and medical expenses.
- There are a wide variety of add-ons for your policy such as swimming pool coverage or itemized property schedules for high-value items. Consider your personal and professional situation, your assets and your lifestyle, and consult your insurance agent to make sure you have the coverage you need.
- Take advantage of policy bundling — you can often save on premiums by having two policies or more with the same insurer.
This could mean raising overall rates or adding wildfire coverage as a rider instead of it being included in the standard policy. It could also lead to a very slow payout if there is high claim volume. You can get dedicated fire insurance or look for a company that has robust resources to deal with this specific issue.
The Bottom Line
Homeowners insurance coverage will depend on the type of policy you get, how much coverage you choose and the small print on what is and isn’t covered. The most important part of the process is analyzing your situation and working closely with an insurance agent so you get the most appropriate and complete coverage possible.
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