What Does Homeowners Insurance Cover?

Your home? Check. Your TV? Check. Earthquakes? Maybe. Here’s a look at the variety of coverage you can get as part of your policy.

Written by Erin Gobler / January 5, 2022

Quick Bites

  • Generally, homeowners insurance covers repair or replacement if there is damage to your home and personal belongings. But there is additional coverage you might want to consider getting.
  • There is a big difference between a replacement cost policy and an actual cash value policy in terms of what you get when you file a claim.
  • It’s important to calculate how much it would cost to replace your home to determine how much coverage you need. We show you how.
  • You may be surprised to learn that some things, like a trampoline or even your dog, can expose you to increased liability.

If you own or plan to buy a home, you’ll need homeowners insurance. It compensates you for damage to your home or personal items and protects you against financial liabilities.

Not only can homeowners insurance save you thousands—or even hundreds of thousands—of dollars, but most lenders require homeowners insurance for all borrowers with a mortgage.

Like other forms of insurance, homeowners insurance can be complicated, and it may not always be clear just what is covered in a policy. 

That’s why it’s best to familiarize yourself with what homeowners insurance generally covers—and importantly, what it doesn’t—in case you find yourself needing to file a claim down the road. Below, we go over what you need to know. 

Though of course, you’ll also want to check your policy to be sure you understand everything, and reach out to the insurer to ask any questions you may have.

Inside this article

  1. Homeowners insurance coverage
  2. What’s not covered?
  3. Replacement cost vs. cash value
  4. Deductibles and coverage limits
  5. Additional coverage

What does homeowners insurance cover?

Homeowners insurance is designed to cover damages to your home and personal belongings. Policies generally come with four types of coverage.

Dwelling Protection

First and foremost, your homeowners insurance covers damage to your home. Your policy will pay to either repair or rebuild your home after damage from any hazard covered in your policy. 

Hazards that are usually covered by homeowners insurance include[1]:

  • Fire

  • Smoke

  • Wind

  • Lightning

  • Hail

  • Theft

  • Vandalism

Other Structures Protection

Not only does homeowners insurance cover your home, but it also covers other structures on your property, which could include fences, detached garages, sheds and more.

Personal Property Protection

Homeowners insurance covers the personal property inside and outside of your home. Items are covered if they’re damaged or destroyed due to a covered hazard to your home. 

For example, if your home burns down, your insurance will cover the items inside that were destroyed by fire or smoke. Personal property is also usually protected against theft.

Liability Protection

The liability protection in your homeowners insurance policy protects you against financial loss when someone is injured on your property, as well as damage that your family members cause to other people’s property. 

An example of an expense covered by homeowners insurance would be health care costs incurred from a visitor falling and breaking a bone in your home.

Liability protection is especially important if you have anything in your home or on your property that presents an additional risk of being sued. For example, a pool or a trampoline in your yard could increase the chances of someone being injured on your property and therefore increase your chances of facing a lawsuit.

Tip: Do you have a dog? If so, having liability protection in your homeowners insurance policy for it can help protect you in case it bites a visitor in your home. 

Additional Living Expense Protection

If your home is damaged and your homeowners insurance policy covers the damage, it’ll also pay for you to leave your home during repairs. It would cover hotel bills, meal costs above and beyond your normal food spending, and other additional living expenses directly related to being displaced.

What’s not covered by homeowners insurance?

Just as important as understanding what’s covered by your homeowner’s insurance policy is knowing what’s not covered. The last thing you want is to file a claim after damage and find out it’s not covered.

Most standard homeowners insurance policies don’t cover flooding or earthquakes. Many homeowners are surprised to learn their homeowners insurance policy won’t cover water damage, whether it’s the result of a flood or a problem with the home’s plumbing system.

Homeowners insurance also doesn’t cover normal wear and tear, or home maintenance. For example, if your roof needs to be replaced or your HVAC system goes out, it’s not considered covered damage.

You also may not have coverage for damage caused by neglect or a poorly maintained home[2].

Replacement cost vs. actual cash value

When you file a claim, the amount that’s covered depends on the type of policy you have. Most policies offer either replacement cost or actual cash value coverage.

Replacement Cost

A replacement cost insurance policy pays the cost of repairing or replacing your home and personal belongings at today’s prices. This type of policy doesn’t deduct for depreciation. 

A replacement cost policy is more favorable to you as the homeowner than actual cash value (see below), because it means you get more money for your damaged goods.

For example, suppose someone broke into your home and stole your television. Rather than compensating you for what your used television is worth, your insurance company would compensate you for the amount it will cost to buy a new one at today’s television prices.

Actual Cash Value

An actual cash value insurance policy compensates you for the cost of repairing or replacing your home and personal belongings at today’s prices, but deducts for depreciation. In general, that means you’ll only be covered for a percentage of the cost of replacing your damaged goods.

Going back to our stolen television example, an actual cost value policy wouldn’t give you the full amount needed to buy a new television. Instead, it would take the cost of replacing your television and deduct for depreciation based on the age of your TV. The older your stolen television was, the more the insurance company is likely to deduct. 

As you can see, this type of policy is less favorable to you, because it could result in higher out-of-pocket costs for replacing your belongings or fixing damage to your home.

Deductibles and coverage limits

The items covered under your homeowners insurance policy and whether you have replacement cost or actual cash value coverage are important factors in determining which damages will be covered. But you’ll also want to consider your deductible and coverage limits.

Deductibles

Your homeowners insurance deductible is the amount you pay out of pocket before your insurance coverage kicks in. 

Standard homeowners insurance deductibles range from $500 to $2,000[3]. You can generally increase or decrease your deductible, though a lower deductible generally means you pay a higher premium.

Coverage Limits

The other factor to consider is your coverage limit, which is the maximum amount of costs your insurance policy will cover. It’s critical to purchase enough coverage to fully cover your costs in the case of a total loss.

First, be sure your dwelling coverage is enough to rebuild your home. Estimate how much you need by multiplying your home’s square footage by your local per-square-foot construction costs, which your insurance agent or broker can help you determine[4].

Next, make a list of everything in your home that would need to be replaced in case of a total loss. Save it in a spreadsheet. Not only does it help you buy enough coverage, but it’s also handy if you need to file a claim. You’ll have a readily accessible inventory of everything you need to be compensated for.

Additional coverage

If your homeowners insurance is missing important coverage you think you’ll need, there are ways to expand your policy.

You can add some optional coverage to your homeowners insurance policy, including:

  • Earthquake insurance 

  • Water backup insurance

  • Coverage for expensive items like jewelry or antiques

You can also purchase separate flood insurance to cover flooding in your home. Depending on where you live, you might even be required to purchase flood insurance if you have a mortgage. In areas prone to flooding, lenders generally require flood insurance for borrowers. 

Tip: If you own a home in a flood-prone area, you may be able to purchase flood insurance through the National Flood Insurance Program.[5]

When figuring out if you need additional coverage, ask yourself: 

  • Is your area prone to flooding?

  • Are earthquakes or forest fires likely where you live? 

  • Do you run a business out of your home?

  • Do you have expensive items? 

Answering questions like these can guide you as you decide on what to include in your policy.

Article Sources
  1. Allstate Insurance. “Dwelling (Home Structure) Coverage.” https://www.allstate.com/home-insurance/dwelling-home-structure-coverage.aspx.
  2. Homesite Insurance. “What’s NOT Covered On a Standard Homeowners insurance Policy?” https://go.homesite.com/blog/whats-not-covered-standard-homeowners-insurance-policy-1.
  3. American Family Insurance. “Homeowners Insurance Deductibles Explained.” https://www.amfam.com/resources/articles/at-home/homeowners-insurance-deductibles.
  4. Insurance Information Institute. “How much homeowners insurance do I need?” https://www.iii.org/article/how-much-homeowners-insurance-do-you-need.
  5. FEMA. “Flood Insurance.” https://www.fema.gov/flood-insurance.

About the Author

Erin Gobler

Erin Gobler

Erin is a personal finance expert and journalist who has been writing online for nearly a decade. Erin’s work has appeared in major financial publications, including Fox Business, Time, Credit Karma, and more.

Full bio

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