What does homeowners insurance cover?

In general, homeowners insurance is designed to pay for accidental or sudden damage to the interior and exterior of your home. Primary policies are for your dwelling and other structures, personal property and liability protection. A standard policy pays for financial losses caused by these perils:

• Fire and smoke
• Lightning
• Windstorms and tornadoes
• Hail
• Volcanic eruption
• Motor vehicles and aircrafts
• Riots or civil commotion
• Gas explosions
• Theft
• Vandalism

If you have broad form coverage, your policy includes all of the above plus issues caused by falling objects, the weight of ice, snow or sleet, accidental damage caused by water, steam, appliances, heating, air conditioning, electrical currents, sprinkler systems, plumbing and more.

To what extent these hazards are covered depends on the policy. For example, most insurance policies cover interior damage caused by a hurricane or burst pipe but not a flood or earthquake. In the case of a covered loss from a disaster like a fire, most policies also pay for the cost of your damaged personal belongings in addition to the cost of rebuilding the house.

Types of home insurance coverages

Destruction to a home’s interior or exterior is a covered loss if it resulted from a covered hazard, such as a fire or windstorm. Dwelling coverage is for the actual house itself, whereas personal property coverage is the part of a policy that covers the cost of your personal items within the home.

Home insurance can also cover structures that are part of your property but not attached to your home, such as a fence or shed, if they’re destroyed or damaged due to a covered risk. Personal liability protection covers homeowners (and their pets) against lawsuits for others' bodily injury or property damage outside your home.

Dwelling and structural coverage

Dwelling insurance coverage on a homeowners policy pays to rebuild or repair your house if it is damaged or destroyed by a fire, lightning, hail, hurricane or other named peril. Some common additions to structural coverage include fences, swimming pools, detached garages, gazebos and sheds.

You can usually ask professionals, like builders or your real estate agent, to estimate how much it would cost to replace every facet of the building, including roofs, floors and walls. That’s the amount you want to use for your dwelling limit — this amount is rarely the same as the market value of your house.

We recommend looking for guaranteed replacement cost coverage, which pays you the amount it will cost to get a new item and not the depreciated value of the item or actual cash value.

Keep in mind that not all policies automatically cover other structures like a shed or garage — so if you keep your expensive tools in the shed, structural coverage might be a good idea for you.

Liability coverage

Liability coverage pays for doctor's bills and legal fees you could face if someone is injured on your property. According to the Insurance Information Institute, liability limits generally start at about $100,000. Many homeowners opt for additional coverage or increase their liability policy to cover a much broader range of incidents.

A standard policy has a liability coverage limit between $1,000 and $5,000 for medical coverage. This would go toward covering medical expenses if your dog bites a neighbor or a friend is hurt on your property. You might consider an umbrella policy or additional liability coverage if you need home insurance with more protection or higher coverage limits.

Personal property coverage

The personal property portion insures belongings like clothing, jewelry, electronics and furniture that's stolen or destroyed by a covered disaster. However, you can’t make a claim for items you've lost.

The two types of personal property insurance are replacement cost and actual cash value coverage. Replacement cost policies pay to replace items with new ones, while actual cash value policies only reimburse you for what the item is worth at the time.

Most companies provide personal belongings coverage for 50% to 70% of the amount of insurance you have on your home structure. Each insurance policy varies in dollar limits and off-premise coverage, so make sure you understand your plan's details before you sign.

Additional living expense (ALE)

Additional living expense coverage helps pay for extra costs you could face when relocating due to a covered damage — like hotel bills and meals. If your home has extensive fire damage and you can’t continue to live there during repairs, this coverage helps pay for housing expenses until your home is habitable.

ALE is often referred to as loss-of-use coverage. Some homeowners require additional coverage for living expenses if they can't live in their home due to a covered disaster.

Optional home insurance coverages

Most insurance companies let you add optional coverage to their policies. Common types of optional home insurance include yard and garden, precious items, water backup and more. You can also choose to add flood insurance and earthquake insurance if your home is at risk for these natural events (depending on where you live, flood and earthquake insurance might be required).

You might want to purchase supplemental endorsements to cover specific risks, such as a sewer or drain backup, sump pump overflow or damages to additional valuables.

What does homeowners insurance not cover?

Standard homeowners insurance policies don’t cover every risk to your home. You can usually add additional coverage to your policy, such as insurance for risky items like pools and trampolines. You might also have to buy separate policies for natural disasters that aren’t covered in your policy.

The most common damages not covered by home insurance fall under “acts of God," meaning natural disasters like floods and earthquakes. However, these limits can be confusing because many policies cover other disasters, including tornadoes and lightning.

We suggest talking to your insurance agent if you're confused about what your policy does and doesn't cover. You'll likely be required to purchase insurance for floods or earthquakes if you live in a particularly high-risk area.

• Maintenance neglect: A homeowners insurance policy won’t pay for problems resulting from negligence on your part. For example, if you didn’t get a new roof when you clearly should have, your policy may not cover any damages caused by this neglect.
• Floods: Homeowners policies don’t cover flood damage, but, depending on where your home is located, you may want to consider flood insurance with a private insurer through the National Flood Insurance Program. If your home is in a flood plain, your mortgage lender will likely require this additional endorsement.
• Earthquakes: A standard homeowners insurance policy doesn’t cover earthquakes. It might cover damage that results from an earthquake, however — for instance, if an earthquake causes a fire that damages your home. You can get earthquake insurance as a separate policy if you live somewhere that’s prone to these disasters.
• Trampoline accidents: Policies tend to leave out trampolines because they create such a high risk. Your premium will likely increase if you have a trampoline, and certain policies won’t cover trampoline-related injuries. Make sure to speak with your insurance agent before you let your kids (or yourself) loose on your backyard trampoline.
• Pool accidents: Pools are another hazard for homeowners, and most home insurance liability policies aren’t enough to cover deaths or accidents that happen in or are caused by a pool. If you get a pool, you should consider raising your liability to the $300,000 to $500,000 range to ensure you're covered in the event of a tragedy.
• Stolen cash: Stashing cash under your mattress or in your coffee can isn’t just a bad idea from an investment standpoint. It can also leave you high and dry in the event of a burglary or other disaster. Generally, $200 is all that home insurance policies will cover, so you’re out of luck if you have $5,000 in cash stolen or lost in a fire. Get your cash into a bank account now so you don’t wind up paying for it later.

Bottom line: What is home insurance for?

Homeowners insurance protects your house and belongings against unforeseen events. This type of property insurance helps cover some or all of the cost of repairs and damages that happen inside or outside your home. It can also help cover the cost of some events that occur off your property, like damages to a neighbor's house.

These policies can cover your house as well as the people and belongings in your home if there's a break-in or an accident like a fire, windstorm, hail or lightning strike. While home insurance is required for most homeowners, there’s some flexibility in plans and pricing. Because of this, it’s important to take your time during the process to make sure you’re getting the lowest price for coverage while also choosing the right insurance company for you.