What Does Homeowners Insurance Cover?

How much coverage do you need?

A man stands in front of a destroyed house, hands on his hips.
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Julian Hibbard / Getty Images

Homeowners insurance covers costs for certain kinds of damage to your home—and to someone else's property, as well as injuries to guests on your property. Think of it as a lifeguard that saves you from drowning financially when the unexpected hits your estate. Learn the details of what standard homeowners insurance protects you from and how to choose a policy that fits your needs.

Key Takeaways

  • Homeowners insurance offers financial protection when rebuilding or repairing your home under covered causes.
  • While standard policies are relatively comprehensive in what they insure against, you may need to consider additional add-ons or standalone plans depending on your area's hazards and lender requirements.
  • To guard against being underinsured, calculate your home and personal belonging replacement value and use typical coverage limits as a guide for other coverages.
  • Don’t skimp on coverage limits to save on premiums. Shopping around and changing insurances every few years can save more without the risk of leaving your home underinsured.

What Does Home Insurance Cover?

The most common type of home insurance policy is “Homeowners 3” (HO-3). Most homeowners policies are written on standardized forms that are used across the industry and make it easier to regulate. HO-3 is also known as Special Form. Here’s what’s included in a standard HO-3 policy. 

House Structure

If you need to repair or rebuild your home, your homeowners insurance company will pay for everything—less your deductible—if the damage was caused by fire, hurricane, hail, lightning, theft, vandalism, sudden broken plumbing, and any other peril not specifically excluded in your policy.

Other Structures on Your Property

Other items on your premises like garages, fences, gazebos, and sheds are typically protected from the same disasters as your home for about 10% of the amount of insurance you have on the house structure. 

Personal Belongings

Home insurance extends to your furniture, electronics, appliances, clothing, and other stuff inside your house, up to your coverage limit. You may need to buy additional insurance if you want coverage for pricey items like jewelry and artwork. 

Liability

Liability insurance shields you from being financially responsible if a visitor gets hurt on your property or if you (or your family or pets) damage someone else's property. 

Additional Living Expenses (ALE)

ALE reimburses hotel stays, additional meal expenses, and sometimes moving, laundry, pet boarding, and furniture storage costs incurred while your home is being repaired or rebuilt after a covered disaster. 

What Doesn’t Home Insurance Cover? 

While it may seem that pretty much every mishap is included under a Special Form policy, some critical disasters aren't. 

Earth Movements

Home damage from earth movements like earthquakes, landslides, mudslides, and sinkholes, as well as indirect damage from volcanic eruptions—such as land tremors—generally aren’t covered by standard home insurance. For that, you’d need to purchase separate earthquake insurance.

Flood Damage 

Standard policies don't pay for any flood damage, such as that resulting from storms or melting snow. If you’re in a flood zone, you should look into buying flood insurance in addition to your standard homeowners policy.

Water Damage

Home insurance won't cover damage resulting from slow leaks or other neglected maintenance issues. Sewer or drain backups, sump pump overflow are typically excluded, and so is mold damage when it isn’t from a covered peril.

What Kinds of Homeowners Insurance Do I Need?

With so many policy options, knowing which ones matter most can be confusing. Here are the essential home insurance coverages to carry (discussed above), and how you might see them listed on a policy. 

  • Home structure (Dwelling)
  • Other structures on your property (Other Structures)
  • Personal belongings (Personal Property)
  • Additional living expenses (Loss of Use)
  • Injuries on your property and damage to someone else’s property (Personal Liability)

But there are lots of other policy riders and additional standalone policies. "You have to look and consider if something else would make sense or not,” said Robert Hunter, director of insurance at Consumer Federation of America and former insurance commissioner of Texas. “Obviously, flood insurance, if you're in a flood zone, makes sense because it's not in your homeowners policy." 

How to Calculate How Much Home Insurance to Get

Home insurance policies have typical limits that can serve as guides when buying a policy. For instance, coverage limits for other structures on your property are generally 10% of your dwelling coverage limit, while loss of use is 20%. 

Coverage Component Typical Limit of Coverage
Dwelling You Choose
Other Structures 10% of Dwelling Coverage Limit
Personal Property 50% of Dwelling Coverage Limit
Loss of Use 20% of Swelling Coverage Limit
Personal Liability You Choose
Medical Payments You Choose
Source: National Association of Insurance Commissioners

When it comes to personal liability insurance, the more assets you have, the more you could lose in a lawsuit. According to Hunter, “people with assets to protect probably want to get $100,000 to $300,000 of liability insurance, and buy an umbrella policy that covers not only if someone gets hurt in [their] home, but [their] auto as well." 

Figuring out how much insurance to get for your home and personal belongings takes more work. 

Dwellings Coverage

Recommended minimum coverage: Your home’s full replacement value

"The most fundamental coverage is for the house itself. It's not your market value; it's your rebuilding value that you have to figure out. And it's better to insure for close to 100% of your replacement cost value," said Hunter. 

There are a few ways to find how much it would cost to replace your home, including:

  • Average rebuilding costs for a typical single-family home is $114 per square feet. Multiply the price by your house's square footage for a general idea.
  • Contact local licensed homebuilders about per-square-foot building costs in your area.
  • Ask your home insurance agent to calculate how much it would cost to rebuild your home. 
  • Hire an appraiser for the most accurate rebuild cost estimation. 

Personal Property

Recommended minimum coverage: Enough to repurchase all your belongings

The best way to find out how much you need for personal property coverage is to write down everything you own in your home, take pictures, and gather your receipts. Then, add up the values. Yes—it’s the dreaded home inventory

On the plus side, you can refer to the list when making claims in the future. "If you say to the insurance company that you have five chairs that were burned up, you better have some evidence of that,” said Hunter. “If you don't have a home inventory and need to file a claim, you might be able to recreate some of it through family photographs." 

If you don't want to create a home inventory, the National Association of Insurance Commissioners states the typical personal property limit is 50% of the dwelling coverage limit, so you could just go with that for now. Just know that home inventories can be essential if you ever have to file a claim. 

What if you want to save money on premiums? Should you cut your coverage limits and risk being underinsured? According to Hunter, there may be a better way. "You can easily save 25%, 30%, 40% by shopping around. It's also worth shopping around every few years [because] in something called 'price optimization,' insurance companies will raise your rates 25%-35% if they don't think you'll leave."

Article Sources

  1. National Association of Insurance Commissioners. "A Consumer's Guide to Home Insurance," Page 2. Accessed August 6, 2020.

  2. Insurance Information Institute. "What Is Covered by Standard Homeowner's Insurance." Accessed August 6, 2020.

  3. Insurance Information Institute. "Which Disasters Are Covered by Homeowner's Insurance." Accessed August 6, 2020.

  4. National Association of Insurance Commissioners. "A Consumer's Guide to Home Insurance," Page 4. Accessed August 6, 2020.