What Is Homeowners Insurance, and What Does It Cover?

Mortgage lenders generally require homeowners insurance coverage, and it’s almost always a smart buy.

What is homeowners insurance?

Homeowners insurance protects you from events that can cause serious damage to or destroy your home or possessions. It will also offer coverage for certain personal injuries, such as those caused by a vehicle or someone else. The four main aspects of homeowners insurance are:

• Repair your house, landscaping, and other structures.
• If something goes wrong with electronics or other personal belongings, just contact your insurance company and they will take care of things.
• Pay to live somewhere else while your house is repaired.
• Protect the people who use your product or service with our valid liability insurance. If you are legally held responsible for damage or injury to someone else, we’ll reimburse you.

When deciding to purchase mortgage insurance, be sure you understand what it covers. Mortgage insurance covers your lender if you default on your loan, which can help settle the excess debt or cover the cost of a foreclosure.

For those with mortgage insurance, that protects your lender from too much risk. And if you have homeowners insurance in place, you know that your property and belongings are protected.

Is homeowners insurance required?

Homeowners insurance isn’t required by law, but if you do want it, your lender likely won’t require it. Even if you don’t have a mortgage, it’s almost always wise to add insurance coverage to your home. Because it offers property and liability coverage, homeowner’s insurance is often a valuable financial safety net when needed.

What does homeowner’s insurance cover?

Homeowners’ insurance policies typically include six types of coverage: fire, lightning, uninsured or underinsured loss, burglary, and other crimes adjusted-risk unit (ARU) theft, water damage, and extended personal property.

Dwelling coverage

Dwelling coverage is your comprehensive home insurance. It protects your walls, floors, windows, and roof as well as the appliances that are typically in every single house. Properties with attached garages, porches, or decks, would be included under your dwelling coverage too.

Which events are covered: In general, homeowners policies are meant to protect your house from any damage that is not excluded in the terms and conditions of the plan. Though most homeowners insurance plans cover three primary events: wind, hail, and fire.

How it works: You had a tree fall on your home, resulting in extensive damage. If your deductible is met, the insurance company covers the rest, up to the limit of the dwelling coverage you purchased.

Other structures coverage

You can get indemnity for structures on your property that aren’t attached to your house, like a shed, fence, or detached garage.

Which events are covered: Just like living coverage, homeowners insurance covers many other structures that aren’t specifically excluded. This means you may have coverage for fire, wind, hail, or snow, among other issues.

How it works: Repair a damaged fence with this plan. We’ll cover your deductible up to $500, and you’ll pay the rest.

Personal property coverage

Personal property refers to belongings that don’t have a home — like personal items and appliances. Most homeowners’ policies include coverage for these devices anywhere in the world, not just inside your house. So if someone steals your bike from outside a store, it will likely be covered (minus your deductible).

Which events are covered: With personal property coverage, homeowners can typically insure for certain types of loss. When these losses are covered, they are often categorized based on the event that caused the damage to occur.

Things like claims, errors, fire, and damage cover you need to protect yourself from.

• Fire or lightning.
• Smoke.
• Windstorms and hail.
• Explosions.
• Theft.
• Vandalism.
• Weight of ice, snow, and sleet.
• Sudden damage from a power surge.
• Volcanic eruptions.
• Falling objects.
• Water overflow or discharge from household systems like plumbing, air conditioning, and appliances.
• Freezing of those same household systems.
• Sudden tearing, cracking, or bulging of a hot water system, steam system, air conditioning, or fire protection system.
• Riots.
• Damage from aircraft.
• Damage caused by vehicles.

How it works: So, water has entered your home and destroyed your appliances, but the damage to items not outfitted with built-in insurance would be covered. What if you were in need of advanced concealed plumbing? A personal property might cover costs for a leaky pipe or a clogged toilet, but only building coverage can handle that kind of wet mess.

Loss of use coverage

Homeowners’ policies are designed to cover the cost of living while in a transitional phase when your home has been too damaged to live in. If you aren’t covered by any other policy and on the grounds of your temporary living, loss of use coverage can help make those costs a little more manageable.

Which events are covered: If your home is undergoing repairs, you’ll likely be eligible for loss of use coverage. If your home’s damage is due to a disaster that isn’t covered — such as a flood, your insurer won’t cover additional living expenses either.

How it works: If you or members of your family suffer from a serious injury, medical condition, or major incidents like a fire or natural disaster, your insurance company might cover temporary rental replacement housing.

Liability coverage

Personal liability coverage offers financial assistance in case someone sues you for injuring them or damaging their property. Coverage generally extends to anyone in your household, including pets — so if your dog bites someone at the park, you may have coverage. (See Personal Liability Coverage for more information.)

Which events are covered: Liability insurance is usually known as “who can I sue when I get hurt on the job” insurance, which covers bodily injury and property damage to others. Liability car insurance would be your main vehicle, while liability bike and pet insurance could also be relevant. Policies exclude criminal acts, accidents caused on purpose, and injuries or damages caused in a car accident.

How it works: Let’s say that the delivery person slips and falls before you can salt the ice. He injures himself and successfully sues you, seeking damages beyond your limit on liability coverage. Your liability policy could help to pay legal fees, plus any damages you’re responsible for in the lawsuit, giving you peace of mind against a lawsuit.

Medical payments coverage

Do you need to be covered for medical expenses? Medical payments coverage will pay out, no matter who is at fault. However, there’s no lawsuit necessary.

Which events are covered: Medical bills can be a huge burden, which is why we want you to enjoy peace of mind when you’re worry-free in the event that something goes wrong. Our medical payment coverage comes with restrictions based on your property and other circumstances. Be sure to review our full list of exclusions before applying for a policy.

How it works: Your pet bites the hand of a visiting friend. There’s no serious harm, but your medical payments insurance covers the cost of their visit to urgent care for stitches.

What homeowners insurance won’t cover

Homeowners’ insurance policies typically don’t cover damage that was caused intentionally, such as the destruction of cherished objects.

• Flooding from external sources such as heavy rainfall or storm surges
• If your business is involved with water damage, we can help you. Our experts will provide solutions for sewer backups and the development of mold due to pipe failures.
• Earthquakes, landslides, and sinkholes are natural occurrences that can be deadly if you’re not prepared.
• If you have birds, vermin, and fungi, infestations by birds, vermin and fungi can devastate your home.
• there is a lot of wear and tear that comes with using outdoor equipment, even with maintenance checks.
• Nuclear hazard.
• The currency of the country was put on the block and it was listed as a result of government action.
• Weathering a power outage.

There are some risks that you can buy separate coverage for, such as flood and earthquake insurance. In places where hurricanes are expected, windstorm insurance may be required.

Expand your coverage with endorsements

Talk to your insurer and ask about events that your insurance policy doesn’t cover. In many cases, you can add endorsements — which are usually more expensive — that provide you with more coverage.

These are a few of the most common home insurance endorsements. Note that availability may vary by state and company.

• Schedule personal property coverage for valuable items such as a ring or musical instrument. You may need an appraisal — a document that states the value of the item — in order to get this coverage.
• There are a lot of reasons to choose ordinance or law coverage. With this type of insurance, you can expect to cover building codes during your repairs or rebuilding.
• Water backup coverage pays for damage due to drainage and sewer line back-ups, as well as sump pump damage.
• The coverage provided by HVAC failure will pay for the replacement of your central heating and cooling system or large appliances if they stop working for any reason other than normal wear and tear.
• Ensuring that your clients are protected is important. Our service line protection plans notify you when damage to utilities is detected so you can act promptly.
• Identity fraud coverage pays for expenses such as legal fees, fines, and lost wages that may occur if your identity is stolen or compromised.

Types of homeowners insurance policies

When purchasing a home insurance policy, it’s important to choose the right one for your needs. There are several types of policies that you can buy, each with its own benefits and drawbacks. Note that different companies may have alternate names for these policies.

Most popular: HO-3 insurance

HO-3 policies, also called special form policies, are the most common. If you have a mortgage, your lender is likely to require a minimum coverage level.

HO-3 insurance policies are designed to protect your home and lifestyle, only covering damages as specifically defined within your policy. It’s important to note that when it comes to your belongings, HO-3 insurance typically only covers damages of the perils listed in the policy.

Broadest coverage: HO-5 insurance

Are you looking for a comprehensive home insurance policy? An HO-5 protects your home against damage from all causes and both natural disasters and intentional acts. It’s typically only offered by insurance companies to homeowners in low-risk areas, so not every company offers it.

Limited coverage: HO-1 and HO-2 insurance

More popular are HO-3 homeowners insurance and HO-4 homeowners insurance, which pay out for damage caused by events not listed in the policy.

Life insurance is also a type of personal insurance policy. There are multiple insurances that can be chosen for you, such as HO-4, HO-6, and HO-8.

How homeowners insurance works

It’s important to be prepared, and that includes securing adequate homeowner’s insurance to protect your family. Keep in mind, your insurance company isn’t just going to write you a check. You’ll first need to file a claim so they can get a good idea of how much your damages are worth. When it comes to policy coverage and deductible options, there’s lots of risk variability.

Replacement cost vs. actual cash value

One of the most important factors in determining your payout is whether or not you meet the coverage limits. If construction costs increased, for instance, it’s important to consider whether you should get a larger payout. Here are some of the different options you may encounter.

• Actual Cash Value coverage is a way that insurance policies pay the cost to repair or replace your damaged property, minus a deduction for depreciation. That’s not usually how personal belongings are covered, but it’s common for appliances and other large household items which might be several years old. This means you might only get a fraction of what it would cost to get new ones.
• If you’ve ever had an unfortunate experience with a contractor, you’ll be glad to know that functional replacement cost value coverage will pay for materials to fix your home — even if the damage is from a cheaper material.
• This type of coverage pays out to repair your home with materials of a similar quality instead of having to replace them. Plaster walls can be replaced for this insurance, but the payout doesn’t exceed the policy’s home limits.
• Want to make sure you’re compensated for any personal belongings you need to replace? Make sure that replacement cost value coverage is included in the policy. This option usually costs more and can only be purchased with a policy that offers other benefits and discounts.
• With extended replacement cost value coverage, if rebuilding your home costs more than what you had originally bid on, you’ll receive the difference as a lump-sum payment. The limit can be a dollar amount or a percentage, such as 25% above your dwelling coverage amount. This gives you some peace of mind about the risks and benefits of rebuilding more than originally estimated.

It’s important to think about the risk factors you’ll face in the future, so your family is safe. One of these risks is a loss that exceeds your policy limits. With guaranteed replacement cost value coverage, you can be sure that your home will be replaced for the full amount, even if it surpasses the insurance company’s limits.

Homeowners insurance deductibles

The deductible is the amount you’re required to cover before your insurer starts to pay. It can be:

• A flat price, such as $500 or $1,000.
• A percentage of the total price, such as 1% or 2%.

When you receive a claim check, your deductible amount is subtracted from the total cost of the repair. If the total cost of repairs is $10,000, and your deductible is $1,000, the insurer would pay $9,000 to cover it. However, you’re responsible for paying up to $1,000 on your own.

Be aware that some policies include separate — and often higher — deductibles for specific types of claims such as damage from wind, hail, hurricanes, or earthquakes. For example, a policy might have a $1,000 deductible for most losses but a 10% deductible for optional earthquake coverage that you added to the policy. This means if an earthquake damages a home with $300,000 worth of dwelling coverage, the deductible would be $30,000. Liability claims generally don’t have a deductible.

Frequently Asked Questions

How much does homeowners insurance cost?

Just as house insurance rates vary depending on location, credit score, and more, so do homeowners’ insurance rates. Most states have multiple factors that impact the cost of homeowners insurance premiums.

How can I pay less for homeowners insurance?

If you’re looking to lower your homeowner’s insurance premium, there are a few simple ways. In some cases, the insurer will allow you to bundle home and car coverage, which can be beneficial for both types of insurance. You might also want to compare quotes so that you get the best price for your service.

How much homeowners insurances do you need?

You’ll need insurance to cover the cost of rebuilding if your home is deliberately destroyed. For your belongings, you’ll generally want personal property coverage limits that are at least 50% of your dwelling coverage amount. Finally, consider setting your liability limit at least high enough to cover all your assets. To learn more, see How Much Home Insurance Do You Need?

Is homeowners insurance tax-deductible?

Homeowners’ insurance premiums are not tax-deductible if they’re paid out of a homeowner’s primary residence. But, if the house is rented or will be occupied by people other than homeowners, then homeowners may be able to deduct their insurance premiums on their taxes.







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