What Does Homeowners Insurance Cover?
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Your home is probably one of the largest purchases you’ll make in your life. With so much money invested, you want to make sure you protect your house. That’s what homeowners insurance coverage is designed to accomplish.
That said, a home insurance policy isn’t an umbrella to protect you against any and all perils. You’re probably wondering, then, “What does homeowners insurance cover?” In this guide, we’ll explore where your policy extends and, just as importantly, where it doesn’t. That way, you can get additional coverage — like flood insurance or a rider for high-value items — if you need it to keep yourself and your investment fully protected.
What are perils in a homeowners insurance policy?
Your homeowners insurance coverage defends you against certain perils, which are events that can cause loss or damage to your home or belongings. Your policy kicks in when any of these perils occur, helping you do things like rebuild your house and replace your belongings.
You have the choice between multiple homeowners insurance types, but most home insurance policies protect against perils including:
- Fire and smoke
- Riots/civil unrest
- Damages caused by cars and aircrafts
- Falling objects
- Damage caused by the weight of ice or snow
- Volcanic eruption
Look over your policy before you sign on the dotted line to ensure you’re getting protection from the right perils. Some policies protect against water overflow or discharge from your plumbing system or appliances, for example, while others don’t.
What does homeowners insurance protect?
Just like most homeowners insurance policies protect you against specific perils, most policies protect certain things. Specifically, standard home insurance policies typically cover:
- The structure of your home
- The personal property you store in it, up to your policy limits
- Additional living expenses (e.g. hotel, restaurants) if you get displaced from your home by a covered peril
- Your liability if you, one of your family member or a pet causes bodily injury or property damage, plus no-fault medical coverage to pick up the tab if someone gets injured on your property
Your policy breaks these coverages into different sections. In section I of your policy, you’ll find details about your property coverage. This includes the protection for the structure of your house, your personal property and additional living expenses. Section II details your liability coverage.
What types of coverage are included in homeowners insurance?
As you review your policy, you’ll see that the areas of protection we outlined above each get called out with specific coverage. Specifically, your home insurance policy most likely outlines six areas of basic protection:
- Dwelling coverage: This is the protection for the structure of your house and any attached structures. If it gets damaged or destroyed by a covered peril, your policy pays for repairs or the cost of rebuilding up to your policy limits.
- Other structures coverage: This operates like dwelling coverage, but it protects other detached structures on your property like garages, sheds and barns.
- Personal property coverage: This portion of your policy safeguards everything you store in your home that is damaged by a covered peril, including clothes, furniture and electronics. Again, though, your policy will only pay out up to your policy limits, so make sure you have enough. Making a home inventory helps you decide how much of this coverage you need.
- Loss-of-use coverage: This is where your additional living expenses protection kicks in. When you get displaced from your home by a covered peril, your homeowners insurance coverage can help with hotel costs and restaurant bills while you’re waiting for your home to be repaired.
- Personal liability coverage: This portion of your policy covers legal fees and any settlements if you or one of your family members gets sued for causing bodily harm or property damage. It also protects you if your pet causes a problem and someone takes you to court over it (although aggressive breeds may not qualify for this protection).
- Medical payments coverage: If someone gets hurt on your property — for example, a neighbor slips on your icy front step — this part of your homeowners insurance steps in to cover the medical expenses.
All of these coverages have limits. Generally, you can control the limit to ensure you have enough coverage to fully rebuild your home or replace all of your personal property. The more coverage you need, the more your policy will cost.
The usual policy limits for each coverage are as follows:
- Dwelling coverage: The homeowners insurance coverage amount for dwelling varies, and you have control over how much coverage you choose in this area. When you’re picking your dwelling coverage policy limit, consider if you’d want to rebuild your house using newer materials and if you’d have to make changes to bring your house up to code. If so, opt for more coverage.
- Other structures coverage: This coverage amount will vary depending on the amount of dwelling coverage you choose. Typically your other structures coverage amount is about 10% of the dwelling coverage you’ve elected.
- Personal property coverage: Again, this varies based on how much you want to protect. Most homeowners insurance policies start with personal property coverage equaling between 50 and 70 percent of your dwelling coverage limit. Conducting a home inventory can help you determine if you want to increase this policy limit. Your policy probably has a cap on coverage for single items. If that cap is at $2,000 and you have art, jewelry, electronics or sports equipment worth more than that, ask your agent about adding a rider (also called an endorsement) to your policy to specifically protect those high-value items.
- Loss-of-use coverage: Limits here vary from policy to policy. Some policies offer unlimited coverage in this area but only for a set time while others cap the amount they’ll pay out each week or month but protect you in perpetuity.
- Personal liability and medical payments: Most policies start with a $100,000 limit for this coverage, but you usually have the option to increase that limit if you feel like you’re exposed to more risk. You can also get a separate umbrella policy to offer yourself and your family more liability protection.
For your policy to pay out up to those policy limits when you’ve experienced a covered peril, you’ll need to pay your deductible.
Remember the basics
Each coverage type in your policy will have different limits. Make sure you have enough of each type by talking to your provider about limits and raising any that you want more protection on.
What is a homeowners insurance deductible?
A deductible is a flat rate you pay your home insurance company when you need your policy to pay out after a covered peril. Most people choose a deductible between $500 and $2,000. The higher your deductible, the lower your premiums (the amount you pay for your policy each year) will be.
Keep your deductible at a level you can comfortably cover as a one-time unexpected expense. You don’t want a $2,000 deductible to stand between you and your policy paying out when you need it most.
What does homeowners insurance not cover?
Just because your home insurance policy extends to a variety of areas in a variety of situations doesn’t mean it’s comprehensive. Specifically, most homeowners insurance types won’t protect you against:
- Earth movements, e.g., earthquakes, mudslides and sinkholes
- Sewer backups
- Damage from neglected maintenance
- Dog attacks if you own an aggressive breed
Also, don’t assume your policy covers all the standard perils we listed above. Some insurers limit protection for high-risk areas (e.g., windstorm coverage can be harder to get in hurricane-exposed states). Again, review your policy details to ensure you’re getting the protection you need.
As you go over your policy, consider if you have the right protection for specific features of your home like:
- Air conditioning units
- Large trees that would need to be professionally removed if they fell over
Talk with your agent about the specifics of your home. Features like a pool or aluminum wiring can increase your risk and you may need to adjust your policy accordingly.
Your homeowners insurance coverage is designed to safeguard the investment you’ve made in your home and all of the belongings you store in it. As an added bonus, it also covers your liability.
It’s up to you to make sure your homeowners insurance coverage amount matches your needs. Talk with your agent and review your policy in detail to make sure you’re getting the right level of protection.