What does homeowners insurance cover?

What does homeowners insurance cover? Each policy is different, and every policy comes with certain exclusions. The last thing you want is to submit a claim for damage to a shed on your property only to realize after the fact that your coverage doesn’t extend or to submit a claim and find out that the event in question doesn’t qualify.

With so many policy types and exclusions, it is important to know what events your policy will cover and when you might need extra coverage.

Damage is defined by the terms of your policy and can include qualifying events such as:

• Vandalism
• Theft
• Smoke
• Fire
• Weather like hail or wind

With some policies, like renters insurance, you can get coverage for your personal belongings but not for the external structure. Similarly, if you have a home with detached structures on the property, you can extend your coverage for outbuildings like sheds, barns, or garages. You can even add coverage for kitchen appliances.

Standard Types of Home Insurance Coverage

Standard types of homeowners insurance coverage provide protection not just for your physical dwelling but the loss of personal property, liability coverage, and even medical payments in the event that someone is injured on your property.

Dwelling Coverage

Standard homeowners insurance policies will cover your primary dwelling. This can extend to damage to the roof, the windows, the walls, or even the basement.

Other Structures Coverage

If you have other structures on your property, you can pick a homeowners insurance policy that provides coverage for things like:

• Barns
• Sheds
• Detached garages
• Outdoor grills or fireplaces
• Swing sets
• Fences

Personal Property Coverage

Personal property coverage applies to your personal belongings inside the house. This can include damage to furniture, clothing, and even valuable items like artwork and jewelry.

Loss of Use & Additional Living Expenses (ALE) Coverage

If your home sustains damage such that you are unable to reside in your home while repairs are underway, you can collect and submit receipts for loss of use and additional living expenses. Your policy might reimburse you for the cost of a hotel, meals, and other costs while you are unable to inhabit your home.

Liability Coverage

Liability coverage can provide reimbursements in the event that people who don’t reside in your home get injured on your property and sue you. This type of coverage can apply to your legal fees.

Medical Payments Coverage

Similarly, with medical payments coverage, you can use your homeowner’s insurance policy to cover the costs of any medical bills associated with someone else receiving an injury on your property.

Types of Homeowner Insurance Reimbursement

Just because you have an insurance policy does not mean everything will be reimbursed the same way. There are several different types of homeowner insurance reimbursement options:

Actual Cash Value

After you’ve submitted a claim and an adjuster has come to verify the damage, your homeowner’s insurance company will determine your settlement amount.

If you receive actual cash value, they give you the money to repair or rebuild the entire value of your home based on its current condition, age, and market value.

Replacement Cost

If your homeowner’s insurance reimbursement is a replacement cost, your insurance company will give you the money to cover all costs associated with rebuilding or repairing your home using similar materials to what was pre-existing.

Note: If you are receiving reimbursement for the full replacement cost and you have a loan for your mortgage, the settlement check will likely be made out to both the lender and yourself. Most mortgages will release a portion of the money prior to the start of work so that you can hire contractors and then subsequently release smaller amounts of money as work progresses.

Guaranteed (or Extended) Replacement Cost/Value

In some cases, though, they will determine how much to reimburse you based on the repairs required. So you have to pay upfront, but you get the money back later.

Replacement Cost vs. Actual Cash Value

There exist a few other key differences between replacement cost and actual cash value reimbursement, as indicated in the table below:

What Homeowners Insurance Won’t Cover?

Every type of homeowner’s insurance policy has exclusions for things like:

• Neglect
• War
• Nuclear accident
• Wear and tear

Beyond that, the exclusions vary by insurance policy. For example:

Common exclusions for HO-1 include:

• Falling objects
• Weight of ice, snow, and sleet
• Accidental discharge/overflow of water and stream
• Sudden damage from built-in appliances like a water heater or AC unit
• Freezing
• Sudden and accidental damage from a power surge

But common exclusions for HO-6 include:

• High-value items like jewelry or artwork
• Floods
• Ground movements
• Wear and tear
• Termites or pests
• Water damage from flooding, sewer backups, or water seeping from the ground

What Are the Homeowner’s Insurance Endorsements?

If your policy has specific exclusions, you can invest in Insurance endorsements. These are extra forms of coverage that come at a slight cost, but they can be particularly beneficial if, for example, you work at home or you want to cover any water backup losses.

Scheduled personal property

This type of endorsement covers personal property items that are normally excluded, such as jewelry, expensive artwork, or other collectibles.

Ordinance or law coverage

This provides protection in the event that you have to rebuild your home but also upgrade your home to meet current laws or ordinances in the process.

Water backup coverage

Nearly all homeowners insurance policies exclude things like water backup damage, but with this policy, you can add extra protection against it.

Equipment breakdown coverage

This type of endorsement protects appliances and other equipment within your home, like your washing machine, dryer, stove, or dishwasher.

Service line protection

Most homeowners insurance policies do not extend protection to damages incurred because of power failure, but with this level of coverage, you can.

Identity fraud coverage

Identity fraud coverage provides protection for losses incurred during an identity theft claim, including things like legal bills.

The average cost of identity theft losses in 2022 was $8.8 billion, according to the FTC.

What Is Covered by Homeowners Insurance?

In almost all policies, you can enjoy coverage on your primary dwelling as well as your personal property. Depending on your policy, you might have coverage for additional structures on your property, like a barn, detached garage, or shed.

The table below gives a quick idea of what is covered based on different policies:

Does Homeowners Insurance Cover Mold Damage?

Mold damage can be covered as long as it is not because of neglect or water backup.

Does Homeowners Insurance Cover Water Damage?

Some types of water damage are covered depending on your policy, but things like an accidental overflow of water or water damage from the ground or sewer backup may not be.

Does Homeowners Insurance Cover Roof Leaks?

Roof leaks that are not the result of negligence or regular wear and tear can be covered so long as the damages are the result of a qualifying event.

Does Homeowners Insurance Cover Termite Damage?

Some policies include termite damage, but policies like HO-2 exclude pest or insect damage.

Does Homeowners Insurance Cover Plumbing Issues?

This depends entirely on the type of plumbing issue you are having. Sudden water damage from a built-in appliance like a water heater or excluded from many policies, including HO-1.

Does Homeowners Insurance Cover Fires?

Fire may be excluded if you live in an area prone to wildfires, but other types of fire damage could be included.

Does Homeowners Insurance Cover Theft?

Yes, homeowners’ policies include coverage for theft.

Does Homeowners Insurance Cover Dog Bites?

If you have liability coverage, it will include dog bite liability expenses, but if you don’t have medical payment coverage in addition to your liability, you might be responsible for any medical bills resulting from the dog bite.

According to the Insurance Information Institute, dog bites liability limits are usually between $100,000 and $300,000 per policy.

Does Homeowners Insurance Cover Tree Removal?

No, if you need to preventatively remove a tree, it is not covered.

Does Homeowners Insurance Cover Air Conditioning Units?

Air conditioning units are only covered if you have an endorsement for appliances that extends to an air conditioning unit.

Does Homeowners Insurance Cover Foundation Repairs?

If the damage is caused by a qualifying event, your homeowner’s policy will cover Foundation repairs.

Does Homeowners Insurance Cover Roof Replacement?

If the damage is caused by a qualifying event and not things like negligence or wear and tear, it will be covered.

Does Homeowners Insurance Cover Fences?

If your policy is something like HO-3 or HO-5, it will extend to external structures, including fences.

Does Homeowners Insurance Cover Rental Property?

With extra coverage on the property, yes, you can have protection for rental properties.

Types of Homeowners Insurance Policies

There are eight types of homeowners insurance policies, some of which are only for specific home types, while others offer more comprehensive coverage.

HO-1 Insurance

HO-1 is the most basic form of homeowner’s insurance, and it only provides protection against your home and personal belongings if the damage is caused by one of ten specific things like fire, smoke, theft, or vandalism.

HO-2 Insurance

HO-2 is a bit more robust than HO-1, with coverage for your dwelling and personal belongings.

HO-3 Insurance

HO-3 policy is the most popular choice and covers the residence and detached structures on an open-peril basis. HO-3 is coverage that applies to:

• The physical home
• Attached structures or decks
• Personal belongings
• Finances
• Medical payments
• Loss of use coverage

According to the National Association of Insurance Commissions, HO-3 is the most common homeowners insurance policy, and in 2020 made up 78% of policies.

HO-4 Insurance

If you rent, HO-4 (renter’s insurance) is the only available option. HO-4 extends coverage to the items inside the rental property rather than the physical structure itself, so if your personal belongings are damaged or stolen under covered situations, you can submit claims.

HO-5 Insurance

HO-5 policy is more comprehensive and covers both dwelling and personal property on an open-peril basis.

For regular homes where other policies are insufficient, HO-5 is more comprehensive. It extends protection to things like personal belongings, not just the physical structure of the house. Moreover, you don’t have to prove whether something is covered by the policy when claims are submitted.

HO-6 Insurance

If you live in a condo, HO-6 (condo insurance) can help cover many of the same things as an HO-1 policy, such as:

• Medical payments,
• Loss of use,
• Liability,
• Personal property.

HO-7 Insurance

HO-7 is insurance for mobile homes. It has the same benefits as an HO-3 policy but can be used on an RV, modular home, mobile home, or trailer.

HO-8 Insurance

If you have a historic home, HO-8 is a modified coverage that applies to homes with unique features or characteristics that are not easily replaceable. HO-8 policies provide the same coverage as an HO-1 policy.

What Is Homeowners Insurance?

Homeowners insurance is a form of insurance that protects against damage to your home and personal belongings in the event of things like vandalism, theft, or fire. The purpose of homeowners insurance is to provide replacements or the value of lost items.

How Does Homeowners Insurance Work?

With homeowners insurance, you take out a policy based on your needs. You pay a premium every month or every year, and in the event that something happens under a qualifying event, you can submit a claim to your insurance company and receive a replacement or reimbursement for your losses.

Each year, 1 out of every 20 insured homes submits a claim, according to the Insurance Information Institute.

Homeowners insurance is a great way to protect against the unexpected. If you have a loan when buying a new home, you will be expected to maintain homeowners insurance for the duration of the loan. Even if you have paid off your home, it’s still a good idea to invest in homeowners insurance to cover unexpected damages.

Homeowners Insurance Coverage Limits and Deductibles

With different homeowners insurance policies, you will have coverage limits and deductibles.

Coverage Limits

Coverage limits are exactly what the name implies: a monetary value that represents the limit for how much money your insurance company will pay out for any and all claims in a given year. Once you reach that limit, further claims will be denied.

Deductibles

Just like any other form of insurance, your deductible represents how much you have to pay out of pocket before your homeowner’s insurance will cover the balance. There are two forms of deductibles available with a homeowners insurance policy:

1. The first is a dollar amount – The average homeowner’s insurance dollar amount deductible is between $500 and $2,000.
2. The second is a percentage – The average percent deductibles are usually between 1% and 10%.

Jonathan files a claim after a wildfire moves through the area. He has a 5% percentage deductible. The total damage assessed by his insurance company for qualifying fire and smoke damage amounts to $35,000. Jonathan has to pay $1,750 for his 5%.

Cindy has the same homeowners insurance policy but she has a $1,000 deductible. Cindy would end up paying only $1,000 of the $35,000 assessment in the same circumstance.

When Does Homeowners Insurance Pay Out?

When your home or personal belongings sustain damage, the process for getting compensation from your insurance company involves submitting a claim. That claim might involve some paperwork, receipts, and pictures. Whether or not the insurance company pays out and how quickly they pay out is based on several factors.

The complexity of a Claim

Some claims are more complex than you might think.

Mary has an HO-2 policy which provides coverage for her home and her personal belongings. After a severe winter storm, she submits a claim for damages to her roof, one external wall, and a few windows.

One common exclusion to an HO-2 policy is falling objects. So in the event of damage to her roof and the exterior wall, the insurance company would likely send out an appraiser to assess whether the damage was caused by wind and hail or by a tree that fell because of the wind and hail.

If it turns out that the damage was because a tree fell, that wouldn’t be covered.

Amount of Damage

The amount of damage is also something that has to be considered before a payout can be approved on a claim. This involves the individual terms of your coverage limits.

For example, you might submit a claim for a type of damage that is covered under your policy, but if you have already reached your coverage limit for the year, that claim can be denied.

Policy Terms

The timeline for the process of when a homeowners insurance policy pays out can be affected by the terms of your policy. This relates to things like the complexity of the claim and the amount of damage because all policies have common exclusions.

Even with comprehensive HO-5 policies, your policy terms might state that water damage from flooding, sewer backups, or water seeping from the ground is not covered. So in the event of a massive winter storm, you might have coverage for hail damage that breaks your windows, damage from the wind, or even water damage, but not for any water damage that is the direct result of flooding causing a backup directly into your home.

How Much Does Homeowners Insurance Cost?

According to Forbes, the average cost of homeowners insurance in 2023 is $1,582 for a home valued at $350,000.

However, several factors impact the cost of homeowners insurance.

Deductible

One of the biggest factors is the deductible. The higher your deductible, the lower your premiums will be, as is the case with all forms of insurance.

For example, the table below indicates the change in premiums for different companies based on whether you choose a $500 deductible, $1,000 deductible, or $2,000 deductible.

In the two examples above, you can see that you can save a few hundred dollars every year by increasing your deductible.

State of Your Home

The cost of homeowners insurance is also greatly affected by the condition your home is in when you take out your policy, primarily the roof type and the condition it’s in, how old your home is, and whether it’s been renovated.

Location

Location is another significant factor. You can expect higher homeowners insurance costs if you live in an area that’s prone to:

• Wildfires
• Tornadoes
• Hurricanes

Additional Coverage

Additional coverage and endorsements also come at an increased cost.

The average cost of an HO-1 policy across the United States is $1,516 per year. By comparison, the average HO-5 policy is $1,754.