What a Typical Homeowners Insurance Policy Covers

If you’re buying your first home, you might be wondering about homeowners insurance. Is it required? How much does it cost? What does a typical homeowners insurance policy cover? 

This guide will break down everything you need to know about homeowners insurance. We’ll go into what home insurance covers, its typical exclusions, and how to find the best homeowners insurance for your home.

What is homeowners insurance? 

Homeowners insurance — or home insurance —  is an insurance policy covering the structures and belongings in your home. It also covers liability for injuries on your property.

If your home gets burglarized, sustains fire or weather damage, or someone gets hurt on your property, homeowners insurance can reimburse some or all related costs. 

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What does a typical homeowners insurance policy cover? 

Below are six major categories covered by a typical homeowners insurance policy related to home damage or injuries on your property.

Dwelling Coverage

Dwelling coverage covers repairs to the core structure of your home. If your house sustains damage to the walls, roof, or floors, dwelling covers it.

Dwelling coverage extends to some built-in appliances, such as a furnace or water heater. Attached structures like porches or garages are covered too.

Your homeowners insurance will cover these damages due to regular weather events like wind or lightning, but not for natural disasters like floods or earthquakes. You’ll also have coverage in the event of a fire or vandalism. 

Basically, if your homeowners policy doesn’t specifically exclude a type of structural damage, you have coverage for that damage type.

Other Structures Coverage

Other structures coverage works similarly to dwelling coverage, but it only applies to detached buildings on your property. 

For example, a dwelling policy covers your garage if your home connects to your garage. If it’s a stand-alone building, your other structures policy covers it.

This policy also applies to structures like:

• Sheds
• Fences
• Guesthouses
• Pool houses
• Gazebos
• Driveways

How do you know if your dwelling coverage or other structures policy covers something? It all depends on whether the structure is attached to your house. The dwelling policy covers attached features, whereas the other structures policy covers detached structures.

Living Expenses During Repairs

If your home structure gets damaged, you may need to live elsewhere during repairs. Additional living expenses or loss of use coverage helps pay for hotel rooms, rental homes, and even restaurant meals while your home gets repaired. 

Depending on your coverage level for additional living expenses, you’ll receive a daily limit for these costs during your home repair. The calculated daily limit will account for the increase in living expenses outside your home.

Additional living expenses can also cover transportation, storage for your belongings, or laundry expenses while staying elsewhere. Check your homeowners insurance policy details to see how additional living expenses coverage works with your insurance company.

Remember that loss of use coverage only kicks in when your home gets unexpectedly damaged. Your insurer won’t cover living expenses if you elect to remodel part or all of your house.

Loss, Theft, or Damage to Personal Belongings

A typical homeowners insurance policy also covers damage or loss of personal belongings, known as personal property or contents insurance. 

It can cover furniture, clothes, and more. Personal property insurance typically doesn’t cover costly items like jewelry, art, or collectibles.

Replacement or repair of your personal belongings is only covered if the items get damaged due to extenuating circumstances. Homeowners insurance won’t pay for regular wear-and-tear to your home or belongings. 

Your personal belongings don’t have to be physically in your house to be covered by a typical homeowners insurance policy. If you keep items in a storage unit or have them with you while traveling, you can still file a claim through your home insurance.  

Unlike dwelling insurance, which covers damage from any scenario except for specific exclusions, your personal property coverage only applies to certain situations. Your homeowners insurance policy may refer to them as “perils.”

Although a peril must be listed on your policy to cover damage to your belongings, the list of covered scenarios is usually long. Personal property coverage for a typical homeowners insurance policy will cover most of these perils:

• Normal weather events, like lightning, hail, windstorms, winter storms, and freezing
• Vandalism, theft, and riots
• Fire and smoke damage
• Explosions
• Accidents like vehicle or aircraft collisions, or falling objects
• Water, electrical, or other damage to home systems like HVAC and plumbing

A typical homeowners insurance policy rarely covers disasters like earthquakes and floods. You’ll need additional policies for those situations due to the unique risks. 

Personal Liability for Injuries or Property Damage

If someone gets injured on your property and sues you, your homeowners liability coverage offers financial help for legal costs.

This type of liability coverage applies to accidents on your property or those caused by someone in your household. If someone falls on your steps or a branch damages a delivery van, liability coverage protects you, and it doesn’t apply to any intentional acts of damage. 

Personal liability coverage in a homeowners insurance policy typically covers everyone in the household, including pets. Your homeowners liability insurance may cover a wide range of situations, but read your policy closely to understand the exclusions and limitations of this coverage.

Medical Payments for Injuries at Your Home

Liability coverage helps pay for costs in the event of legal action, but medical payments coverage can help cover injury-related costs without anyone suing you.

Let’s say a friend trips on your steps and fractures her wrist. Medical payments coverage will pay for the expenses associated with caring for the wrist injury, but your friend doesn’t have to sue you to get the bill covered.

Medical payments coverage typically has the same limits and exclusions as your liability coverage. It should cover the same people and situations — the only difference is that it covers medical bills instead of legal fees.

Insurance companies will include these categories in their standard home insurance policy and calculate the monetary value of the coverage you need for each one. When you file a claim, the insurer will ensure you have enough coverage in the correct categories to get reimbursed.

If you need coverage beyond a typical homeowners insurance policy, you can add extra coverage or purchase separate insurance policies to cover special circumstances.

What Homeowners Insurance Doesn’t Cover

A typical homeowners insurance policy covers nearly every damage type you can anticipate happening to your home. Homeowners insurance covers many perils from weather to fire to theft and vandalism.

However, like all insurance types, there are exceptions. Homeowners insurance won’t cover some natural disasters or regular wear and tear on your home due to the unique risks and circumstances related to that damage type.

A typical homeowners policy will not cover:

• Earthquake damage
• Flood damage
• Pest or mold infestation
• Damage due to neglect or wear and tear

Although a standard policy won’t cover these perils, you can purchase additional insurance to cover damages from earthquakes, floods, and some other non-standard homeowners coverage. 

Pay attention to how your policy phrases each coverage type. Some will cover all perils except for ones specifically excluded, while others will only cover the perils your policy specifically names.

How much homeowners insurance do I need?

Homeowners insurance isn’t required to own a home, but your mortgage lender may require you to purchase a policy when you’re buying your house. Even if you’re not required to have home insurance, it’s still good to protect your home and belongings in the event of unexpected damage.

The amount of homeowners insurance you need mostly depends on your home’s value and belongings. You’ll also need to consider the type and amount of coverage you want for your home.

Types of Homeowners Insurance Coverage

With such a wide array of homes in the United States, it’s no wonder there are so many different variations on homeowners insurance. 

In the insurance industry, there are eight standard policy forms for home insurance in the U.S. Designated as HO-1 through HO-8, each policy form covers slightly different home and damage types.

HO-3, or special form, is the typical homeowners insurance policy for U.S. homes.

Within these policy forms, there are three coverage levels for the costs your insurance company will cover:

• Actual cash value. Actual cash value, the lowest form of coverage, covers the cost of your house and belongings based on what they’re currently worth.
• Replacement cost. This coverage offers the actual cash value of your home without calculating depreciation costs.
• Guaranteed replacement cost. Only available through some insurers, guaranteed or extended replacement protects you against inflation by allowing for more coverage than your home is currently worth.

The type of home insurance coverage you choose will affect your insurance premiums and deductibles, so look at the whole picture before purchasing a policy. 

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How much does homeowners insurance cost? 

There is no standard cost for homeowners insurance. Like car insurance, you choose your homeowners insurance policy based on your unique risks and needs, so the cost varies.

Ultimately, your insurance company will assess how likely you’ll need to file a home insurance claim. The higher risk you are for home damages, the higher your homeowners insurance premium.

Here are a few things that affect your home insurance rates:

• Neighborhood safety, including crime and rates of home insurance claims
• House’s age and condition
• Building materials and heating system
• Home additions like swimming pools or trampolines
• Number and type of pets
• Risk of severe weather events

When you purchase a home insurance policy, the insurer will calculate your annual premium, usually one to a few thousand dollars per year. You’ll also have a deductible, which you must pay before your insurance covers any damages.

Your home insurance deductible can be a flat rate of a few hundred or thousand dollars or a percentage of your home’s value.

How to Reduce Your Home Insurance Premiums

If you’re looking to get the most home insurance coverage for the lowest rates, try these tips to reduce your costs:

• See if your current insurance company offers discounts for adding a home policy.
• Review your policy every year to ensure you’re not paying for coverage you don’t need.
• Install a security system and other safety measures.
• Carry a higher deductible.
• Choose safer upgrades for your home to keep reducing premiums.

Even with extensive coverage options, there are several ways for you to save money on your homeowners rates.

Where can I find the best homeowners insurance? 

To find the best policy for your home, get homeowners insurance quotes from multiple companies to compare costs and coverage. Check with your current insurer for discounts on a new policy.

If you’re choosing a new insurance company for your homeowners policy, research the company’s customer service to see if their customers are happy. Pay special attention to the speed of their claim responses, so you know what to expect if your house gets damaged.

Protect Your House With Home Insurance

Your house is a huge investment, so it’s vital to get adequate coverage. A typical homeowners insurance policy will cover most damage types and injuries on your property, so you don’t have to worry about the financial burden of large repairs.

Home insurance covers structural damage, personal belongings, and liability for injuries. You’ll even get coverage for unexpected living expenses while your home gets repaired.

Since homeowners insurance is dependent on your home situation, check with your insurance company to ensure your policy covers everything you need.

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