What Is Homeowners Insurance, and What Does It Cover?

Your home is more than just a roof over your head. It may be your most valuable asset — and one you likely can’t afford to replace out of pocket if disaster strikes. That’s why protecting your place with the right homeowners insurance coverage is important.

What is homeowners insurance?

Homeowners insurance is coverage you can buy to protect yourself financially against certain types of damage and lawsuits.

To get this coverage, you pay an insurance company a certain amount of money, called a premium. In return, the company will pay you if a covered event, such as a fire, damages your home or belongings. Homeowners insurance may also provide financial support if you injure someone else or damage their property.

What does homeowners insurance cover?

Homeowners insurance covers your house and belongings in case of events such as fires, hail, tornadoes and burst pipes. If one of these scenarios causes damage, your policy can pay to repair it. Homeowners insurance can also reimburse you for theft or vandalism of your belongings.

But a homeowners policy doesn’t just cover your house and your stuff. It can also pay to defend you from lawsuits or cover medical bills for someone who gets hurt on your property. And if you can’t live at home after a covered disaster, your homeowners policy could pick up the tab for a hotel or rental.

Standard types of home insurance coverage

Standard homeowners insurance policies generally include these six types of coverage:

Dwelling coverage

Dwelling coverage encompasses the structure of your home, including the walls, floors, windows and roof. Built-in appliances, such as furnaces, are also typically included in your dwelling coverage. An attached garage, porch or deck would fall under your dwelling coverage, too.

Which events are covered: Most homeowners policies cover your dwelling for any cause of damage that isn’t specifically excluded. Some of the most common causes of homeowners insurance claims include wind, hail, freezing, fire and lightning, according to the Insurance Information Institute^[0]

» READ MORE: What is dwelling coverage, and how much do you need?

Other structures coverage

Just like it sounds, other structures coverage provides insurance for structures on your property that aren’t attached to your house. That could include a shed, fence or detached garage.

Which events are covered: As with dwelling coverage, most homeowners insurance policies cover other structures for any event that isn’t specifically excluded. That means you'd likely have coverage for fire, wind, hail and snow, among other issues.

» READ MORE: Other structures coverage for homeowners

Personal property coverage

Personal property refers to your personal belongings — like clothes, furniture, electronic devices and appliances that aren’t built in. Most homeowners policies cover these items anywhere, not just inside your house. So if someone steals your bike from outside a store, it’ll likely be covered (minus your deductible).

Which events are covered: In most homeowners policies, personal property coverage works differently than dwelling and other structures coverage. Instead of covering your belongings for anything that isn’t specifically excluded, homeowners policies often cover only disasters that are listed.

These events, typically called “perils” in your policy, tend to include:

• 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, steam, air conditioning or fire protective system.

• Riots.

• Damage from aircraft or vehicles.

» READ MORE: What is personal property coverage? A complete guide

Loss of use coverage

Sometimes called “additional living expenses,” the loss of use section of your homeowners policy can come in handy if your home is too damaged to live in. Loss of use coverage may pay for hotel stays, restaurant meals or other expenses associated with living somewhere else if your home is uninhabitable after a disaster your policy covers.

Which events are covered: As long as your home is undergoing repairs for a covered claim, you’ll likely be eligible for loss of use coverage. But if your home’s damage is from a disaster that isn’t covered — such as a flood — your insurer won’t pay your additional living expenses, either.

» READ MORE: What is loss of use coverage for home insurance?

Liability coverage

Personal liability coverage offers financial help if you’re responsible for injuring someone 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 Does Homeowners Insurance Cover Dog Bites? for more information.)

Which events are covered: Liability insurance covers bodily injury and property damage to others, with some exceptions. For instance, your policy won't cover criminal acts or harm you cause on purpose. Nor will it pay for injuries or damage from a car accident (your liability car insurance would cover those).

» READ MORE: Personal liability coverage for homeowners

Medical payments coverage

Like liability coverage, medical payments coverage pays if you cause physical injury to someone outside your household. However, you don’t need to be found at fault for medical payments coverage to pay out.

Which events are covered: You could tap your medical payments coverage if someone suffers a minor injury on your property or you cause harm to someone outside your home. Similar restrictions apply to liability and medical payments, with no coverage for intentional acts or car accidents, among other exclusions.

» READ MORE: Medical payments coverage for homeowners

What homeowners insurance won't cover

Even the broadest homeowners insurance policy won’t cover everything that could go wrong with your home. For example, you can’t intentionally damage your house and then expect your insurer to pay for it. Policies also typically exclude damage due to:

• Flooding from external sources like heavy rainfall or storm surges.

• Drain and sewer backups.

• Earthquakes, landslides and sinkholes.

• Infestations by birds, vermin, fungus or mold.

• Wear and tear or neglect.

• Nuclear hazard.

• Government action, including war.

• Power failure.

However, you can buy separate coverage for some of these risks. Flood insurance and earthquake insurance are available separately, and in hurricane-prone states, you may need or want windstorm insurance.

» MORE: Home insurance exclusions you need to know about

Common home insurance endorsements

Talk to your insurer if you have concerns about problems your policy doesn’t cover. In many cases, you can pay for endorsements — or add-ons to your policy — that offer more coverage.

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

Scheduled personal property covers a specific valuable item such as a ring or musical instrument. You may need an appraisal — a document that states the value of the item — to get this coverage.

Ordinance or law coverage pays to bring your home up to current building codes during repairs or rebuilding.

Water backup coverage pays for damage due to backed-up sewer lines, drains or sump pumps.

Equipment breakdown coverage pays to repair or replace major home systems and large appliances if they stop working for reasons other than normal wear and tear.

Service line coverage pays for damage to water, electric or other utility lines that you’re responsible for.

Identity theft insurance pays expenses associated with identity theft such as lost wages and legal fees.

Does homeowners insurance cover ... ?

This table shows common problems and whether your homeowners insurance policy will cover them.

How homeowners insurance works

If your home is destroyed, your homeowners insurance company won't simply write you a check for the coverage amount listed on your policy. First, you’ll have to file a claim, documenting the damage. And your payout could vary depending on your coverage and deductibles.

Replacement cost vs. actual cash value

One key factor in your payout is whether your coverage will pay whatever it takes to rebuild your home, even if that cost is above your policy limits. This situation may arise, for instance, if construction costs have increased in your area while your coverage limits haven't changed. Here’s a rundown of several options you may encounter.

Actual cash value coverage pays the cost to repair or replace your damaged property, minus a deduction for depreciation. Most policies don’t use this method for the house, but it’s common for personal belongings. For items that are several years old, this means you’ll probably get only a fraction of what it would cost to buy new ones. Learn more about actual cash value coverage.

Functional replacement cost coverage pays to fix your home with materials that are similar but possibly cheaper. For example, your contractor could replace damaged plaster walls with less expensive drywall.

Replacement cost coverage pays to repair your home with materials of “like kind and quality,” so plaster walls can be replaced with plaster. However, the payout won’t go above your policy’s dwelling coverage limits.

Some policies offer replacement cost coverage for personal items. This means the insurer would pay to replace your old belongings with new ones, with no deduction for depreciation. If this feature is important to you, check the policy details before you buy. It’s a common option, but you typically need to pay more for it. Learn more about replacement cost coverage.

Extended replacement cost coverage will pay more than the face value of your dwelling coverage, up to a specified limit, if that’s what it takes to fix your home. The limit can be a dollar amount or a percentage, such as 25% above your dwelling coverage amount. This gives you a cushion if rebuilding is more expensive than you expected.

Guaranteed replacement cost coverage pays the full cost to repair or replace your home after a covered loss, even if it goes above your policy limits. Not all insurance companies offer this level of coverage.

» MORE: Actual cash value vs. replacement cost: What's the difference?

Homeowners insurance deductibles

Homeowners policies typically include a deductible — the amount you have to cover before your insurer starts paying. The deductible can be:

• A flat dollar amount, such as $500 or $1,000.

• A percentage, such as 1% or 2% of the home’s insured value.

When you receive a claim check, your insurer subtracts your deductible amount. Say you have a $1,000 deductible and your insurer approves a claim for $10,000 in repairs. The insurer would pay $9,000, and you would be responsible for $1,000.

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. 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.

Types of homeowners insurance policies

Homeowners insurance comes in several types, called “policy forms.” Some types have more expansive coverage than others, so it’s worthwhile to know the difference. Note that different insurance companies may have different names for these policies.

Most popular: HO-3 insurance

HO-3 insurance policies, also called “special form,” are the most common. If you have a mortgage, your lender is likely to require at least this level of coverage.

HO-3 insurance policies generally cover damage to your home from any cause except those the policy specifically excludes, such as an earthquake or a flood. However, where it concerns your belongings, HO-3 insurance typically covers only damage from the perils listed in your policy.

» MORE: What is homeowners insurance?

Broadest coverage: HO-5 insurance

An HO-5 insurance policy offers the most extensive homeowners coverage. It pays for damage to your home and belongings from all causes except those the policy excludes. It’s typically available only for well-maintained homes in low-risk areas, and not all insurers offer it.

HO-5 policies are sometimes called “comprehensive form” or “premier” coverage. However, an HO-3 policy may also be labeled “premier” in some cases, without offering the broader coverage of an HO-5 policy. If you want HO-5 insurance coverage, be sure to ask your agent or representative.

» MORE: What is hazard insurance?

Limited coverage: HO-1 and HO-2 insurance

Much less popular are HO-1 and HO-2 homeowners insurance, which pay only for damage caused by events listed in the policy.

Learn more about types of home insurance policies.