What does homeowners insurance cover?

Fact-checked with HomeInsurance.com

5 min read

Accidents can happen in the blink of an eye, even in the comfort of your home.
According to the Insurance Information Institute, homeowners insurance provides you with financial protection in the event of a disaster or accident and insures your home’s structure and belongings. It provides you with the funds needed to repair or rebuild your home, pay for damaged or lost possessions, pay for liability coverage and even cover expenses that you incur if need temporary housing while your house is being repaired or rebuilt.

There are three reasons homeowners typically purchase homeowners insurance:

  1. To protect their assets, such as the building structure and the items inside.
  2. To protect themselves against personal legal liability.
  3. To satisfy mortgage lenders, who typically require homeowners to buy insurance.
    If you’re in the market for new homeowners insurance coverage, it’s important to know what

What does homeowners insurance cover?

Most standard homeowners insurance policies cover these four types of coverage:

  • Your home’s structure
  • Your personal belongings
  • Liability protection
  • Additional living expenses

There are additional types of coverage that are considered add-ons like medical payments, personal property and sewer backup.

Coverage for your home’s structure

Your homeowner’s policy will pay to rebuild or repair your home in the case of specified disasters like fire, hurricane, hail and lightning. Typically, your policy will also cover detached areas of your home like a garage or gazebo. A general rule of thumb when purchasing coverage is to buy enough insurance to cover the expense of completely rebuilding your home.

Coverage for your personal belongings

Coverage for your personal belongings will pay the value of your damaged or lost possessions, including furniture, electronics, clothing and collectibles. Even trees, plants and shrubs are covered in some cases.Coverage for personal items also includes items that are stored off-premises. If you’re unsure about how much coverage you should purchase, the Insurance Information Institute suggests conducting a home inventory to determine the right coverage plan for you.

Liability protection

Liability insurance protects you from financial losses from property damage and personal injury to others if you are found legally responsible. This insurance also covers damage caused by your family members and even your pets. Liability protection covers court awards and expenses, depending on your policy. If you think you need more liability protection than the average homeowner’s policy offers, consider an umbrella liability policy, which provides broader protection and higher liability limits.

Coverage for additional living expenses (ALE)

If damages make your home uninhabitable, this kind of coverage pays for the additional costs of living somewhere else until your home is repaired or rebuilt. It could include hotel and restaurant expenses, as well as other costs you may incur during that time. This coverage does have limits, and in some cases, a time limit. In addition, if you rent out part of your home, ALE will cover you for the amount of rent you would have collected if your home hadn’t been destroyed

What does homeowners insurance not cover?

There are some crucial exclusions to note under homeowners insurance that will help you decide whether additional coverage is necessary. Keep in mind that most policies offer extra, optional protection (like hazard insurance) for things that aren’t covered under homeowners insurance.

Earthquake and flood damage

In most states, damage caused by earthquakes and floods aren’t covered by a standard homeowners policy but can be purchased as a separate policy.

Water damage

Issues involving your sewage system, such as an overflow or backup, are typically not covered, but it can be purchased under a separate policy.

Homeowners neglect

Proper care and routine maintenance are crucial to keeping your property in tip-top shape. It can save you from a lot of heartache down the road. Any damages caused by neglect or failure to properly maintain your home aren’t covered by homeowners insurance.

Those damages include but are not limited to:

  • Termites and insect damage
  • Mold
  • Rust
  • Bird or rodent damage
  • General wear and tear

To avoid costly repairs that might not be covered by your policy, maintain your home regularly.

Identity theft

Homeowners insurance typically does not cover expenses related to identity theft, such as someone using your credit card to purchase new furniture. This can be purchased for additional coverage under a separate identity theft plan.

What is the difference between open and closed perils?

There are two different kinds of property insurance: open peril and closed peril. A peril refers to property that your insurance company covers. It is the cause for insurance coverage, like theft or fire.

Open peril is also referred to as special perils or all risks insurance. This means that your coverage will include a wide variety of your property with a few specific exceptions. It’s common for most natural causes and disasters to be covered under this plan. If your plan does not explicitly note these particular exemptions, it is
assumed that all else is covered.

While open peril covers almost everything, closed peril insurance is far more detailed. Also called specified-perils insurance or named-risk insurance, closed peril contains a comprehensive listing of the property that is covered under your policy. It is more specific than an open peril because it relies upon an itemized list of property. Any items not listed are not included.

Most homeowners use both open peril and closed peril for their homeowners insurance.

What should I consider for my policy?

Before you commit to a policy, make sure it is the right fit for you. There are many companies offering coverage, but not all of them are going to fit your needs.

Research your options thoroughly. Look for how long it takes the company to process claims and how satisfied their customers are with their service. Top ratings indicate consistent service that you can rely upon.

Cost is just one factor when determining the best insurance company for your homeowners insurance. Some additional coverage may be recommended, such as sewer backup, earthquakes, hail and contents replacement add-ons. Inflation protection is also vital because as your property value changes, your policy adjusts to cover the fluctuating values.

Decide which coverage options you need based on your location and property. For example, if you live in a place that has flooding or the potential of storms like hurricanes, the extra money spent on flood insurance could be worth it. Similarly, you might want earthquake coverage if you live in a place like California that has frequent earthquakes.

When comparing quotes, compare the right coverage. For example, some quotes may include an umbrella policy while others may not. Thoroughly review and understand your coverage so there are no surprises later.­

How much does homeowners insurance cost?

The cost of insurance varies depending on your coverage. Th­ere are many factors included within the pricing, such as the size and exterior of your home, home improvements and special features, the building materials used in construction and whether it meets current building code.

An itemized list of your belongings will help you determine what needs coverage so you can know your most cherished belongings are insured.

Your location determines your property value and homeowners insurance rate too. For example, Hawaii has the lowest average insurance payment of $337 per year, while hurricane-ridden Florida tops the list at an astounding average of $3,575.

Past insurance claims can impact your future policies too. The insurer may use prior information to determine the liability of the property, and too many claims could increase the price of your policy – even if you haven’t owned that particular home the entire time.

Based on that, the insurer will price your coverage. The average homeowner can expect to pay around $3.50 for every $1,000 of property value. Typical liability coverage ranges from $100,000 to $300,000.