What Does Homeowners Insurance Cover?

Make sure your homeowners insurance offers enough protection.

Homeowners insurance coverage is a must. It covers damage to your property from sudden and accidental events and pays legal and medical expenses if someone is injured on your property. Your home insurance policy offers four categories of coverage:

  • Dwelling: Your home’s structure, including the roof, walls, ceilings, floors and anything built in or attached to your home
  • Contents: Personal belongings, like furniture and clothing
  • Additional structures: Detached garage and outbuildings, plus landscaping and hardscaping
  • Personal liability: Damage or injury, such as a dog bite or fall, to someone on your property

Keep reading to learn how homeowners insurance works, and understand why you need this coverage to protect you against losses from damage to your home or personal property.

Who Needs Homeowners Insurance?

People who own their homes outright should consider purchasing homeowners insurance. People who have a mortgage loan on their homes are required by their lenders to have it.

Learn: 10 Ways to Save on Insurance

What Does Homeowners Insurance Cover?

Homeowners insurance coverage varies according to the type of policy you have. Limited, or HO-1 policies, cover damage caused by:

  • Fire and lightning
  • Wind and hail
  • Explosions
  • Aircraft
  • Smoke
  • Vandalism
  • Vehicles
  • Theft
  • Riots and civil unrest
  • Volcanic eruption

State laws have forced insurers to replace HO-1 policies with HO-2 policies in many locations. An HO-2 policy — called an HO-6 policy when it applies to a condo — offers the same coverage as the HO-1, plus sudden and accidental damage from:

  • Falling objects
  • Weight of snow, sleet and ice
  • Flooding from your appliances, plumbing, HVAC, or fire-protection sprinkler system
  • Damage to electrical parts caused by artificial electrical currents
  • Glass breakage
  • Abrupt collapse from something like termite damage

An HO-3 policy covers all of those 16 events. It also comes with specifically excluded events, including earthquakes, war, government action, nuclear hazard and more. Examine your policy choices carefully so you get the coverage you need.

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Coverage Limitations

Your insurance policy deductible limits your reimbursement amount right out of the gate because the policy goes into effect only after repair or replacement costs exceed the deductible amount. Insurance companies also limit coverage for expensive personal property like antiques, musical instruments, electronics, furs, jewelry and fine art. Review your policy to understand limits on these items.

Homeowners insurance companies typically limit coverage for additional structures, landscaping and hardscaping to a certain percentage of the total amount for which you’re insured. For example, the limit would be $50,000 if you have a $500,000 policy.

What Homeowners Insurance Doesn’t Cover

Homeowners insurance coverage specifically excludes damage from:

  • Weather-related floods
  • Earthquakes
  • War
  • Nuclear accidents
  • Landslides
  • Mudslides
  • Sinkholes
  • Settling soil
  • Hurricanes

Damage from deferred maintenance is also excluded. Your insurance would cover a necessary foundation repair that resulted from an explosion, for example, but it wouldn’t cover damage resulting from poor drainage, which you could have prevented.

Related: From Closing Costs to Association Dues — the True Price Tag of a New Home

Expanding Coverage

You can add optional features to your homeowners policy to cover gaps in coverage. For example, loss-of-use coverage pays your costs of living if a covered event renders your home uninhabitable.

Loss of use coverage has three parts:

  1. Additional living expenses: Covers extra cost-of-living expenses you incur because of your displacement, such as laundromat or commuting costs
  2. Prohibited use coverage: Pays your living expenses if a government authority prohibits you from returning to your home because of damage to neighboring properties
  3. Fair rental value coverage: Reimburses rent you lose if a covered event prevents your tenant from living in the home while a lease is in effect

Insuring your home’s contents for replacement value rather than cash value helps you collect full replacement costs for your losses. Cash value represents depreciated value, which might not cover the cost of replacement.

Floater coverage pays to replace expensive belongings such as jewelry, art and electronics. You can also purchase a personal umbrella policy for extra liability protection. This is a good idea if you rent your home out or frequently have housekeeping or maintenance workers on the premises.

Event-specific policies can provide property insurance for disasters like floods and earthquakes. Depending on where you live, insurers might be required to offer it. In Florida and Tennessee, for example, home insurers must make sinkhole insurance available.

Homeowners with older homes should consider upgrading to an HO-8 policy. The policy allows you to repair or rebuild your older home to current building codes if it’s damaged or destroyed by a covered peril.

Compare: Average Cost of Homeowners Insurance in Every State

Prepare for the Worst

No one likes to think about losing his home or belongings to a catastrophic event. When the worst does happen, however, comprehensive homeowners insurance coverage is your best bet for protecting your investment. Although your homeowners insurance cost might be steep, it’s a small price to pay for peace of mind.