The value of their home is most Americans’ biggest investment, so it’s vital to get enough home insurance coverage to protect your investment.
Homeowners insurance policy coverage protects all of your assets from lawsuits and other liability. One in 20 homeowners have a claim to cover property damage caused by fires, weather, theft and other losses.
Whether you’re buying your first house or want to know how to get the most out of your homeowners insurance policy, it’s critical to understand homeowners insurance and what it does and doesn’t cover.
What’s covered by homeowners insurance?
Most home insurance provides coverage for loss to your property up to the limits of the policy caused by an event, called a peril. Common perils include:
- Fire and lightning
- Falling objects
The most common type of homeowners policy coverage, HO3, covers the home or “dwelling” against all perils unless they’re specifically excluded in the policy.
Common exclusions are:
Personal property inside your home is covered against 16 common perils. All other perils are excluded.
Homeowners insurance policies also protect you from financial liability for damage done to other people’s property, injuries suffered on your property and injuries caused by you or household pets to others.
Homeowners insurance policy coverage types
Home insurance companies keep the organization and language of homeowners policies fairly standard, but there can be differences between states and companies. Always be sure to read the policy.
Here’s the types of coverage in a standard homeowners insurance policy:
- Property coverages are listed in Parts I, A, B, C, D and Additional
- Liability protection is Part II E and F
Let’s take a look at these different types of homeowners insurance coverages.
Coverage A – Dwelling
Coverage A covers your residence and any structures attached to it up to the policy’s limits, usually for replacement cost. All perils are covered unless they’re specifically excluded. Land isn’t covered.
You can add extended limit replacement cost to Coverage A. Extended limit increases the limits of the policy by 25% or 50% to cover any unexpected increases in construction or cost to repair. Guaranteed replacement coverage extends the policy limits without any cap. Land isn’t covered.
Coverage B – Other Structures
Coverage B covers unattached structures on your property, including an unattached garage. Land, rental and business property isn’t covered.
Coverage is usually limited to 10% of the policy limits.
Coverage C – Personal Property
Homeowners insurance covers the contents of the home, such as furniture, jewelry and appliances. The limits of C are usually 50% of the coverage A limits.
Personal property, also called personal belongings, is covered for loss or theft wherever it is at the time. Most homeowners insurance policies limit coverage for jewelry, fine art, electronics, firearms and silverware to $2,500 or less. Animals, motor vehicles, aircraft, property of tenants or held in a rental property off the residence premises aren’t covered.
The coverage for personal property is generally actual cash value, unless upgraded to replacement value. The method can be found in the loss settlement section of the policy.
Coverage D – Loss Of Use
Coverage D covers loss of use, which is also called additional living expenses. These living expenses include meals and lodging, lost income for rentals and loss of use by order of a civil authority.
Loss of use is usually limited to 30% of the coverage in A.
Additional coverages cover miscellaneous losses, including:
- Damage to shrubs and trees coverage, which is 5% of limits in Coverage A.
- Building collapse coverage is 100% of limits in Coverage A.
- Unauthorized use of credit card, forgery and counterfeit money. Coverage is usually $500.
- Fire department service call. Coverage is typically $500.
- Glass breakage — included in limits of Coverage A.
- Ordinance or law — Covers additional construction expenses required to comply with new building codes or other ordinances. Coverage is 10% of limits in Coverage A.
Read more about additional living expenses,
Coverage E – Personal Liability
Coverage E covers personal liability for claims of injury or property damage that you or a household member are at fault for up to the policy limits.This type of coverage helps you if someone is injured on your property.
For example, if a tree on your property falls on your neighbor’s house or a family pet bites the mail carrier. Liability coverage excludes motor vehicle accidents, watercraft and aircraft.
Coverage F – Medical
Coverage F provides medical bills for injuries to others on your property or caused by the activities of you or someone in your household (including pets) regardless of fault.
Condominium/unit insurance coverages
The most popular type of homeowners insurance coverage for condominiums, HO6, covers property “from the walls in.” The homeowners association master policy covers the structure, as well as the common areas.
HO6 policies cover 16 named perils, for parts A, C, D and additional coverages. All other perils are excluded. There is no Coverage B for other structures.
Coverages E and F personal liability and medical payments are the same as the HO3.
Actual cash value vs. replacement cost
If you suffer a property loss, the homeowners insurance company evaluates the claim and offers a settlement using a process called adjusting. The claim is adjusted using the method specified in the policy to figure out how much to reimburse you to repair or replace your property.
You’ll receive actual cash value or replacement value for the loss. Here are the differences:
Actual cash value
With actual cash value, you receive what the items were worth at the time of loss.
The adjuster will determine the cost to restore the property to its original condition and then subtract depreciation. Using the same example, if the roof was 15 years old and had a useful life of 20 years, the claim might be reduced by 75%.
If your TV was stolen and you have actual cash value coverage, the insurer would reimburse you for what the TV was worth at the time of the theft — not to buy the same TV brand new.
Replacement cost reimburses you for what the loss was worth, such as your home. You can also have replacement cost coverage for personal items.
The adjuster will determine the cost to restore the property to its original condition up to the coverage limits of the policy.
For example, if a tree damages the roof, the claim is adjusted based on the cost of a new roof with the same materials. However, the insurance company will only pay the actual cash value until the repairs are completed.
You’re responsible for losses up to the amount of your deductible.
What is not covered by homeowners insurance?
The main homeowners insurance exclusions for HO3 and HO6 policies are:
- Earth movement, including natural disasters like earthquakes, mudslides and sinkholes
- Water damage, including flooding, sewer backups and groundwater
- Intentional acts
- Power failure that was caused by a covered peril on the premises — not for a utility company’s power failure
- Ordinance or law, which includes modifications from changes to building codes, environmental testing or cleanups or other changes in law or ordinance aren’t covered unless they’re required as part of a covered loss
- Neglect, which refers to reasonable actions at the time of the loss or afterward, such as not boarding up a property after a fire
- Nuclear hazard
- Governmental action, such as seizure of property by eminent domain
How can I get coverage for home insurance exclusions?
Homeowners insurance doesn’t cover everything. Here are some common home insurance exclusions or the things not covered by a standard home insurance policy:
- Flood — You can buy a separate flood insurance policy through a private insurance company or the National Flood Insurance Program.
- Earthquake — You can get a separate earthquake insurance policy; in California, the California Earthquake Authority offers policies.
- Sinkhole — Sinkhole coverage is usually available as an endorsement on a homeowners policy. The insurance company inspects the property before offering coverage if you request the additional protection.
- Landslides — Difference in conditions policies cover landslides as well as other perils. Difference in conditions policies are sold by surplus lines companies and may not be available in all states.
How to get homeowners insurance
Whether you’re renewing your policy or buying new coverage, begin by doing some homework.
Here are some tips for homeowners:
Gather information about your home
Collect everything a homeowners insurance company will need to offer you quotes, including:
- Year built
- When purchased
- Square footage
- Age of the plumbing and electrical
- Mortgage details
- Value of personal belonings
- Prior claims, if you know
The more information you have available the more accurate your quote.
How much home insurance do you need?
Kelly Richards, a State Farm agent from Naples, Florida, advises her clients to focus on the amount needed to replace the home in case it’s destroyed.
“If the customer has a recent, professionally prepared estimate of the replacement cost, we can use that to discuss the amount of insurance purchased for the home or we can use a tool State Farm provides to estimate the replacement cost of the home.
We advise customers they have to consider how much it would cost to put the house back if it is destroyed, not the amount of their mortgage or the market value of the home, which can be different from the estimated replacement cost.”
Look into optional coverages
Richards says there are other important optional coverages, including backup of sewer/drain. This optional coverage is not typically included in a homeowners policy and therefore must be specifically added.
Another is a personal articles policy.
“This is a separate policy you take out on valuable items for higher limits or broader coverages than what is available through your homeowner insurance. High value property, such as jewelry, musical instruments, firearms, etc., typically have specific limits. If a homeowner wants to make sure these items are covered, they should speak to their insurance provider about a personal article policy,” Richards says.
Get quotes from different sources
Get quotes from multiple homeowners insurance companies. You can do this online as well as local agents. Get quotes from the same level of coverage so you can accurately compare insurance carriers.
Also, look at the reputation and financial strength of the company as well as the home insurance costs.
Who has the best home insurance?
Insure.com conducts an annual consumer survey to rank 15 major carriers across different customer service metrics.
Here are the 10 Best Home Insurance Companies according to our ninth annual survey:
- State Farm
- American Family
- Liberty Mutual
- AIG (American International Group)
Read more about Best Home Insurance Companies
Frequently asked questions about home insurance
Does home insurance cover plumbing?
Yes, homeowners insurance typically covers plumbing unless the damage was caused by a problem you as the homeowner should have resolved.
Water damage is one of the most common types of homeowners insurance claims. Damage from water and freezing is the second most common home insurance claim.
Though homeowners insurance typically covers damage caused by plumbing, you may have to pick up part of the cost depending on the cause. If the damage was sudden, your home insurance policy will probably pay for the entire damage. But if the damage came from a leak caused by wear and tear, you may have to pick up part of the costs.
Does home insurance cover water damage?
Yes, homeowners insurance will cover some types of water damage — but not all.
Homeowners insurance will typically cover damage caused by a sudden problem, such as a burst pipe. However, it won’t cover flood damage that comes from outside the home. Instead, you need a flood insurance policy for that water damage.
A standard homeowners insurance policy also may not cover damage caused by not maintaining your home. For instance, if a leaky pipe damages your finished basement, the insurance company could feel that you should have resolved the problem before it led to a claim. In that case, the insurance company may pay for some or none of the damage.
Does homeowners insurance cover mold?
Does homeowners insurance cover mold depends on your policy and the cause of the damage.
An insurance company may decline a claim for a moldy shower. Insurers expect homeowners to resolve issues before they become a problem. An insurance company will likely feel that you should have resolved a shower and bathroom’s ventilation to prevent the mold.
However, a policy will likely cover you if a sudden burst pipe caused mold. Another example is mold that formed after firefighters put out a fire in your home. That mold formation was sudden and beyond your control, so a home policy will likely cover that damage.