What does homeowners insurance cover? (2024)

In a nutshell

• Homeowners insurance is a type of insurance coverage that can protect your property and your finances in a variety of situations, some man-made and some caused by natural events.
• If you're a homeowner already, it's likely you're paying for this coverage manually or through the escrow account tied to your mortgage payment.
• If you're a renter who is considering buying a first home, understanding homeowners insurance and what it covers can help you prepare for the next steps.

It's important to understand that all homeowners insurance policies are different, and that you'll need to compare coverage options and inclusions across multiple companies to find the right fit.

Before you do anything else, read on to learn what homeowners insurance typically covers, what is not typically covered by these policies, and how to choose the right provider for your needs.

What does homeowners insurance cover?

According to the Insurance Information Institute (III), a traditional homeowner's insurance policy provides coverage for the following:

• The structure of your home
• Other buildings or structures on your property
• Your personal property or belongings
• Liability coverage for injuries or damage to another's property

Coverage for the structure of your home or property can help replace your home's foundation, your walls, your roof, and all interior components of your home if fire, windstorms, hail or other covered events cause damage. The same can apply to other structures on your property, such as a detached garage or a deck built onto the back of your home.

In addition to coverage for the buildings you own, homeowners insurance can also provide coverage for items you keep in your home, from appliances and furniture to your personal belongings. Personal property protection can even kick in to replace household electronics like your television and computer, as well as the clothing you and your family members wear in case they are damaged.

Finally, liability coverage is essential, which is why it is one of the main components of homeowners insurance. This type of protection comes into play when someone is hurt on your property and tries to hold you legally responsible. If a visitor to your home falls down your stairs and breaks a limb, this kind of coverage can pay for your legal bills and related expenses. On the flip side, homeowners insurance liability coverage can come into play if you or someone in your household causes damage to someone else's property.

What else can homeowners insurance do? Believe it or not, homeowners insurance can also cover additional living expenses that begin piling up when you cannot occupy your home due to a covered event such as a house fire or damage from a tornado. An example might include the cost of a hotel while your home is being repaired. You can also pay for additional homeowners insurance coverage for high-value items you own, such as collectible artwork or jewelry.

What doesn't homeowners insurance cover?

One of the first details to note about homeowners insurance is the fact that additional costs outside of monthly or annual premiums can apply. For example, filing a homeowners insurance claim typically requires an insurance deductible to be met first. There are also coverage limits to be aware of, which can vary widely depending on the insurance company you select and the details of your policy.

Note that certain natural disasters are not covered by a traditional homeowners insurance policy. Examples include earthquakes and floods, which you can sometimes cover at an additional cost with an earthquake insurance policy or flood insurance. Sewage backups caused by overgrown tree roots or stormwater issues are also not typically covered by a homeowners insurance policy.

Other typical homeowners insurance exclusions include acts of war, nuclear hazards, and especially valuable property that is worth more than traditional homeowners insurance limits cover. If you have a diamond necklace that is worth $20,000 and it's stolen from your home, for example, you should know that most homeowners' policies have much lower limits than that (usually around $1,500) for jewelry coverage.

Homeowners insurance actual cash value versus replacement cost

As you shop around for homeowners insurance, you should also know the difference between replacement cost and actual cash value. This detail within your homeowners insurance policy will determine how you're reimbursed for a covered loss if you have to file a claim.

• Actual cash value coverage: This kind of homeowners insurance will reimburse you for the actual cash value of your belongings minus depreciation. This means that the amount you receive from your insurance company may not be enough to actually replace your furniture, appliances, or other items in the event of a total loss.
• Replacement cost coverage: This type of homeowners insurance reimbursem*nt provides you with the actual replacement cost of your lost item without accounting for depreciation. This means that furniture or a television will be replaced at what it costs now, regardless of how old it is.

Generally speaking, replacement cost coverage requires higher insurance premiums because depreciation isn't factored in. However, buying a policy with actual cash value coverage can leave you frustrated if everything you own is ruined but you don't receive enough reimbursem*nt to replace items for what they cost now.

Either way, you'll want to make sure you know the type of homeowners insurance you are buying before you pull the trigger. That way, you can have a handle on the type of reimbursem*nt to expect if you find yourself in the unfortunate position of having to file a homeowners insurance claim.

Choosing the right policy

How can you find the right homeowners insurance policy for your needs? For the most part, you have to be diligent when it comes to shopping around across multiple insurers, and when it comes to selecting your policy limits and any add-on coverages you want. In the meantime, you should look for a policy that offers a homeowners insurance deductible you can live with and check to see if you are eligible for any discounts offered.

At the end of the day, you should never skimp on this important protection, even if it means paying slightly higher premiums for more coverage than you think you need. If your house burns to the ground or a tornado wipes away everything you own, the coverage you have — or don't have — can mean the difference between becoming whole or starting over from scratch.