What does homeowners insurance cover?

Homeowners insurance is financial protection for anyone who owns a home. If your home is damaged or destroyed in an unexpected incident, like a fire or tornado, homeowners insurance can pay to repair or rebuild it. But that’s just one example of how your policy protects you. In this guide, we’ll explain all of the ways you’re covered by homeowners insurance.

What does homeowners insurance cover?

While no two homeowners insurance policies are created equal, every basic policy has the same six coverages that cover your home, belongings, and assets — here’s a look at what each one does.

Homeowners insurance coverages explained

Homeowners insurance is more than just coverage for your home — in fact, it’s often referred to as a “package policy” since it covers damage to your property and your liability (meaning your legal responsibility) for any injuries that you’re responsible for. Your homeowners insurance protects you in four important ways.

1. It pays to rebuild or repair your house or other structures on your property

Homeowners insurance covers the cost of repairs or a full rebuild of your home through your policy's dwelling coverage if it’s damaged or destroyed by a fire, storm, or any other peril listed on your policy. Your policy also covers damage or loss to structures that are technically separate from your home, like a detached garage, shed, or fence.

2. It pays to replace your belongings if they’re damaged or stolen

Homeowners insurance also covers your personal property, meaning your clothing, furniture, appliances, and other personal items if they’re stolen or damaged by any covered perils listed in your policy. This coverage also applies to damage or theft away from home.

3. It pays for temporary living expenses while your house is being repaired

If your house is severely damaged or destroyed in a disaster and you have to stay somewhere else, loss of use coverage can pay for a hotel or temporary rental. It can also reimburse you for other extra living expenses while you’re not able to stay at home, like restaurant meals, dry cleaning, and added transportation costs while your home is being rebuilt or repaired.  

4. It pays for expensive lawsuits and medical expenses if you’re responsible for damage or injury to someone else

Along with covering your property and living expenses, homeowners insurance also covers your personal liability if you’re personally responsible for an accidental injury or property damage and sued. For example, if your dog bites someone and it’s determined that your negligence led to the incident, your policy’s personal liability coverage can kick in to pay for the injured person's medical bills, lost wages, attorney fees, and any other damages. 

→ Learn more about how homeowners insurance works

What type of damage is and isn’t covered?

Your home insurance policy outlines exactly which perils are and aren’t covered. Here’s an example of perils that are covered, never covered, and sometimes covered under a standard home insurance policy.

For an additional cost, some insurers will let you add flood and earthquake coverage to your homeowners insurance as an optional endorsement. If your insurer doesn’t offer this, you’ll have to purchase separate flood or earthquake insurance to protect your home and belongings from those disasters.

→ Learn more about which perils are and aren’t covered by homeowners insurance

Levels of homeowners insurance coverage

Just about every type of homeowners insurance policy provides the same basic coverages, but the amount you’re paid out or reimbursed for property damage or theft will vary depending on which level of coverage you have. While coverage availability varies by company and policy type, there are generally four different coverage levels in homeowners insurance:

• Actual cash value: This is the cheapest level of coverage but it subtracts depreciation (like the property’s age or condition) from your claim payout, leaving you paying more out of pocket on a claim if your home is damaged.

• Replacement cost value: This is more expensive than actual cash value, but you’re reimbursed for the cost of repairing or rebuilding your home to its original condition before it was damaged.

• Extended replacement cost: A more costly level of coverage than replacement cost, but it increases your coverage by a capped amount (like 25% or 50%) if your home is damaged and your policy limit isn’t high enough.

• Guaranteed replacement cost: The most expensive level of coverage, but it reimburses you for a full rebuild regardless of the cost. 

Let's look at an example.

Imagine your house is insured for $300,000. One day, a natural disaster destroys both your home and others in your community, and you discover it'll cost $500,000 to rebuild due to the increased demand for labor and construction. Here’s how much you’d be reimbursed on a claim for each policy level.

→ Learn about how to estimate your home’s replacement cost