Q
A
Expert reviewed
Expert reviewed
This article has been reviewed by a licensed Policygenius expert to ensure that sources, statistics, and claims meet our standard for accurate and unbiased advice.
Learn more about our editorial review process.
by
Fabio Faschi, PLCS, SBCS, CLCSFabio Faschi, PLCS, SBCS, CLCS
Licensed Property & Casualty Insurance Expert
Updated January 3, 20223 min read
Table of contents
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.
Ready to shop home insurance?
Start calculator
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.
Coverage type | What it does | When you can use it |
---|---|---|
Dwelling | Pays to repair or rebuild your house and structures attached to it | If your house is damaged by fire, wind, or any other covered disaster |
Other structures | Pays to repair or rebuild your shed, guest house, fence, or other structures | If a structure not attached to your house is damaged by a covered disaster |
Personal property | Pays to repair or replace furniture, electronics, kitchen appliances, and other stuff you own | If your belongings are stolen or damaged by a covered loss |
Additional living expenses | Pays for hotel stays, rentals, restaurant bills, and other temporary expenses | If your home is damaged in a disaster and you're not able to live there |
Personal liability | Pays for guests' medical bills and legal expenses | If you're legally responsible for someone's injury or property damage |
Medical payments | Pays for guests' medical bills from minor injuries | If a guest sustains a minor injury at your home, regardless of fault |
Coverage type | What it does | When you can use it |
---|---|---|
Dwelling | Pays to repair or rebuild your house and structures attached to it | If your house is damaged by fire, wind, or any other covered disaster |
Other structures | Pays to repair or rebuild your shed, guest house, fence, or other structures | If a structure not attached to your house is damaged by a covered disaster |
Personal property | Pays to repair or replace furniture, electronics, kitchen appliances, and other stuff you own | If your belongings are stolen or damaged by a covered loss |
Additional living expenses | Pays for hotel stays, rentals, restaurant bills, and other temporary expenses | If your home is damaged in a disaster and you're not able to live there |
Personal liability | Pays for guests' medical bills and legal expenses | If you're legally responsible for someone's injury or property damage |
Medical payments | Pays for guests' medical bills from minor injuries | If a guest sustains a minor injury at your home, regardless of fault |
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.
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.
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.
Genius tip
Most insurance companies offer a variety of optional coverages that can add an extra layer of protection for the structure of your home, increase coverage limits on expensive items like jewelry, and expand coverage to protect against losses that aren’t normally covered by a standard policy, including plumbing backups, appliance breakdown, and service line damage.
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.
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
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.
Fire
Lightning
Smoke
Wind
Hail
Theft
Explosion
Weight of snow or ice
Power surges
Vandalism
Mold
Internal water damage
Tree removal
Roof leaks
Foundation issues
Dog liability
Earthquakes
Flooding
Pests
Routine wear and tear or age
Intentional acts
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
Genius tip
If you file a claim and the loss is covered by your policy, your insurer will pay out for the claim as long as you meet your policy deductible. This is the amount you’re responsible for paying out of your own pocket on each claim before your insurance kicks in. If the damage or loss amount is less than your policy deductible, you won’t be able to file a claim.
Ready to shop home insurance?
Start calculator
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.
Coverage level | Coverage limit | Claim payout | Out of pocket expenses after payout |
---|---|---|---|
Actual cash value | $300,000 minus depreciation (like $50,000) | $250,000 | $250,000 |
Replacement cost value | $300,000 | $300,000 | $200,000 |
Extended replacement cost of 125% | $375,000 | $375,000 | $125,000 |
Extended replacement cost of 150% | $450,000 | $450,000 | $50,000 |
Guaranteed replacement cost | Full rebuild amount | $500,000 | $0 |
→ Learn about how to estimate your home’s replacement cost
A standard home insurance policy includes six core coverages: dwelling, other structures, personal property, additional living expenses, liability, and medical payments. Together, these coverages can help pay for damage to your home and personal belongings, unexpected temporary living expenses after a disaster, and legal and medical expenses.
Homeowners insurance will cover the cost to repair or replace your foundation if the cause of damage is covered by your policy. Unfortunately, damage from the settling and shrinking of your home’s foundation and other common causes of foundation issues, earthquakes and pests, are not covered by homeowners insurance.
Water damage from burst pipes and rain or snow are covered by homeowners insurance. Water damage from outside flooding and sewer backups are not covered, but you can buy separate flood insurance or add water backup coverage as an endorsement to make sure you’re fully protected.
If you buy a home with a mortgage, your lender will likely require you to insure your home for at least 80% of its true replacement cost, or the amount it would cost to rebuild the home from the ground up. The 80% rule also applies to how you’re paid out on a claim. If your house is insured for less than 80% of its true replacement cost and you file a dwelling coverage claim, your insurer will only pay out for the actual cash value, or depreciated value of the home.