You’re buying homeowners insurance so you’re protected for every problem, right? Not exactly.
Homeowners insurance is a vital way to protect your home, but these policies don’t compensate you for every type of damage that may happen. Plus, if you don’t have enough home insurance, you may wind up still needing to shell out money to bridge coverage gaps. Let’s take a look at what homeowners insurance covers and, equally important, what it doesn’t cover.
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What Does Homeowners Insurance Cover?
The most common homeowners insurance policy, called the HO-3, covers your house (dwelling structure) for any problem except those listed as exclusions in the policy.
Personal property is covered if the damage is from specific “perils,” which is insurance-speak for “problems.” An HO-3 policy covers personal property for these perils:
- Accidental discharge or overflow of water or steam
- Aircraft, including self-propelled missiles and spacecraft
- Explosion
- Falling objects
- Fire or lightning
- Freezing
- Riot or civil commotion
- Smoke
- Sudden and accidental damage from artificially generated electrical current
- Sudden and accidental tearing apart, cracking, burning or bulging
- Theft
- Vandalism or malicious mischief
- Vehicles
- Weight of ice, snow or sleet
- Windstorm or hail
- Volcanic eruption
If you want better coverage for your possessions, ask your insurance agent about an HO-5 or similar types of home insurance policies. (Not all insurers use these standard policy types.) An HO-5 policy covers your house and personal property for all problems except those expressly excluded.
The most common type of home insurance claim is for wind and hail damage. Nearly 43% of homeowners insurance claims were related to wind and hail damage, but the costliest average property damage claim is for fire and lightning damage, according to Triple-I (Insurance Information Institute). Here’s a look at the three most common property damage claims and the average claim costs for each.
| Type | Percentage of claims | Average claim amount |
|---|---|---|
| Wind and hail | 43% | $14,747 |
| Water damage and freezing | 23% | $15,400 |
| Fire and lightning | 22% | $88,170 |
Source: Triple-I
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Common Home Insurance Coverage Add-Ons
Beyond standard home insurance, you can also usually add more coverage to your policy. Common home insurance endorsements include:
- Earthquake insurance. Not usually covered by a standard home policy, insurers may allow you to add earthquake insurance coverage as an endorsement.
- Equipment breakdown coverage. Covers mechanical and electrical breakdowns on appliances like boilers, computers, furnaces, heating, refrigerators and washers.
- Extended or guaranteed replacement coverage. These policy add-ons allow you to exceed your dwelling coverage if you need to rebuild your home but building costs go over your limit. Extended replacement coverage is a percentage that you’re allowed to exceed the limit (such as 20%), while guaranteed coverage will pay any amount to return your home to its former glory.
- Flood insurance. You typically need to buy a separate flood insurance policy to get flood coverage, but some insurers allow you to add it as a policy endorsement.
- Identity theft coverage. Helps pay the costs of recovering your identity after a theft, including fraud services and fees.
- Inflation guard coverage. Home policies may allow you to add an inflation guard, which increases your dwelling coverage automatically based on inflation.
- Personal property replacement value. Home insurance typically comes with actual cash value coverage for personal property, which means it pays the depreciated value for personal property. Choosing replacement value requires the insurer to reimburse you for the items as if they were new.
- Scheduled personal property. Allows you to expand personal property coverage for specific high-priced items, such as electronics, jewelry and silverware.
- Service line coverage. Covers damaged lines on your property like cable lines, internet lines, power lines, sewer pipes and water pipes.
- Sinkhole coverage. Standard home insurance doesn’t typically cover this type of damage, but you may buy an endorsement.
- Water backup coverage. Home insurance doesn’t typically cover sewer or sump pump backups, but you can add an endorsement to provide that coverage.
- Windstorm coverage. Insurers may exclude wind and hail coverage in certain high-risk areas, such as coastal regions. In that case, you can add windstorm coverage to your policy as an endorsement.
How Does Homeowners Insurance Work?
Home insurance is a contract between you and the insurance company. You pay a premium to have home insurance, which can be paid monthly or annually.
The home insurance company, in turn, covers you for types of damage to your home and belongings. Homeowners insurance also provides personal liability coverage, which helps pay if you or a family member is legally responsible for bodily injury or property damage to someone else or their property.
You file a claim if, for instance, your home is damaged in a fire. The insurer reviews the claim, often sends an insurance adjuster to check the damage and decides on a settlement amount. You then get reimbursed for that amount, minus your policy deductible.
The insurance company may also increase your home insurance premium after you file a claim. You’ll want to decide whether it’s worth filing the claim or not. For instance, if you have a $1,000 deductible and your home suffered a similar amount in damage, you’ll probably want to pay for the repairs yourself since you’ll get so little from the insurance company and the company may charge higher rates because of the claim.
What Coverage Types Are Included in a Homeowners Insurance Policy?
| Type of coverage | What it does | Typical amount covered |
|---|---|---|
| Dwelling coverage | Pays to rebuild or repair the physical structure of your house if it’s damaged by a problem covered by the policy, like a fire or damage from a fallen tree. | Enough to rebuild your home if it’s damaged or destroyed |
| Other structures coverage | Covers detached structures such as a garage, shed or fence. | 10% of dwelling coverage |
| Personal property coverage | Pays to replace or repair belongings after a covered problem. Certain items, like jewelry, have a limit, but you can “schedule” certain expensive items. | 50% to 70% of dwelling coverage, but you can buy additional coverage |
| Personal liability coverage | Pays for accidental injuries and property damage to others for which you or your household members are responsible. Also pays your legal defense if you’re sued because of an injury or damage that’s covered. | $100,000 to $500,000, but you can buy additional coverage through an umbrella insurance policy |
| Medical payments coverage | Pays for minor injuries if a guest is hurt on your property, regardless of fault. It also pays if you or a family member unintentionally injures someone away from your property, and if a pet injures someone away from your home. | $1,000 to $5,000 |
| Additional living expenses coverage | Reimburses you for extra expenses like hotel bills and meals if you can’t live in your house because of a covered problem like a fire. Also called loss of use coverage. | 20% of dwelling coverage |
Replacement Cost vs. Actual Cash Value
You’ll often have a choice between replacement cost or actual cash value coverage for your belongings when buying a home policy. Replacement cost coverage is more expensive because it reimburses you for brand-new, similar versions of the items that were destroyed. Actual cash value coverage takes depreciation into account (meaning the value of the item at the time of the loss).
For example, if your TV is damaged by a problem covered by the policy (such as a fire), replacement cost coverage will pay for a new TV of a comparable model. Actual cash value coverage will only pay what the TV was worth at the time of the problem, and you will need to make up the difference if you buy a new TV.
What Is Not Covered by Homeowners Insurance?
Common exclusions in a standard homeowners insurance policy include:
- Earth movement, including earthquakes, mudslides, mudflow, sinkholes, shockwaves or tremors due to a volcanic eruption, and any other earth movement such as sinking, rising or shifting.
- Governmental action, such as the destruction, confiscation or seizure of your property.
- Intentional damage that you or your household members cause. (Vandalism by someone else is covered.)
- Neglect, such as failing to take proper care of your property. This may include roof leaks, termite damage, plumbing damage and foundation damage caused by wear and tear.
- Nuclear hazard, including damage from nuclear explosion or reaction, radiation or radioactive contamination.
- Ordinance or law, meaning situations where the government requires you to demolish, rebuild, renovate or repair your home to meet local ordinances.
- Power failure if it happens off the property. If the power failure is caused by something on the property, home insurance typically covers the damage.
- War, such as damage from military forces during a war.
- Water damage, including floods, water that backs up through sewers or drains (unless you have added special coverage for this), and leaks from swimming pools or other structures.
Common Situations Where Coverage May Vary
There are some situations where home insurance won’t cover you, and there are times when it depends on the situation.
| Type of damage | Causes likely covered | When it won’t |
|---|---|---|
| Foundation | AccidentalFiresLightning strikesSmoke damageTree falls into houseVandalismVehicle crashes into houseWindstorm | Wear and tearPreventable |
| Mold | Sudden and accidental | Long-term water leak causes mold |
| Plumbing | Sudden and accidental | Wear and tearPreventable |
| Roof leak | Sudden issue like wind and rain | Not maintained properly |
| Roof replacement | Falling objectsFireLightningSmokeVandalismSnow and iceWind and hail | AnimalsEarthquakesMoldNeglectRotWear and tear |
| Termites | Termites chew through writes and cause fireSudden burst pipe leads to attracting termites | Lack of maintenance to repair damage before it becomes a problem |
| Water | Accidental leaksBurst pipesIce damsFireStorm | FloodsFoundation seepageNeglectSewer or drain backupSwimming pool lakesSump pump failure |
Homeowners Insurance Deductibles
A home insurance deductible is the amount deducted from an approved claim. For instance, if you have a $1,000 homeowners insurance deductible and the insurance company approves a $10,000 claim following a small fire in your kitchen, the insurer will provide you $9,000.
The lower the deductible, the more you usually pay for coverage. If you’re looking to save on home insurance, a higher deductible might work, but realize that you’ll get reimbursed less if you need to file a claim later.
Types of Deductibles
There are two types of home insurance deductibles:
- Flat dollar. This type of deductible is a set amount, such as $1,000.
- Percentage. Often between 1% and 10%, this deductible is a percentage of your home’s dwelling coverage. For instance, a home insurance policy with a 2% percentage deductible for a home with $400,000 dwelling coverage would have an $8,000 policy deductible. A percentage deductible is generally for specific causes of damage, such as wind and hail or disasters like hurricanes and tornadoes.
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