What Does Homeowners Insurance Cover?

When misfortune comes knocking, you count on your home insurance to answer. If a fire destroys your home or a burglar steals your personal belongings, a home insurance policy can cover the cost of rebuilding your home, replacing your belongings, or paying your legal fees.

But home insurance policies typically contain exclusions — situations when your coverage doesn't apply (or where it applies to a limited extent). It’s important to understand your coverage, generally, but also to identify any gaps so you can address them. We’ll guide you through the types of coverage typically included in a homeowner's policy, common exclusions, optional endorsements, and when you should consider an additional policy to best protect your home.

What is homeowners insurance?

Homeowners insurance helps with recovery costs when threats such as fire, weather, theft, vandalism, or accidents — called perils — cause damage or loss of property. It can also cover additional living expenses you incur while your home is being repaired, and protects your personal liability if someone suffers an injury on (and sometimes off) your property. 

What’s covered by home insurance?

What’s covered depends on your specific policy type, your insurer, and your location, so always read your policy. The most common type of homeowners insurance policy, the HO-3, provides open-perils coverage for your home's main dwelling and named-perils coverage for personal belongings.

Named and open perils

If you have an all-risk policy, also called an open-perils policy, your home insurance covers damage from events that aren't specifically excluded. If you have a named-perils policy, you’ll only have coverage for the events listed in the policy. 

An HO-2 policy typically covers your home against damage from these 16 named perils, while an HO-1 provides coverage for damage from some of them. An HO-3 policy covers damage from all of these perils plus any that aren’t specifically excluded in the policy :

• Windstorm and hail
• Fire and lightning
• Explosion
• Smoke
• Riots
• Vandalism
• Theft
• Weight of ice, sleet, and snow
• Volcanic eruption
• Falling objects
• Damage from aircraft
• Damage from vehicles
• Accidental discharge of water
• Accidental tearing apart, cracking, etc.
• Freezing of appliances or HVAC
• Artificially generated electrical currents

A standard homeowners insurance policy includes six coverage types, which we’ll review in detail below. 

1. Dwelling

Dwelling coverage pays to repair or replace the structure of your home after a covered accident, up to the limits of your policy. Mortgage lenders typically require dwelling coverage equal to 100% of your home's replacement cost at closing. This is how much money it would take to rebuild your property at current construction costs.

Roof coverage is part of your main dwelling’s coverage, but isn’t always based on your roof’s replacement cost. Instead, roof claims may be paid out based on the depreciated value of your roof, which could be much less than the cost to replace it. This is more likely for older roofs and newer policies.

To help protect against underinsurance, policies may include annual inflation adjustments on renewal statements. Even so, review your dwelling limits with your agent annually — especially after completing home improvements that could increase your home’s replacement cost.

2. Other structures

Other structures' coverage pays for damage to detached structures like sheds and garages against covered hazards. It’s typically limited to 10% of your dwelling coverage limit, but you can often buy more. 

3. Personal property

Personal property coverage pays to repair or replace personal belongings after a covered loss, usually up to 50%-70% of your dwelling coverage. Most policies also cover your belongings against theft or loss while you’re traveling. 

Home insurance companies typically set lower sublimits for specific items such as jewelry, money, collectibles, fine art, electronics, and firearms. If you have particularly valuable items in your home, ask your insurance agent whether you need a scheduled personal property endorsement to properly insure them.

4. Loss of use

Loss of use coverage, also known as additional living expenses (ALE) coverage, pays for extra costs you incur while your home is unlivable due to a covered loss. Coverage is typically limited to 10% to 30% of your dwelling coverage. For example, you might need to stay in a hotel, eat your meals at restaurants, and put personal items in a storage unit while your home is being rebuilt after a fire.

This coverage pays the difference between your ordinary monthly living expenses and higher-cost accommodations, up to the limits of your policy. Check your policy for exclusions and conditions. 

5. Liability coverage

Liability coverage helps pay for damages and injuries to others when you, your family members, or your pets are held legally responsible. Coverage limits are often based on a flat dollar amount, such as $100,000, $300,000, and $500,000. It covers incidents that happen in your home and beyond the limits of your property. 

For example, if a guest slips on your wet floor and sustains an injury or your dog bites a visitor, liability coverage can pay for your legal defense and judgments in a lawsuit along with the injured person’s medical bills and lost wages. Read your policy carefully to understand any exclusions and limits. 

6. Medical payments

Medical payments coverage pays for medical expenses if someone who doesn’t live in your household sustains an injury on your property — or if you injure someone outside your property in certain circumstances. Like the liability portion of your policy, it’s typically a flat dollar amount, such as $5,000.

The injured person doesn’t need to file a lawsuit and you don’t need to be found legally responsible in order to file a claim, so you can access this coverage quickly for minor injuries. Medical payments coverage doesn’t replace health insurance coverage, but it can help with out-of-pocket costs like copays and coinsurance.

Home insurance coverage example

The chart below gives a snapshot of what coverage might look like for a home with an HO-3 policy and a $300,000 dwelling coverage limit. Keep in mind that limits can vary by policy type, insurer, location, and the coverage amounts you select.

What isn’t covered by homeowners insurance?

The following list includes perils that standard homeowners insurance typically doesn't cover. Though exclusions leave coverage gaps, many home insurance companies offer endorsements you can add to your policy even when your standard coverages don’t apply. 

Flood damage

You can purchase a separate flood insurance policy through the National Flood Insurance Program (NFIP) if you live in a participating community. If you want more flexible coverage, you may be able to buy flood insurance from a private insurer. 

Earthquake/earth movement

Many insurers offer separate earthquake policies. Less commonly, some companies offer earthquake endorsements to your homeowners policy in certain areas of the country. For example, State Farm offers earthquake coverage as an add-on for eligible policyholders in select states. 

If earth movement leads to a fire that damages your home, home insurance typically pays for the damage since fire is a covered peril under a standard homeowners policy. 

Wildfires (in some areas)

Some home insurance companies may exclude coverage for wildfires, limit payouts in high-risk areas, or even decline to offer insurance at all. "There is no way to protect from AI classifying your location as a high-danger fire risk area," says Anthony Verreos, president of Verreos Insurance Agency.

If you live in a high-risk area, ask your insurance agent whether your policy includes coverage for wildfires. Several insurance companies offer a separate wildfire endorsement to help close coverage gaps. Also, more than 30 states offer Fair Access to Insurance Requirements (FAIR) plans for eligible homes that don't qualify for private insurance. As a "last resort" option, FAIR coverage is typically more expensive.

Sewer/drain backup

Standard policies typically cover water damage from sudden and accidental causes but exclude damage caused by seepage and backup from sewer lines or drains. If your kitchen sink were to back up and overflow, causing damage to your flooring or cabinetry, you’d need to pay for the repairs out-of-pocket, unless you had a water backup endorsement.

Mold, gradual water damage, wear and tear

While water damage that occurs suddenly from a burst pipe or broken appliance is typically eligible for reimbursement, moisture accumulation that leads to mold damage over time is excluded from coverage. Gradual processes are often considered normal wear and tear rather than unexpected accidents. 

"Details that tell you if the damage was due to a sudden covered loss or due to a long-term condition will change how your claim is going to be handled," says Alex Adekola, CEO and founder of ReadyAdjuster. "What can help you here is preserving as much of the evidence as you can. So if a pipe breaks and it damages your drywall, take videos and photos of it before you do anything else, assuming that your safety and the prevention of additional damage is not a concern."

Pest infestations

A standard homeowners insurance policy generally doesn't cover the cost to remediate a pest infestation, such as bedbugs, termites, or rats. It also won’t cover damage to your home or personal belongings caused by the infestation. 

Home business equipment/liability (above small sublimits)

Some homeowners insurance policies offer limited coverage for business equipment in your home — $2,500 sublimits are typical. Also check your policy for which types of business activities the liability portion will cover. Some insurers may not provide any liability protection for injuries or property damage that occur during the course of business activities. 

If you operate a home business, you’ll likely need a separate in-home business insurance policy or endorsement. If you occasionally bring work home, your standard coverage may be sufficient. You may want to add an endorsement that doubles your business equipment coverage and extends liability coverage to business-related visitors, assuming these occurrences are infrequent. 

Intentional damage, acts of war, and damage from neglect

If you intentionally destroy your property or neglect to properly maintain your home, your homeowners insurance won’t cover any damage that results. Home insurance generally doesn’t cover damage that occurs as a result of a war, but standard policies do cover acts of vandalism. 

What optional endorsements can you add to your policy?

Depending on the insurance provider and availability by location, optional endorsements can include: 

Scheduled personal property coverage

Sometimes called a personal article floater, it adds coverage for valuable items, such as expensive jewelry or electronics, with a sublimit that can be based on the item’s appraised value. 

Water backup and sump overflow

This endorsement adds coverage for water damage from sewer or drain backup, or sump pump overflow or failure. Common examples include an overflowing toilet or basement flooding from a sump pump failure. 

Extended replacement cost (ERC) or guaranteed replacement cost (GRC)

An ERC endorsement extends your dwelling coverage beyond the policy limit by a certain percentage, such as 25% to 50%. A GRC endorsement pays the full cost to repair or rebuild your home, restoring it to its original state. These endorsements are particularly useful for homeowners in high-risk disaster areas, where local construction costs can increase significantly after a widespread incident. Both endorsements are expensive, though, and ERC coverage is much more widely available than GRC coverage.

Watercraft endorsement

Homeowner liability coverage typically doesn’t apply to accidents that happen on watercraft. If you own a boat or jet ski, you can buy this endorsement to extend your liability protection. You can also buy physical damage coverage for your watercraft as an add-on to your policy. 

Equipment breakdown coverage

This endorsement covers mechanical or electrical failure of your home appliances. It may also cover spoiled food and additional living expenses associated with an appliance breaking down. It may be cheaper than a home warranty and offer broader coverage. 

Sinkhole coverage

While most policies cover catastrophic ground cover collapse, home insurance typically excludes structural damage from sinkholes. This endorsement adds coverage for foundation damage that meets four criteria: the ground suddenly collapses, there is a visible depression as a result, your property’s structure (including the foundation) is damaged, the property is condemned and ordered vacant. 

How much does homeowners insurance cost?

The cost of a homeowners insurance policy depends on several factors, including:

• The location of the home, the nearest fire department, and local flood risk and earthquake history
• The type and age of the building
• The resiliency of your home’s building materials and quality of construction
• Any special features that affect your liability
• Your claims history (in most cases)
• The coverage limits and deductibles you choose
• The discounts you’re eligible for
• Your credit-based insurance score (in most states)

Freddie Mac estimated that the average mortgage loan borrower paid $4.90 in homeowners insurance premiums per $1,000 of their home’s value in 2023. For a $400,000 home, that would equal $1,960.

But premiums vary widely by state, especially states with high-risk locations for natural disasters. Home insurance rates also vary by company. To find the cheapest homeowners insurance coverage for your needs, compare quotes from a handful of home insurance providers.