What Does Homeowners Insurance Actually Cover?
Learn the four core coverages in a standard homeowners policy, what is always excluded, and how to check whether you are adequately covered.
The Four Core Coverages
A standard HO-3 homeowners policy, which is the most common type, provides four types of protection. Dwelling coverage pays to repair or rebuild the structure of your home if it is damaged by a covered peril — fire, wind, hail, lightning, vandalism, and many others. Other structures coverage extends similar protection to detached garages, fences, and outbuildings.
Personal property coverage protects your belongings — furniture, clothing, electronics, appliances — if they are stolen or damaged by a covered event. Most policies cover belongings at actual cash value by default, which accounts for depreciation. Replacement cost coverage, which costs a bit more, pays what it actually costs to buy new equivalent items.
Liability coverage protects you if someone is injured on your property or if you accidentally damage someone else's property. It also covers legal defense costs if you are sued. Additional living expenses coverage pays for temporary housing, meals, and other costs if your home becomes uninhabitable after a covered loss.
What Is Always Excluded
Standard homeowners insurance does not cover flood damage. This is one of the most costly and misunderstood exclusions. Water damage from rain coming through a damaged roof is typically covered, but rising water from a storm surge, overflowing river, or flash flood is not. Flood insurance must be purchased separately through the National Flood Insurance Program or private insurers.
Earthquake damage is also excluded from standard policies. Earthquake insurance can be added as a rider or purchased as a separate policy. In earthquake-prone areas like California, this coverage is worth serious consideration.
Gradual damage — rot, mold growth, pest infestations, and normal wear and tear — is excluded from all standard policies. Insurance covers sudden, accidental events, not deterioration that occurs over time. Maintenance issues are the homeowner's responsibility. Knowing this distinction matters because water damage from a burst pipe is typically covered, but water damage from a slowly leaking pipe that went unnoticed for months may be denied.
The Most Common Mistakes When Choosing Coverage
Insuring the home for its market value rather than its replacement cost. Your home's market value includes the land, which cannot be destroyed by fire. Your dwelling coverage should reflect what it would cost to rebuild the structure from scratch using current materials and labor costs. In many markets, rebuild cost and market value are quite different.
Carrying the default personal property coverage limits without reviewing them. Standard policies often limit coverage on specific categories — jewelry, art, electronics, and firearms — to amounts far below their actual value. A $2,000 sub-limit on jewelry means a theft of a $15,000 engagement ring results in only a $2,000 payout. Scheduled personal property coverage can be added to cover high-value items at their full appraised value.
Choosing the lowest deductible without considering the premium impact. A $500 deductible costs more per year in premium than a $2,000 deductible. If you are financially able to handle a $2,000 loss without hardship, the higher deductible saves money annually.
How to Check If You Are Underinsured
Ask your insurer or agent to estimate the replacement cost of your home — not the market value. Many insurers use construction cost calculators that account for square footage, home age, construction type, finishes, and local labor and material costs. The resulting number is what your dwelling coverage should be set to.
Do a rough inventory of your personal property. Walk through your home and write down or photograph every significant item. Major furniture sets, appliances, electronics, clothes, and hobby equipment add up quickly. Many homeowners find they have $80,000 to $150,000 or more in personal property that standard coverage limits may not fully protect.
Review your policy annually, especially after major purchases or home improvements. Adding a renovated kitchen, a new deck, or a finished basement increases your home's rebuild cost and should trigger a coverage review. Making improvements without updating your policy can leave you significantly underinsured if a loss occurs.