What does homeowners insurance cover?

A typical homeowners insurance policy bundles six coverages:

• Dwelling: It can help pay to repair or rebuild the house itself, including the roof, siding, windows and anything else permanently attached, after a covered event.
• Other structures: It can help cover structures on your property that aren't attached to the house, such as a detached garage, fence or shed.
• Personal property: It can help cover belongings such as furniture, clothing, and electronics when they're stolen or damaged by a covered event.
• Loss of use (additional living expenses): It can help pay for extra costs, such as hotel and restaurant bills, while your home is uninhabitable after a covered loss.
• Personal liability: Covers injury or property damage you're legally responsible for, including legal defense costs, up to your policy limit.
• Medical payments: It can help cover smaller medical bills for guests who are injured at your place, regardless of fault. It doesn't apply to people in your own household.

Your policy's declarations page lists each coverage with its limit, making it the fastest way to see your policy details.

Ollie's Key Insight

Loss of use is the coverage people forget they own. If a kitchen fire puts you in a hotel for a few weeks, this is the part that pays the bill, so check its limit before you ever need it.

A single claim can trigger more than one part of your homeowners policy. Say a covered kitchen fire damages your cabinets, appliances, and flooring. Dwelling coverage helps repair the structure; personal property coverage helps replace damaged belongings; and loss of use coverage can pay for a hotel while repairs are underway.

Liability coverage works differently. It protects you when someone outside your household is injured or their property is damaged. If a guest slips on your steps, medical payments coverage may help with medical bills no matter who was at fault. Personal liability coverage can step in if the injury leads to a lawsuit.

Homeowners insurance pays for damage caused by covered events, often called perils. Fire, lightning, windstorms, hail, theft, vandalism, and explosions are common perils.

Most homeowners have an HO-3 policy. With this type of policy, the dwelling is usually covered on an open-perils basis, which means damage is covered unless the policy excludes the cause. Your belongings are usually covered on a named-perils basis, meaning the damage must result from a cause listed in the policy.

That difference matters when something unusual happens. The policy language decides whether the claim is covered, so the perils section is worth reading carefully.

Standard homeowners insurance does not cover everything. Floods, earthquakes, normal wear and tear, skipped maintenance, and pest damage are usually excluded. Water backup from a sewer, drain, or sump pump is also often excluded or limited unless you add separate coverage.

Insurers often draw the line between sudden damage and gradual damage. A pipe that suddenly bursts and floods the floor is generally covered. A slow leak that rots the floor over several years is usually treated as a maintenance issue and is not covered.

Flood insurance is typically bought as a separate policy. Earthquake coverage is usually added separately, too. If you live near water, in a flood-prone area or near a fault line, a standard policy may not be enough.

Every part of a homeowners policy has a limit, which is the most the insurance company will pay for that coverage. The dwelling limit is especially important. It should be based on the cost to rebuild your home, not the home’s market value.

Your deductible is the amount you pay out of pocket before insurance pays on a claim.

Some belongings have lower limits, especially when they’re stolen. Jewelry, art, collectibles, and silverware often fall into this category. You may need an endorsement, or policy add-on, to fully cover high-value items.

Policies also value losses differently. Replacement cost coverage pays to replace damaged items with new ones. Actual cash value coverage subtracts depreciation, so the payout is lower. A home inventory can help you see whether your personal property limit is enough.