Homeowners insurance is required by most lenders, but few people understand what they're actually buying. Let's demystify your policy so you know exactly what you're protected against—and what you're not.
What Homeowners Insurance Covers
A standard homeowners policy (HO-3) includes several types of coverage:
Dwelling Coverage (Coverage A)
Covers the structure of your home—walls, roof, foundation, built-in appliances. This is the big one.
Covered:
- and smoke damage
- Wind and hail damage
- Lightning strikes
- Vandalism
- Falling trees or debris
Other Structures (Coverage B)
Covers detached structures on your property.
Examples:
- Detached garage
- Shed
- Fence
- Gazebo
Typically 10% of your dwelling coverage.
Personal Property (Coverage C)
Covers your belongings inside the home.
Covered items:
- Furniture
- Electronics
- Clothing
- Appliances
Typically 50-70% of dwelling coverage. High-value items (jewelry, art, collectibles) often have sub-limits.
Loss of Use (Coverage D)
If your home is uninhabitable due to a covered event, this pays for temporary living expenses.
Covers:
- Hotel stays
- Rental housing
- Extra food costs
- Laundry expenses
Pro Tip
Loss of use coverage can be a lifesaver. After a fire, you might need months of temporary housing while repairs happen.
Liability Coverage (Coverage E)
Protects you if someone is injured on your property or you accidentally damage someone else's property.
Examples:
- Guest slips on your icy driveway
- Your tree falls on neighbor's car
- Your dog bites a visitor
Standard coverage is $100,000-$300,000. Consider increasing this.
Medical Payments (Coverage F)
Covers minor injuries to guests, regardless of fault. Usually $1,000-$5,000.
What Homeowners Insurance Does NOT Cover
This is where people get caught off guard:
Watch Out
Standard policies exclude floods, earthquakes, and routine maintenance issues. You need separate policies for natural disaster coverage.
Not covered:
- Floods - Requires separate flood insurance (FEMA or private)
- Earthquakes - Requires separate earthquake policy
- Sewer backups - Usually requires endorsement
- Mold - Often excluded or limited
- Pest damage - Termites, rodents, etc.
- Normal wear and tear - Maintenance is your responsibility
- Home business equipment - May need business policy
- Expensive jewelry/art - Above policy sub-limits
When heavy rains caused flooding in their basement, the Martinez family assumed their homeowners policy would cover the $15,000 in damage. They were devastated to learn flood damage was excluded. Now they have separate flood insurance.
Understanding Your
Your deductible is what you pay before insurance kicks in.
Common deductibles: $500, $1,000, $2,500, $5,000
Higher deductible = Lower But make sure you can afford to pay it in an emergency.
Percentage deductibles: Some policies use percentage deductibles for wind/hail (1-5% of dwelling coverage). On a $300,000 home, a 2% deductible is $6,000!
Do This
Read your policy to understand if you have different deductibles for different perils. Wind and hail often have higher deductibles than other covered events.
Replacement Cost vs. Actual Cash Value
This is crucial for both dwelling and personal property coverage:
Replacement Cost (RC) Pays to replace your home/items at current prices, regardless of age.
Actual Cash Value (ACV) Pays replacement cost minus depreciation. A 5-year-old TV worth $1,000 new might only pay out $400.
Pro Tip
Always choose replacement cost coverage for both your dwelling and personal property. The premium difference is worth it.
How Much Coverage Do You Need?
Dwelling Coverage
Should cover the cost to rebuild your home—NOT the purchase price or market value.
Factors:
- Local construction costs per square foot
- Custom features
- Quality of materials
- Current labor costs
Get a replacement cost estimate from your insurer or a local contractor.
Personal Property
Do a home inventory. Most people underestimate their belongings' value.
Walk through each room and estimate:
- Electronics
- Furniture
- Clothing
- Kitchen items
- Books, decor, etc.
Quick Win
Use a home inventory app or spreadsheet. Take photos/videos of each room and valuable items. Store it in the cloud so you have proof after a disaster.
Liability Coverage
Standard $100,000-$300,000 may not be enough if you have significant assets. Consider:
- Increase to $500,000
- Add an umbrella policy for $1 million+ protection
Common Endorsements (Add-Ons)
Scheduled Personal Property For jewelry, art, collectibles, or musical instruments exceeding standard limits.
Water Backup Covers sewer and drain backup—increasingly common and often excluded.
Home Office If you work from home, covers business equipment.
Identity Theft Covers expenses related to identity restoration.
Service Line Coverage Covers underground utility lines to your home.
Ways to Lower Your Premium
Do This
- Increase your deductible - $1,000 vs $500 saves significantly
- Bundle policies - Home + auto discount (15-25% savings)
- Security systems - Alarms, deadbolts, smoke detectors
- New roof - Old roofs increase premiums substantially
- Good credit - In most states, credit affects rates
- Shop around - Rates vary dramatically between insurers
Filing a Claim
Before a loss:
- Document everything (photos, videos, receipts)
- Know your policy details
- Have your agent's contact info accessible
After a loss:
- Ensure safety first
- Prevent further damage if possible
- Document damage with photos/video
- Contact your insurance company promptly
- Get repair estimates
- Keep receipts for temporary expenses
Avoid This
Don't make permanent repairs before the adjuster visits. Temporary fixes to prevent further damage are fine and encouraged.
Renters: What About You?
If you rent, you need renters insurance instead. It covers:
- Personal property
- Liability
- Loss of use
Your landlord's policy does NOT cover your belongings. Renters insurance typically costs $15-30/month and is absolutely worth it.