What Does Homeowners Insurance Cover?

A typical homeowners insurance policy covers three major areas: the structure of your home, your belongings, and your personal liability for bodily harm and property damage to others. While reading your homeowners insurance policy is the only way to understand exactly when coverage applies or does not apply, homeowners insurance generally protects both your home and possessions from a wide range of perils, or causes of damage. Earthquakes and floods are typically specifically excluded and necessitate the purchase of additional insurance.

Perils that homeowners insurance protects against

An HO-3 policy is the most common type of homeowners insurance. HO-3 policies include open perils coverage for a house's structure as well as named perils coverage for your personal property.

Open perils coverage means you're protected against all types of damage except those specifically excluded. War, earthquakes, and nuclear explosions are common exclusions, but check your policy to be sure.

Named perils coverage, on the other hand, only covers perils that are specifically mentioned in the policy. This usually includes a wide range of perils such as fire, wind, falling objects, and theft.

Exclusions are typically listed in named perils policies, though the way named perils and named exclusions interact can be complex and vary from state to state. In California, for example, if an earthquake causes a fire that damages your home, you're covered, despite the fact that earthquakes are generally excluded from homeowners insurance.

What homeowners insurance covers

The following are the main types of coverage that can be included in a standard home insurance policy. Most policies explicitly state what is covered and can be classified into the categories listed below. There are a number of perils or additional protections that aren't typically included in home insurance policies (we'll discuss this further below). Home insurance companies will cover any claims that exceed your deductible.

The structure of the home

This section of the policy, also known as "dwelling coverage," covers physical damage to the home itself. This section includes any damage to the walls, roof, floor, or doors. The foundation of your home, as well as other parts that may or may not be visible, are covered.

Personal belongings

Homeowners insurance will also cover the cost of repairing or replacing your belongings. You're covered no matter where your belongings are in the world, so if your cellphone is stolen while you're on vacation, you'll be compensated. It also covers the possessions of others if they live with you, as well as the possessions of guests while the policyholder is present.

Furniture, electronics, clothing, sporting equipment, watercraft, silverware, firearms, furs, and jewelry are examples of personal belongings. Except in cases of wind damage and disease, trees, plants, and shrubs are usually covered as well.

Keep in mind that high-value items, such as jewelry, cash, or firearms, may have limited or no coverage under a standard homeowners insurance policy. Check with your insurer if you have any high-value items to ensure they're adequately insured.

Documenting your possessions is critical to getting the most out of your homeowners insurance coverage. In the event of a partial or total loss, most people are unable to recall all of their possessions. As a result, policyholders should inventory their belongings that they would claim if they were damaged or lost as a result of a peril. The belongings inventory should include photos or videos of the items, as well as any receipts and proof of purchase to attach, which is much easier in this day and age of smartphones.

Liability coverage

This coverage protects the policyholder and their family members (including pets) from bodily injury or property damage lawsuits for which they are responsible. It will cover court costs as well as any awards you are ordered to pay in court, up to the policy's limit. The liability portion of your homeowners insurance follows you and your family to your neighbor's house or anywhere else in the world.

For example, if you spill a glass of wine on a neighbor's rug and ruin it, homeowners insurance will cover the cost, but it will not cover your own rug if you spill wine and ruin it. If you're throwing a party and spill wine on your neighbor's genuine fur coat, you've created another liability situation that your home insurance would cover. Another example would be if your dog bites someone — the incident would be covered by home insurance. If your own dog bites you, your homeowners insurance will not cover the incident.

Homeowners insurance may also include no-fault medical coverage, which means that if a friend or neighbor is injured in your home, they can file medical bills with your insurance company. This allows them to be reimbursed for their expenses without filing a liability claim against you. This section of the policy does not cover the policyholder's, their family's, or their pets' medical bills; for that, you'd have to turn to your health insurance or pet insurance, if you have any.

Additional living expenses (ALE)

This section of a home insurance policy, sometimes abbreviated as ALE, covers the cost of staying somewhere else if your home becomes uninhabitable. Hotel bills, restaurant meals, and other expenses are all covered by ALE.

For example, if an insured peril destroys your home's roof, you will most likely need to find another place to live until it is repaired. The costs of a hotel room and restaurant meals would be covered by ALE. An additional expense could be the cost of washing clothing if you do not have access to your own washer and dryer.

Though it is a common coverage under a homeowners insurance policy, additional living expense coverage varies greatly between companies. Some businesses reimburse expenses up to a certain total limit. Others do not have an expense limit but only provide coverage for a limited period of time following an incident.

ALE will also reimburse policyholders for rent owed to them. Assume you rent out a portion of your home, but that portion became uninhabitable due to a peril covered by your policy. In that case, subject to the terms of your policy, ALE would pay you the lost income from the tenant who had to relocate until the space was repaired.

Other protections home insurance can provide

Every insurance policy is unique, but there are some additional benefits that homeowners insurance frequently provides. These are coverages that most people do not consider when purchasing homeowners insurance, but it is critical that you do not overlook them if you would benefit from having the coverage.

• Debris removal: Companies usually pay reasonable expenses to remove debris from a covered peril that caused a loss on their property. This category also includes ash, dust, and particles from a volcanic eruption that caused direct loss or damage, as well as trees felled by a peril.
• Grave markers: Homeowners insurance policies may cover grave markers and mausoleums that are damaged or destroyed as a result of a covered peril. The grave markers or mausoleums can be located on or off the policyholder's property.
• Green home coverage: Also known as "green improvement" or "green reimbursement," this endorsement allows a home to be rebuilt with green materials or items to be replaced with more energy-efficient versions in the event of a covered loss.
• Identity fraud: Identity fraud coverage protects a homeowner by paying to help them restore their identity if it is used fraudulently.
• Loss assessment: If a peril strikes your home or other property covered by your homeowners insurance, you must have a professional damage assessment performed. Assessments may be costly depending on what is damaged and the extent of the damage. Fortunately, most homeowners insurance policies cover loss assessments up to a certain limit.
• Unauthorized use of credit cards: Most homeowner's insurance policies cover unauthorized credit card charges. However, the limit is typically low ($500), and most credit card companies will remove unauthorized charges from your card after you report them.

What homeowners insurance doesn’t cover

There are several things that homeowners insurance does not cover. Some are obvious, while others are not so much. Earthquakes and floods are the two most important to be aware of. These are common perils in some areas, and insurance products are available to cover them. Homeowners insurance exclusions differ from company to company and from state to state.

Other exclusions from homeowners insurance include neglect or failure to make repairs, wear and tear, corrosion and rust, contamination, animals and pests, fungi, nuclear hazards, power outages, government actions, and war.