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Last updated on Oct 28, 2020

Guide to Homeowners Insurance Coverage

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What does homeowners insurance cover?

The majority of homeowners purchase what’s known as an “HO-3” policy. The HO-3 is best for its broad protection; instead of covering certain “named perils” like other policy types do, an HO-3 policy protects your home against everything except for a few causes that are specifically excluded. These exclusions generally include:

  • Earth movement – earthquakes, landslides, or sinkholes
  • Water damage – flooding, sewer backup, or groundwater seepage
  • Poor maintenance – neglect, sub-par construction, or faulty building materials
  • Social causes – war, nuclear hazard, government ordinance, or new building codes
  • Intentional loss – damaging the home on purpose to get an insurance payout

Under an HO-3 policy, if your home is damaged or destroyed by any cause that’s not excluded, your insurance company will have to pay for repairs or replacement up to the maximum coverage limits listed on your insurance.

Homeowners insurance covers six core areas

The exclusions listed above dictate when your homeowners insurance will pay out. Within that framework, there are a variety of coverage types that determine what the insurance company will pay for.

  • Home or “dwelling” coverage pays to repair or replace your main house if it’s damaged by a covered cause
  • Coverage for “other structures” pays to repair or replace other structures, like detached garages, sheds, fences, and guest houses
  • Personal property coverage replaces the things inside your home. Note: personal property is the only thing covered on a named perils basis under an HO-3 policy
  • Loss of use coverage helps pay for living expenses, like alternate lodging, if you’re displaced from your home while it’s being repaired
  • Personal liability insurance covers losses and legal fees if someone outside your family is injured or has belongings damaged while on your property
  • Medical payment insurance helps cover medical bills for anyone injured on your property or by your pets

Each type of coverage comes with its own limit, which is the maximum amount your insurer will pay out in that area on a given claim. Your dwelling limit is the highest, since it must be enough to completely rebuild your home in a worst-case scenario. Limits for the other five categories are set as a percentage of the overall dwelling coverage — so the higher your dwelling limit, the better your coverage will be in each subsequent area.

Optional coverages add extra protection

An HO-3 policy covers all the basics. But depending on your location, your home type, and your assets, you may find that you need additional coverage in certain areas. Homeowners insurance companies offer add-ons or “endorsements” to address those places where a standard policy might be lacking. There are a huge number of endorsements available on the market, but some of the most common options include:

Flood insurance is sold separately

Homeowners insurance does not cover flooding or flood-related damages. And, unlike earthquake insurance, flood insurance is not sold as an endorsement to the basic HO-3. It must be purchased separately, either from a private insurer (though only a handful of companies carry it) or from the National Flood Insurance Program.

Whether or not you’ll need to purchase flood insurance depends on your location. Anyone living in a flood plain or storm-prone area should consider protecting themselves, as flooding can cause extensive and costly damages. Be sure to talk with your insurance agent about flood risk and the availability of flood insurance where you live.

A note on “named peril” policies

Some homeowners insurance policies operate on a “named perils” basis, meaning they only pay out if your home is damaged by a cause specifically listed on the policy. Although HO-3 policies don’t work this way when it comes to your home — instead using exclusion-based coverage — they do use a named perils system when it comes to personal property. Named peril coverage typically protects your personal property against the following 16 events:

  • Fire or lightning
  • Windstorm or hail
  • Explosion
  • Riot or civil commotion
  • Damage caused by aircraft
  • Damage caused by vehicles
  • Smoke
  • Vandalism or malicious mischief
  • Theft
  • Volcanic eruption
  • Falling object
  • Weight of ice, snow, or sleet
  • Discharge or overflow of water or steam from plumbing, heating, air conditioning, fire-protective sprinkler system, or household appliance
  • Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, air conditioning, or fire-protective system
  • Freezing of a plumbing, heating, air conditioning, or fire-protective system, or household appliance
  • Sudden and accidental damage from an artificially generated electrical current

*Source: The Insurance Information Institute

What’s next?

To learn more about how homeowners insurance works — and what to look for in your policy — check out our homeowners insurance buyer’s guide. Ready for the next steps? You can start comparing companies and quotes with our in-depth homeowners insurance reviews:

We’ve also vetted homeowners insurance companies on a state-by-state basis. Click on your state for reviews of the top homeowners insurance providers where you live:

About the Authors

Maggie Overholt

Maggie Overholt Contributor

Maggie is a former lead insurance editor at Reviews.com. She's written more than 70 insurance articles covering homeowners, auto, life, motorcycle, travel, and more.