What does home insurance cover and what does it not cover?

Purchasing a home is likely the most significant investment you will ever make. To protect that investment, homeowners insurance is not just a luxury—it is a necessity. In fact, if you have a mortgage, your lender will almost certainly require it. However, many homeowners make the mistake of assuming that “insurance covers everything.”

The reality is far more nuanced. Standard homeowners insurance policies (typically known as HO-3 policies) are designed to cover a wide range of common disasters, but they also contain specific “exclusions”—events that are explicitly not covered unless you pay for additional protection.

Understanding the fine print of your policy before a disaster strikes is the difference between a smooth recovery and a financial catastrophe. In this ultimate guide, we will break down the “Six Core Coverages,” the specific perils that are included, the common exclusions you need to watch out for, and how to optimize your policy for maximum protection.

Understanding the Basics of Homeowners Insurance

At its core, a homeowners insurance policy is a contract between you and an insurance provider. You pay a premium, and in exchange, the company agrees to pay for certain losses or damages to your home and belongings.

Most policies in the United States are “Open Peril” policies for the structure of the home. This means the insurance company will cover damage from any cause except for those specifically listed as excluded in the policy. For your personal belongings (furniture, clothes, electronics), policies are usually “Named Peril,” meaning they only cover damage caused by specific events listed in the document.

The Standard Six: Core Coverages in a Home Insurance Policy

Every standard homeowners insurance policy is divided into six main sections. Understanding these is the first step in knowing what you are paying for.

1. Dwelling Coverage (Coverage A)

This is the most critical part of your policy. It covers the physical structure of your home, including the walls, roof, floors, and built-in appliances. It also usually covers attached structures, like a garage or a deck.

• Key Tip: Your dwelling coverage should be based on the replacement cost of your home (the cost to rebuild it from scratch), not its current market value or what you paid for it.

2. Other Structures (Coverage B)

This covers structures on your property that are not physically attached to your house. Examples include detached garages, fences, sheds, gazebos, or guest houses. Usually, this coverage is capped at 10% of your total dwelling coverage.

3. Personal Property (Coverage C)

This protects your “stuff”—everything from your sofa and bed to your clothes and laptop. This coverage applies even when you are away from home. If your suitcase is stolen from a hotel room halfway across the world, your homeowners insurance likely covers it.

• Replacement Cost vs. Actual Cash Value: This is a vital distinction. Actual Cash Value (ACV) pays you what the item was worth at the time it was destroyed (depreciated value). Replacement Cost Value (RCV) pays you what it costs to buy a brand-new version today. Always opt for RCV if possible.

4. Loss of Use / Additional Living Expenses (Coverage D)

If a fire or a major storm makes your home uninhabitable, Loss of Use coverage pays for your temporary housing, restaurant meals, and other increased costs of living while your home is being repaired.

5. Personal Liability (Coverage E)

If someone is injured on your property (e.g., they trip on your stairs) and sues you, liability coverage pays for your legal defense and any settlements or judgments up to your policy limit. It also covers damage you or your family members (including pets) accidentally cause to others.

6. Medical Payments to Others (Coverage F)

This is a smaller pool of money (usually $1,000 to $5,000) intended to pay for minor medical bills if a guest is injured on your property, regardless of who was at fault. It is designed to settle small issues quickly without a lawsuit.

Covered Perils: What Events Will Your Insurance Pay For?

In the insurance world, a “peril” is the cause of a loss. For personal property, most policies cover a specific list of 16 perils:

1. Fire or Lightning

2. Windstorm or Hail

3. Explosion

4. Riot or Civil Commotion

5. Damage caused by Aircraft

6. Damage caused by Vehicles

7. Smoke

8. Vandalism or Malicious Mischief

9. Theft

10. Volcanic Eruption

11. Falling Objects

12. Weight of Ice, Snow, or Sleet

13. Accidental Discharge or Overflow of Water or Steam (from plumbing/HVAC)

14. Sudden and Accidental Tearing, Cracking, Burning, or Bulging

15. Freezing of Plumbing

16. Sudden and Accidental Damage from Artificially Generated Electrical Current

Common Exclusions: Why Your Policy Won’t Cover Floods or Earthquakes

This is where most homeowners get into financial trouble. There are several events that a standard policy never covers.

1. Floods (Surface Water)

Standard home insurance does not cover damage caused by rising water from the outside (floods, overflowing rivers, or heavy rain that seeps through the ground). To be protected, you must purchase a separate Flood Insurance policy through the NFIP (National Flood Insurance Program) or a private insurer.

2. Earthquakes and Earth Movement

Damage from earthquakes, landslides, or sinkholes is excluded. If you live in a high-risk area (like California or parts of the Pacific Northwest), you need an Earthquake Endorsement or a separate policy.

3. Neglect and Maintenance Issues

Insurance is for “sudden and accidental” damage. It is not a maintenance plan. If your roof leaks because it is 30 years old and you haven’t maintained it, the insurance company will likely deny the claim. Similarly, damage from mold, termites, or rodents is usually considered a maintenance issue.

4. Sewer Backups

If your sewer line backs up and sends waste into your basement, a standard policy will not cover the cleanup. However, most insurers offer a “Sewer Backup Endorsement” for a very low annual fee (often under $50).

5. Power Failure

If a power plant fails and your food spoils in the freezer, you are generally not covered. However, if the power failure was caused by a covered peril on your own property (like a lightning strike on your line), it might be.

Personal Liability and Medical Payments: Protecting Your Net Worth

Many people view homeowners insurance solely as a way to fix their house. But in our litigious society, the Liability portion is arguably more important for protecting your wealth.

If you are found liable for a $300,000 injury, and you don’t have insurance, the court can go after your savings, your future wages, and your assets.

• The Dog Bite Rule: Most dog bites are covered under personal liability. However, be aware that some insurance companies have “restricted breed” lists. If you own certain breeds, your liability might be excluded unless you disclose it and pay a higher premium.¹

• Umbrella Insurance: If you have² significant assets, you should consider an Umbrella Policy. This provides an extra $1 million to $5 million of liability coverage that sits on top of your homeowners and auto policies.

Strategic Add-ons: Tailoring Your Policy with Endorsements

A standard policy is a “one-size-fits-all” solution. To get truly comprehensive protection, you may need to add Endorsements (also called Riders).

Scheduled Personal Property

Standard policies have “sub-limits” for high-value items. For example, your policy might limit jewelry theft coverage to $1,500. If you have a $10,000 engagement ring, you need to “schedule” that item separately to ensure it is covered for its full value. This also applies to fine art, firearms, and expensive musical instruments.

Ordinance or Law Coverage

If your older home is destroyed, rebuilding it to meet current building codes can be significantly more expensive than the original construction. This endorsement pays for those extra costs required by local building laws.

Home Business Coverage

If you run a business out of your home, your standard policy likely provides very little coverage for business equipment or liability. You may need a specific rider to protect your inventory and your professional liability.

Factors That Determine Your Homeowners Insurance Premiums

Why does your neighbor pay $800 a year while you pay $1,500? Insurance companies use complex algorithms to determine your risk level.

How to File a Home Insurance Claim: A Step-by-Step Guide

If disaster strikes, knowing how to handle the claim process can expedite your payout.

1. Prevent Further Damage: Your policy requires you to take “reasonable steps” to prevent more damage. If your window is broken, board it up. If a pipe burst, shut off the water. Keep receipts for any materials you buy.

2. Document Everything: Take photos and videos of the damage before you clean anything up. Make a list of all damaged items.

3. File Quickly: Contact your agent or the insurance company as soon as possible. Most have 24/7 claims hotlines or mobile apps.

4. Meet the Adjuster: The company will send an adjuster to inspect the damage. Be present for this inspection and point out everything you documented.

5. Get Quotes: Don’t just take the insurance company’s first check. Get independent quotes from local contractors to ensure the payout is enough to cover the actual cost of repairs.

Being a Proactive Homeowner

Homeowners insurance is one of the most complex financial products you will buy. It is not a “set it and forget it” document. As you renovate your home, buy expensive jewelry, or start a home business, your insurance needs change.

Review your policy annually. Check your dwelling limits to ensure they keep up with rising construction costs. Ask your agent about new discounts you might qualify for, such as installing a smart home security system or a leak detection sensor.

By understanding what is covered and—more importantly—what is not, you move from being a passive consumer to a proactive protector of your family’s most valuable asset.