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What Does Homeowners Insurance Cover?

Amy Danise

Homeowners insurance protects one of your biggest investments: Your house. It covers a wide range of problems and circumstances, and maybe some you’ve never even thought of.

  • Property, including the house and your personal property. This includes damage and theft. Personal property means your belongings: Furniture, curtains, rugs, clothes, shoes, jewelry, pots and pans, and TVs, down to the little knick-knacks on the bookshelves.
  • Liability, for certain injuries or damage that members of your household are legally responsible for.
  • Medical payments to others, for small injuries to guests on your property.
  • Loss of use, which reimburses you for extra costs if you can't live at home because of a problem covered by the policy (such as a fire or tornado).

What problems are covered?

The most common type of home insurance policy, called an HO-3 policy, covers any cause of damage to a house, except what’s specifically excluded, such as floods and earthquakes. It also covers personal property for the 16 problems listed below.

More basic home insurance policies that aren't very common cover a house and belongings only for the 16 causes of damage below.

  1. Fire and lightning
  2. Windstorm and hail
  3. Explosion
  4. Riot or civil commotion
  5. Aircraft
  6. 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 stream
  14. Sudden and accidental tearing apart, cracking, burning or bulging
  15. Freezing
  16. Sudden and accidental damage from artificially generated electrical current

How much insurance is there for personal property?

The coverage amount for personal property is sometimes set at 50% of the dwelling coverage. So if your house is insured for $200,000, you'd have $100,000 for personal property. You can can buy more coverage.

In a worst-case scenario like a tornado, personal property coverage should be enough to replace everything you own. A home inventory will help you assess what you have.

What's liability insurance?

Liability insurance can come to the rescue if you (or members of your household) are legally responsible for someone else's injury or property damage. Home insurance liability coverage also includes your legal defense cost in a court case against you.

Here are examples of cases where liability coverage could pay out:

  • Your dog bites someone and causes injury.
  • Someone visiting you trips and falls down your stairs.
  • A visitor slips on ice on your sidewalk.
  • Your child accidentally kicks a ball through a neighbor’s window.

A home insurance policy will include a baseline liability coverage amount such as $100,000, but you can buy higher coverage. For even better liability coverage, consider an umbrella insurance policy.

Medical payments to others

Medical payments coverage is usually in a small amount, such as $1,000, but you can buy more. It's useful if a guest gets a minor injury on your property. The coverage will pay medical bills quickly no matter who was at fault. (More expensive injury claims would fall under liability insurance.)

Loss of use

"Loss of use" coverage is also known as "additional living expenses" coverage, or ALE. Loss of use insurance is valuable if you can't live at home because of damage that's covered by the policy. You can make claims for the extra expenses of living somewhere else -- such as hotel and restaurant bills.

Loss of use coverage is sometimes set at 20% of the dwelling coverage. So if your house is insured for $200,000, you'd have $40,000 for additional living expenses. You can raise your loss of use coverage amount. See more about loss of use coverage.

Do I want replacement value or actual cash value?

When you buy home insurance, you’ll likely have a choice between “replacement cost” and “actual cash value” coverage. Replacement cost is more expensive because it pays more in the event of a claim. It will reimburse you for new items that are like the ones that were destroyed. Actual cash value coverage pays only the depreciated value of your belongings. So if you had a 10-year-old sofa, you’re reimbursed for a 10-year-old sofa, not a nice new sofa.

The option to choose actual cash value coverage may be only for “contents,” meaning your belongings. Many policies automatically include replacement cost coverage for the dwelling, meaning the house itself.

Insured value vs. real estate market value

The insurance needed for your house is generally not the same as the market value of the home. Specifically, the insured value is the cost to rebuild the house if it were destroyed. The amount you could sell the house for may be more or less than the cost to rebuild. Your insurance agent can help you pinpoint an insured value, based on local building costs.

Do I include land value for insurance?

Don’t include the value of the land in your insurance amount. You want to insure your house and your belongings for the amount to replace them, and whether you own ¼ acre or 4 acres doesn’t matter.