Home insurance is a contract between a homeowner and an insurance company that provides financial protection in case of a variety of risks. It combines property coverage that protects your home and belongings from damage or loss with liability coverage in case someone is injured on your property.
Home insurance covers unexpected events like fires, storms or theft, as well as legal or medical costs if accidents happen at your home. While not legally required, mortgage lenders almost always require homeowners to carry insurance. Understanding what your policy covers — and what it doesn’t — helps you ensure that you have the right policy in place.
What standard home insurance policies include
A typical home insurance policy offers a combination of property and casualty coverage. It typically includes adjacent structures and the belongings inside.
Homeowners are also protected from certain liability or unexpected expenses if the home is damaged and uninhabitable due to a covered peril.
These are divided into six categories, known as Coverages A through F.
| Homeowners insurance category | What’s included |
|---|---|
| Coverage A | Primary home structure and anything attached |
| Coverage B | Detached structures |
| Coverage C | Personal belongings |
| Coverage D | Loss of use |
| Coverage E | Personal liability |
| Coverage F | Medical payments to others |
Dwelling coverage (Coverage A)
Coverage A is what most people think of when they picture home insurance. This portion of a policy covers the physical structure of the home including the:
- Exterior.
- Roof.
- Walls.
- Floors.
- Ceilings.
- Foundation.
- Gutters.
- Permanently installed cabinets, countertops and vanities.
- Doors.
- Chimney.
- Built-in appliances (hot water heater, HVAC system and furnace, for example).
- Attached structures like a front porch, screened in patio, veranda and attached garage.
Essentially, if you couldn’t pack it up and take it with you when you move, it probably falls under Coverage A.
Homeowners should set their Coverage A limits high enough to repair or completely rebuild the home following a total loss, such as a fire. In many cases, it would cost more to replace a home than its current market value, so keep that in mind when setting coverage limits.
Other structures coverage (Coverage B)
The Coverage B section of a homeowners insurance policy covers other structures that are part of your property but not part of your home. This includes things like:
- Detached garages.
- Sheds.
- Fences.
- Decks.
- Pergolas and gazebos.
- In-ground pools and pool houses.
Coverage B limits are usually set as a percentage of the dwelling coverage (A) limit, commonly 10% or less. So, if you buy $450,000 in dwelling coverage, you’ll often be limited to $45,000 in other structures coverage.
Personal property coverage (Coverage C)
If your home burned down, rebuilding the structure wouldn’t be your only cost. You would also need to replace all of your belongings inside the home, which would fall under the Coverage C portion of your policy.
Coverage C includes things like:
- Furniture.
- Appliances.
- Kitchenware.
- Clothing.
- Jewelry and accessories.
- Home decor.
- Electronics.
- Musical instruments.
- Sports equipment.
Generally, Coverage C is offered as a percentage of your home’s total dwelling coverage limit, often 50%. So a home with $450,000 in dwelling coverage could have up to $225,000 in personal property coverage.
Coverage C can also cover your belongings when you’re away from home. If your luggage is stolen while you’re on a trip or your laptop is swiped from the table when you’re working at a coffee shop, you may be protected.
Certain types of items may be subject to lower category sub-limits within Coverage C. For example, jewelry losses might be limited to $1,500 or antiques may only be covered up to $5,000 total. If you have higher-value items or collectibles, consider adding scheduled coverage for those items.
Loss of use (Coverage D) or Additional living expenses (ALE)
Loss of use coverage, also known as Coverage D or additional living expenses (ALE), is designed to help pay for certain living expenses if your home becomes uninhabitable due to a covered event or danger. If you’re forced to move out while the property is being repaired, this coverage can help pay for things like:
- Hotel stays.
- A temporary rental property.
- Meals and grocery delivery.
- Laundry services.
- Public transportation.
- Pet boarding.
- Parking fees.
Loss of use coverage is usually calculated as 20% to 30% of your dwelling coverage limit. So that $450,000 policy might include $90,000 to $135,000 in Coverage D.
Personal liability coverage (Coverage E)
Home insurance also offers financial protection in the form of liability coverage, or Coverage E. This insurance pays out legal claims for bodily injury or property damage if someone is hurt on your property, or if you damage someone else’s property.
This coverage can pay for someone else’s:
- Medical bills.
- Pain and suffering damages.
- Lost wages.
It can come in handy if a delivery man slips and falls on your icy porch, a neighborhood child breaks their arm on your trampoline, your kid hits a baseball into someone else’s windshield or your dog escapes the yard and bites someone down the road.
Coverage E is only intended for liability-related expenses incurred by someone outside of your household. You can’t use it to pay for your own injuries or damage to your household.
Medical payments to others (Coverage F)
The last coverage is medical payments to others, also known as Coverage F. Similar to Coverage E, this portion of your policy pays out for injuries incurred by someone else.
Unlike liability from Coverage E, medical payments to others is a no-fault coverage, meaning your insurer can step in to immediately pay for someone else’s medical bills, copays, surgical procedures and funeral expenses, for example.
Coverage F provides medical payments right away, without the injured person suing you.
Perils: What does home insurance cover?
Home insurance is intended to protect your property from a number of risks that could damage your home, known as perils. A homeowners insurance policy may have a list of covered perils, also called a named perils policy, or it may cover any perils that aren’t specifically excluded, in the case of an open peril policy. The perils covered by your policy depend on the type of homeowners insurance coverage you buy.
Basic form (HO-1)
An HO-1 is also known as a basic form policy and covers specific, named perils. It’s the most limited kind of home insurance, so it’s not recommended for most homeowners. While few insurers still offer HO-1 policies, they include:
- Fire.
- Smoke.
- Windstorm.
- Explosion.
- Lightning.
- Hail.
- Vehicles.
- Civil unrest.
- Theft.
- Vandalism.
Any perils not named are not covered under an HO-1 policy.
Broad form (HO-2)
Broad form homeowners policies, also known as HO-2, also cover named perils, but the list is more extensive than an HO-1. Allowed perils under HO-2 coverage include HO-1 perils plus:
- Trees and other falling objects.
- Weight of ice, snow or sleet.
- The accidental discharge of water, including freezing, rupturing or the sudden and accidental overflow of a plumbing, heating, air conditioning, or fire sprinkler system or appliance.
Any perils not named are not covered under an HO-2 policy.
Special form (HO-3)
The most common type of homeowners policy is the special form, also known as HO-3. This is an open perils policy when it comes to dwelling coverage, which means all perils are covered unless specifically named as an exclusion. This allows the HO-3 to offer the most financial protection to homeowners.
What does home insurance exclude?
No matter which type of homeowners policy you buy, there will be perils and items that the insurer does not cover. Generally, homeowners policies — including HO-3 with its open perils coverage — exclude things like:
- Flood damage.
- Earthquakes and earth movement, like land or mudslides.
- Hurricanes.
- Mold damage, unless directly related to an acute, covered event.
- General wear and tear.
- Neglect.
- Intentional damage.
- Acts of war.
- Pest and rodent damage.
- Sewage and water line backup.
You may be able to add extra coverages, or riders, to your policy to cover some of these perils, or purchase a separate policy such as flood insurance.
Optional coverage add-ons and endorsements
You may be able to purchase additional coverage for some items and types of damage, but not all. For example, no insurer is likely to extend coverage for neglecting or intentionally damaging your home. But some insurers offer extra coverage for things like:
- Extra valuable personal property.
- Sewer or water backup.
- Equipment breakdown.
- Utility or service line.
- Mold.
- Extended replacement cost.
- Identity theft.
Deductibles
A homeowners insurance deductible is the portion of a claim you’re responsible for paying before your insurance coverage applies. When you file a claim, your insurer will only cover costs that exceed your deductible amount.
Deductibles can be set as a fixed amount or as a percentage of your home’s insured value, depending on your policy and the type of loss. Generally, choosing a higher deductible lowers your insurance premium, but it also means you’ll pay more out of pocket when you have a claim.
Some policies may include different deductibles for specific events like windstorms or hurricanes. It’s important to review your policy carefully so you understand your financial responsibility and can choose a deductible that fits your budget and risk tolerance.
How to choose the right home insurance for you
Here are some things you can do to not only pick the right type of coverage, but set limits that meet your needs.
- Determine the value of your home. Your homeowners insurance coverage limits depend on the appraised value of your home, its current replacement cost and whether you still have a mortgage. Make sure to choose limits that at least cover a home loan. Ideally, you’d purchase enough coverage to replace or repair your home if it was a total loss.
- Consider all of your property. Home insurance covers detached garages, decks, pool houses, outdoor kitchens and fences, but the standard limits might not be enough, depending on your property’s layout.
- Take inventory of your personal belongings. Coverage C is usually around 50% of your dwelling coverage limits, but if you have a lot of furniture, clothing, kitchenware or valuable electronics, you may need more than that. If you have high-value items like antiques, art or jewelry in the home, a scheduled personal property rider may be in order.
- Compare ACV vs RCV coverage. While most of your home’s structure is covered under replacement cost value (RCV) coverage, your personal property is usually calculated at actual cash value (ACV), which subtracts for depreciation. You may be able to shift certain coverages to RCV for an added cost.
- Choose a deductible you can afford. Home insurance deductibles can be a flat dollar amount or a percentage of your covered value. While the standard home deductible is $500, raising it can lower your premium.
- Review and update your policy as needed, and shop coverage regularly. As your property value rises, you make improvements or building materials increase in cost, you may want to reevaluate your home insurance coverage limits. It’s also wise to rate shop at least once a year to make sure you’re getting the best value for your premium.
Stephanie Colestock is a seasoned writer specializing in personal finance. With over 14 years of experience, she crafts insightful and accessible content on a wide range of financial topics, including insurance, credit and debt management, banking, investing, retirement planning, and household finances.
Her bylines appear in top-tier publications such as TIME, Fortune, MSN, Forbes, USA Today, Money, Fox Business, and CBS. Stephanie’s deep understanding of complex financial concepts and her ability to communicate them clearly have made her a trusted voice in the industry.
When she’s not writing, Stephanie enjoys helping individuals make smarter financial decisions through her engaging and well-researched articles.
Annie is a writer and editor at Jerry with more than a decade of experience writing and editing digital content. Before joining Jerry, she was an assistant assigning editor at NerdWallet. Her past work has appeared in the Associated Press, USA Today and The Washington Post. Her work has been cited by NorthWestern University and Harvard Kennedy School. Annie served as a spokesperson for NerdWallet during her time at NerdWallet and has been featured in New York Magazine, MarketWatch and on local television and radio stations.
Previously, she worked at USAA and newspapers in Minnesota, North Dakota, California and Texas. She has a bachelor’s degree in journalism from the University of Minnesota.
