What does homeowners insurance actually cover?

What a homeowners policy is for

A homeowners policy is a package of several coverages sold together. It pays to repair or rebuild your home after a covered loss like a fire, windstorm or break-in, it helps replace what you own, and it protects you if someone gets hurt and blames you. While a mortgage is open, the lender will insist that you carry it; the law does not require it once the home is paid off, but it still protects your home and savings.

The six main parts

Dwelling coverage pays to fix the house itself and anything attached to it. Other structures coverage pays for things on your land that are not attached to the house, like a fence, a garden shed or a garage that stands apart from the house. Your belongings, from the couch to your clothes, fall under personal property coverage, and its limit is usually figured as a share of the dwelling limit.

If a covered loss forces you out while the house is repaired, additional living expenses coverage helps with rent, meals and other costs you would not have had at home. If you are legally to blame for an injury, personal liability coverage helps with that person's doctor bills, missed pay and related costs. A smaller medical payments coverage handles treatment for a guest injured at your place, whoever is at fault.

How claims are valued

Your policy pays claims one of two ways. Replacement cost coverage pays what it costs today to rebuild or fix things using comparable materials, with nothing taken off for wear. Actual cash value coverage takes off depreciation, the value lost to age and wear, so an older roof or sofa brings a smaller check. To be fully protected, choose replacement cost.

Insure the house for close to what it would cost to rebuild, not what you paid for it or what it would sell for. Most insurers expect a limit of no less than 80% of the rebuilding cost, and some insist on the full 100%. Remodeling, a new room or new insulation can raise that cost, so revisit the amount after a project.

What a standard policy leaves out

Flood is the biggest gap. Water from a burst pipe or a roof leak is usually covered, but water that rises from the ground, rain runoff or snowmelt is not; flood coverage is a separate policy, most often bought from the federal flood program (NFIP). Earthquake damage is also left out, though many companies sell an earthquake endorsement for an added premium.

Other common exclusions are mold and damage from termites, rats or other pests. Some policies leave out liability for certain dog breeds or exotic pets. Valuables like jewelry, art and heirlooms have low limits, so a costly piece may need to be listed on its own with an add-on called a scheduled personal property endorsement. A detached garage full of classic cars or an in-ground pool can need its own coverage too.

Deductibles and limits

A policy pays only up to the dollar limit for each coverage. The deductible is the part of each claim you pay yourself, and you may have a different deductible for different coverages. A higher deductible lowers your premium, so pick one you could pay without strain if you had a claim.

Here is how a deductible works. Say a covered loss costs $1,000 and your deductible is $300: you cover the first $300, and the insurer sends you $700. If you let the policy lapse while you have a mortgage, the lender will likely buy coverage for the home and bill you, usually at a higher price.

Common questions

Last reviewed October 2026. Rules and prices can change; check the sources below for the official details.