What Home Insurance Actually Covers (and Where You’re on Your Own)
Buying a home can be both an exciting and overwhelming experience, filled with lots of dollar signs and hand cramps from signing endless paperwork.
While it’s tempting to find ways to save during the process, scrimping on home insurance should not be one of them.
Whether you’re buying your first house or insuring your long-held property, home insurance is an important (and sometimes essential — we’ll explain in a minute) purchase.
What Is Home Insurance?
Home insurance is a form of property insurance that covers a private residence. It helps protect your property and belongings against losses and damages, and provides some liability protection for accidents in or around the home.
In the event of something unexpected — say, your residence is burglarized or there’s a fire — home insurance helps you cover the costs of replacing your lost goods or repairing your property. (Hence, why it’s also known as hazard insurance.)
Note that mortgage insurance is NOT the same as home insurance. The former protects the lenders or investors if a borrower defaults on the loan.
It’s important to note that you’ll most likely have to pay a deductible before your home insurance benefits pay out. And, for the most part, you cannot deduct home insurance on your tax return.
You might be able to qualify for discounts if you bundle policies with the same insurance company or make your house more disaster-proof.
While you don’t legally need a home insurance policy, most mortgage lenders require it before closing. Though once you pay off your mortgage, you can drop it.
But you know what they say: Better safe than sorry.
The average cost of home insurance is $1,083 a year, according to ValuePenguin’s 2018 analysis of each U.S. state.
What’s Actually Covered Under a Home Insurance Policy?
It would be great if home insurance policies universally covered the same things.
If only it were that simple.
Because homeowners in different parts of the country have different needs, policies and their covered hazards — more commonly referred to as “perils” in the insurance world — vary.
And depending on where you live, the cost of home insurance can vary widely. For example, properties that are susceptible to natural disasters (think: Florida and hurricanes) tend to have costlier policies.
What’s Included in a Standard Home Insurance Policy
Here are the main areas home insurance typically helps cover:
- Dwelling: One of the basic coverages in a policy. This covers the structure of your home as well as structures attached to it, such as a garage or deck.
- Structures on your property: Structures you own that are separate from your home, such as a detached garage, fence or tool shed. (And yes, depending on your policy, your tools might be covered.)
- Personal property: If, for example, your electronics are stolen from your home or your furniture is destroyed in a fire, your policy may help pay to repair or replace them. Some policies also offer extended coverage for more valuable items, like jewelry.
- Liability: Home insurance typically provides liability coverage when someone who doesn’t live in the home is injured on your property.
- Additional living expenses (ALE): Included in most standards plans. If you cannot live at your residence because of damage from an insured disaster, this money will cover hotel bills, meals and other living expenses while it’s being repaired or rebuilt.
You’ll notice a lot of “typically”s and “may”s when researching insurance policies, which is normal; there is no *one* approach that works for everyone. That’s why it’s necessary to shop around and connect with a local agent who can help you tailor a plan specific to your needs.
What Disasters Are Covered by Home Insurance?
The Insurance Information Institute (III) published a comprehensive chart listing 16 perils that home insurance often covers, depending on your policy type.
- Fire or lightning
- Windstorm or hail
- Damage caused by aircraft
- Damage caused by vehicles
- Volcanic eruption
- Falling object
- Weight of ice, snow or sleet
- Accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning or automatic fire-protective sprinkler system, or from a household appliance
- Sudden and accidental tearing apart, cracking, burning or bulging of a steam or hot water heating system, an air conditioning or automatic fire-protective system
- Freezing of a plumbing, heating, air conditioning or automatic, fire-protective sprinkler system, or of a household appliance
- Sudden and accidental damage from artificially generated electrical current (does not include loss to a tube, transistor or similar electronic component)
Home insurance policies include a variety of disasters, though, and (say it with me) coverage may vary.
8 Types of Home Insurance Policies
Policies differ by state and insurance company, but there are eight main types of policies.
- HO-1: Only covers 10 out of 16 perils. It doesn’t include personal liability or automatically cover your belongings, which are a couple of reasons it isn’t commonly used.
- HO-2: Covers all 16 perils and has lower premiums and coverage levels. It’s a “named peril” policy, which means only those listed on your policy will typically be covered.
- HO-3: Most popular among homeowners. It protects against all perils — unless they’re included in the exclusions — and covers attached structures, your possessions and personal liability.
- HO-4: Covers all 16 perils. It’s a policy for renters that covers your personal items and often provides liability insurance, but doesn’t cover the building itself.
- HO-5: Similar to an HO-3, but offers better protection for your personal items and insures your belongings against loss.
- HO-6: Covers all 16 perils and usually includes liability insurance. It’s a condominium or co-op policy that insures your particular dwelling.
- HO-7: Covers mobile or manufactured homes. Similar to an HO-3.
- HO-8: Designed for older, sometimes historical homes. Similar to an HO-3.
Now that you have an understanding of basic coverage, perils and policies, let’s look at the other, sometimes frustrating, side of home insurance.
What’s Not Covered Under a Home Insurance Policy
Here are four common disasters that are typically not covered by home insurance:
- Floods: These are excluded from standard policies, but separate coverage is available.
- Earthquakes: Likewise, this type of coverage is available as a separate policy.
- Maintenance damage: It’s the homeowner’s responsibility to maintain their property, and as such, insurance will not cover damage due to lack of maintenance, mold, or an infestation of termites or pests.
- Sewer backup: This is not covered under flood insurance and has its own policy.
Unfortunately, that’s not all. Here are some additional, often surprising things your home insurance won’t cover, including:
- Certain dog breeds. Commonly, pit bulls, rottweilers and German shepherds. You’ll want to check with your insurer or move to a policy that covers all pets, otherwise your pet might not be covered.
- Pools. Because of the increased risk associated with swimmers, you’ll need to disclose the pool to your insurance agent.
- Service line connections. Water, sewer and electrical lines connecting from your house to the street aren’t typically covered. However, you can add on this coverage.
- Trampolines. Because of the safety risk, some insurance companies will require certain protections or they won’t cover them. (I can personally vouch that this should be included, and 12-year-old me is wincing as I type that out)
Water damage in particular seems to be a tricky issue. Depending on what caused the flood in your basement, for example, you may or may not have a case. If your water heater suddenly bursts, it should be covered. But if you neglected to fix that slow drip from your dishwasher for years, that’s on you.
Same goes for a leaky roof. If the damage is caused by a peril (the wind caused an otherwise healthy tree to fall on it), it should be covered, barring an exclusion in your policy. But if it’s a rotting tree you should have had removed long ago, it most likely won’t be covered. (There’s that “it’s the homeowner’s responsibility to maintain their property” bit again.)
To protect yourself, you need to do regular home maintenance, have a firm understanding of your home insurance policy and speak to a professional about adding any supplemental coverage.
What’s the Ideal Mix of Home Insurance I Should Have?
When putting together your package, you’ll want to determine:
- How much you need to cover the cost of your home structure. If your dwelling is destroyed due to an insured peril, this will cover rebuilding costs. The age, location and value of your home are three main factors to consider.
- How much you need for your personal belongings. Many policies cover your belongings at 50-70% of the amount of insurance you have on your home. Conduct a home inventory and take note of expensive items you own to determine if you need additional coverage.
- How much additional living expenses coverage you need. Typically, this is capped at 20% of the overall coverage on your home.
- How much liability insurance you need. Most policies provide a minimum of $100,000 worth of liability coverage, though higher limits are available, or you could purchase umbrella or excess liability policies, which offer broader coverages than conventional policies.
Ultimately, your home insurance needs boil down to you and your individual situation. Someone who lives in a new-build in Anytown, Indiana, will have a different policy from the person who lives in a 100-year-old house in Earthquakesville, California.
Talk to a local agent, and shop around for the best deal and coverage for your situation.
Kathleen Garvin (@itskgarvin) is a writer and editor whose work has appeared in U.S. News, Clark.com and Well Kept Wallet.