When it comes to safeguarding your home and financial well-being, a standard homeowners insurance policy offers comprehensive protection across five key areas: your dwelling, other structures, personal property, liability and additional living expenses. These essential coverages shield the structure of your home and your belongings, giving you financial security in certain circumstances.
The 5 Standard Homeowners Insurance Coverages Explained
Updated: November 1, 2024
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What Are the 5 Main Homeowners Insurance Coverages?
Standard home insurance policies cover five main coverages: dwelling, other structures, personal property, liability and additional living expenses. These are also otherwise known as home insurance coverages A, B, C, D & E.
Beyond protecting the structure of your house and its belongings, homeowners insurance also protects your bottom line by covering injuries and legal fees in the event of an accident at home.
Have a quick look at each coverage below.
Coverage | Description |
|---|---|
Dwelling Coverage | Dwelling coverage is a key part of your home insurance, covering the costs to repair or rebuild parts of your house like walls, plumbing and electrical wiring. |
Other Structures Coverage | Other structures coverage pays to replace or repair separate structures on your property, such as sheds and fences, typically up to 10% of your home structure insurance limit. |
Personal Property Coverage | Personal property coverage compensates for damaged or stolen personal belongings, including furniture, electronics and clothing, under specified circumstances. |
Liability Coverage | Personal liability coverage protects you against financial liabilities for injuries or damages incurred by others on your property, including legal defense costs. |
Additional Living Expenses (ALE) | Additional living expenses (ALE), or loss of use coverage, cover extra living costs if you're temporarily displaced from your home, like dining out, lost rental income, and other related expenses. |
Perils Covered Under Homeowners Insurance
Homeowners insurance only kicks in if specific perils cause damages or losses — it doesn’t cover all kinds of incidents. Some commonly covered hazards include natural disasters like windstorms and hail, accidental damages such as fire and smoke, theft and vandalism, certain types of water damage like burst pipes and other unforeseen incidents like damage from falling objects.
The commonly covered perils in most standard homeowners insurance policies are:
Natural Disasters
This includes damage from events like windstorms, hail, lightning, and sometimes earthquakes or floods (though these may require additional coverage).
Accidental Damage
Protection against incidents such as fire, smoke damage, and explosions falls under this category.
Vandalism and Theft
It includes coverage for incidents involving burglary, theft, or deliberate damage to the property by others.
Water-Related Damage
This covers certain types of water damage, such as from burst pipes or leaking appliances, but usually excludes flood damage unless specified.
Other Unforeseen Incidents
This can include less common situations like damage from falling objects, vehicles crashing into your home, or damage due to the weight of snow or ice on the structure.
However, it's crucial to understand your policy's specifics, as coverage can vary greatly between different insurers and policies.
Dwelling Coverage
Dwelling coverage is an integral component of homeowners insurance. It protects the physical structure of your home. This means your building’s structure or the entire frame of your house. It provides financial protection for damages to your house's core elements, including:
- Foundation: Dwelling coverage covers your home's foundation, the part of the structure that carries your entire house, ensuring it's protected against structural damage.
- Walls and Roof: Any harm to the exterior and interior walls and roofing, such as from storms or fires, falls under this coverage.
- Flooring and Ceilings: Damage to the flooring and ceilings inside your home is included, providing peace of mind.
- Built-in Appliances: It covers essential appliances such as your furnace, central air conditioning and water heater.
- Attached Structures: This extends to attached structures like garages as they are part of your home.
Other Structures Coverage
Other structures coverage, however, provides protection for structures on your property that aren’t directly attached to your main dwelling. For instance, sheds or gazebos count as other structures. Other structures covered by most policies are:
- Detached Garages: In home insurance terms, a detached garage is a separate structure from the main house used for parking vehicles or storage.
- Fences: Fences, as part of your property, are covered under the 'other structures' section of a home insurance policy.
- Swimming Pools: Some policies cover in-ground swimming pools, providing financial security for repairs or replacement.
- Sheds and Gazebos: Sheds and gazebos are typically categorized as 'other structures' in home insurance.
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Some home insurance providers consider swimming pools as part of your dwelling rather than another structure. If your swimming pool is considered an additional structure, you may want to increase your limits depending on your pool.
Personal Property Coverage
Meanwhile, personal property coverage safeguards your belongings and possessions inside your home. It can also extend to the belongings you bring while traveling or on a vacation. The number of items and the extent of coverage depend on your specific policy. Make sure to discuss this with your insurance provider to avoid issues. It usually offers protection for:
- Furniture: Furniture such as sofas, shelves, tables and chairs are covered.
- Electronics: It covers electronic devices like TVs, computers and gaming consoles.
- Clothing and Apparel: Your clothing and personal items are also insured under this coverage.
- Appliances: Household appliances like refrigerators and washing machines are part of the coverage.
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It's worth noting that valuable items like expensive jewelry or art may not be fully covered under standard personal property coverage. However, some insurance providers offer scheduled contents replacement coverage for an additional fee, which can extend protection to these high-value items. Be sure to inquire with your insurer to secure adequate coverage for your valuable possessions.
Liability Coverage
Liability coverage in home insurance plays a vital role by covering expenses that arise if you are found at fault in such situations. This includes legal defense costs and any settlements or judgments against you, ensuring that these unforeseen events do not severely impact your finances.Take a look at what else liability coverage pays for:
- Legal Expenses: Liability coverage assists in legal expenses, settlements and court judgments if someone is injured on your property or if you inadvertently cause damage to someone else's property and they decide to file charges against you.
- Medical Payments: Besides legal fees, homeowners insurance often includes medical payment coverage. This aspect helps pay for medical expenses incurred by individuals injured on your property, regardless of fault.
Additional Living Expenses (ALE) Coverage
Additional living expenses (ALE) coverage, also known as loss of use coverage, helps when your home becomes uninhabitable due to a covered event. This coverage ensures that you maintain your lifestyle even if you are temporarily displaced if your home is being repaired. ALE typically covers:
- Hotels or Airbnb rentals/accommodation
- Restaurant bills
- Storage costs for displaced belongings
- Laundry and dry-cleaning expenses
- Pet boarding fees
- Transportation expenses
- Groceries and medicines
Coverage Types: Actual Cash Value (ACV) vs. Replacement Cost Value (RCV)
Understanding the difference between actual cash value (ACV) and replacement cost value (RCV) is crucial when selecting homeowners insurance, as it impacts the coverage amount and the financial security you'll have in the event of a claim. Additionally, exploring the option of Guaranteed Replacement Cost coverage with your provider can offer added protection in case of substantial losses.
Aspect | Actual Cash Value (ACV) | Replacement Cost Value (RCV) |
|---|---|---|
Definition | ACV covers the cost of damaged items after depreciation. It reimburses you for the current market value of your possessions. | RCV covers the cost of replacing damaged items with new ones of the same kind and quality without accounting for depreciation. |
Coverage amount | Typically, it provides lower coverage amounts as it considers depreciation. | Offers higher coverage amounts as it replaces items without factoring in depreciation. |
Premium amount | Generally, ACV policies have lower premiums compared to RCV policies. | RCV policies often come with higher premiums due to the broader coverage. |
Claims Process | In ACV claims, you receive a reimbursement check for the item's depreciated value, which may not cover the full cost. | RCV claims ensure you receive the full cost of replacing damaged items with new ones of the same quality, offering more financial security. |
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Some insurance providers offer Guaranteed Replacement Cost coverage as an extra option. This coverage ensures that even if the replacement costs exceed your policy limit, the insurer will cover the total cost of rebuilding or replacing your home, providing the ultimate peace of mind in case of significant damage or loss.
What Isn’t Covered Under Homeowners Insurance?
While homeowners insurance offers extensive protection for various risks, it's essential to understand the limits of coverage and what isn't usually included in a standard policy. Here are some common categories of items or events that homeowners insurance doesn't cover:
Certain Natural Disasters
Your insurance may not cover flooding, earthquakes (in some regions) and landslides.
Routine Maintenance
Expenses related to regular upkeep and maintenance of your home and belongings are your responsibility and are not covered.
Acts of War
Damage caused by acts of war or terrorism is usually excluded.
Home Business Equipment
Business equipment and inventory for a home-based business may require separate coverage.
High-Value Items
Valuables such as expensive jewelry or fine art may have limited coverage and may require additional endorsements.
Pest Damage
Damage from pests like termites is usually not covered.
Flood and Sewer Backup
Damage from sewer backups and flooding is often not included in standard policies and may require separate coverage.
Understanding these limitations can help you make informed decisions about additional coverage or policies you might need to ensure comprehensive protection for your home and belongings. Make sure to discuss what type of coverage you want with your insurance provider to have clear details in your policy.
FAQ
Understanding homeowners insurance coverage can be tricky, but it's crucial for making smart choices. By familiarizing yourself with each homeowners coverage and what isn’t covered, you can better grasp on your policy's scope and limits.
What does homeowners coverage cover?
Homeowners insurance includes protection for your dwelling, other structures on your property, personal property, liabilities and coverage for additional living expenses if your home becomes uninhabitable due to a covered event.
Which area is not protected by homeowners insurance?
One significant area not protected by most homeowners insurance is damage caused by flooding. Flood damage is generally excluded from standard homeowners insurance policies. Certain earthquakes and landslides may also not be covered, depending on your location and policy specifics.
It's important to understand these exclusions and consider purchasing separate flood insurance or earthquake insurance if you live in areas prone to these risks. Homeowners insurance does not cover routine maintenance and expenses related to the regular upkeep of your home.
About Mark Fitzpatrick
Mark Fitzpatrick is a Licensed Property and Casualty Insurance Producer and MoneyGeek's Head of Insurance. He has analyzed the insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. He has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.
Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.