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What Does Homeowners Insurance Cover?

White interior of a home

Homeowners insurance also called home insurance, is an essential part of being a homeowner. When making a big purchase like a home, it’s normal to end up finding yourself paying more than you expected. In any case, it’s essential to prepare a safety net for large investments, like homes or cars.  

No matter your background, if you’re a new homeowner, you’ve probably wondered, “What does homeowners insurance cover?” This article will outline the complex policies many lawyers and insurance agencies put together, so let’s get started!

What Homeowners Insurance Does Not Cover

Depending on your policy, it is likely that your agent has listed the perils (something that causes danger, loss, or damage) that are not covered on your declaration page. However, we’ve developed a list to show you what homeowners insurance does and does not cover these eight different policies. From this list of eight policies, over 75% of U.S. homes are under the HO-3 policy, so your policy is likely to open peril which means that you list the perils excluded from your policy.

Different Types of Homeowner Coverage

Dwelling Coverage (Coverage A)

Included

Also known as Coverage A, a standard dwelling coverage pertains to your home’s actual physical structure. It also includes any other structures attached to the dwelling (i.e., walls, ceilings, floor, front and back porches, decks, and even the attached garage). Yes, each residence has different types of attachments and layouts, but as a broad explanation, remember the two essential factors for Coverage A:

  1. The interior and exterior parts of a home, including all attached structures, are covered;
  2. However, these structures are only covered if damaged by peril.

Sound confusing? Let’s clarify. Most insurance providers will offer a list of what defines “peril,” similar to this:

  • Windstorms
  • Hail
  • Fire/smoke
  • Lightning
  • Explosions
  • Vandalism
  • Theft
  • Damage from the weight of snow or ice
  • Falling objects
  • Damage from an aircraft
  • Damage from a motor vehicle

Not Included

In some cases, insurance providers don’t cover the cost of certain damages due to legal issues and red tape. Some types of  damage not included in Coverage A could be the following:

Floods

Earthquakes

Sewer backups

Unresolved maintenance issues/negligence

Although some of these cases may seem to fit peril’s definition, many companies like Allstate offer more specific coverage, like flood insurance or disaster insurance for issues like earthquakes. 

Other Structure Coverage (Coverage B)

Included

It’s pretty standard for a home to have detached structures on the property. When thinking about Coverage B, it’s still important to keep in mind what portions are covered by your provider and what they define as peril. Coverage B typically includes coverage for all of the following detached objects:

  • Mailboxes
  • Inground swimming pools
  • Aboveground swimming pools
  • Fences
  • Sheds
  • Gazebos
  • Treehouses
  • Human-sized treehouses
  • Detached garages

Most of these coverage types are only necessary for homeowners insurance and unnecessary for renters/tenant insurance (or HO-4, which will be covered later on).

Not Included

Other-structure coverage typically falls under the same umbrella as dwelling coverage regarding the types of damages that are not included.  Our recommendation would be to always check the types of damage your insurance provider does not protect—you have to decide whether to include additional insurance plans or seek another provider.  Feel free to ask any of our agents what your insurance provider defines as “peril” or what is not insured under damage.

Personal Property Coverage (Coverage C)

Included

Personal property insurance is a bit more complicated when it comes to what it covers.  Usually, a provider will ask you to estimate the dollar value of each item within your home. That’s why we at Versured highly recommend taking inventory of all valuable items inside your home, then calculating how much it would cost to repair or replace them. Doing so will give you an idea of how much coverage you need.

It is also essential to know what type of coverage claim you have. Basically, there are two types of cost:

  1. Replacement Cost: The dollar amount to pay for a new replacement item (the pricier insurance).
  2. Actual Cost: The cost to repair or replace an item minus depreciation. Your home computer may have cost $1,000 two years ago, but today it may be worth $800, so that’ll be your provider’s price (the cheaper insurance).

Even if you already have homeowners insurance, spending an hour re-evaluating your coverage could save you hundreds or thousands of dollars a year! It’s a common, safe practice to get an estimated cost of all the valuables in your home. That way, you’ll have peace of mind with the knowledge that you aren’t overpaying your provider.

Not Included

With replacement cost and actual cost in mind, there typically isn’t a limit on how much cash you may receive if you can afford the coverage level. That is why we at Versured recommend taking inventory. For example, you might pay for coverage of $45,000 when you only need $10,000 of coverage. On the flip side, you might be paying for a basic $10,000 coverage when you really need a $45,000 amount!

Loss-of-Use Coverage (Coverage D)

Included

There are three cases where loss-of-use coverage kicks in:

  1. Any increased living expenses you would have while your home is being rebuilt or restored; 
  2. The cost for lost rental income; and,
  3. Any additional living expenses if a local authority prohibits you or your tenants from returning to your property. 

Listed below are the expenses included but not limited to loss-of-use coverage regarding a loss-of-use claim.

  • Hotel
  • Clothing
  • Additional grocery and food
  • Additional living
  • Pet boarding
  • Gas and transportation
  • Moving
  • Temporary storage 

Not Included

If you are currently insured, either reach out to your agent or check out your “dec page” (declarations page) under Coverage D.  Most insurance providers offer up to a 20% limit unless your provider is Chubb AIG, both of which provide an unlimited premium.  To calculate this cost, you will take your dwelling amount and multiply that by 20% to find a reasonable estimate of your cost.

Dwelling Coverage ✕ 0.2 = Maximum Amount for Loss-of-Use Coverage

If your dwelling coverage is equal to $200,000, then your loss-of-use coverage will be $40,000. 

$200,000 ✕ 0.20 = $40,000

Personal Liability Coverage (Coverage E)

Included

Personal liability, or Coverage E, is meant to cover personal or property damages if you or another member of your household are held responsible for accidents on or off the premises. Here is a list of what legal and medical costs are usually covered, along with scenarios that may have caused these costs:

Costs Covered
Claimant’s* medical expenses
Claimant’s pain and suffering expenses
Claimant’s life insurance death benefits for the family
Claimant’s lost wagesLegal defense costs
Claimant’s property damage expenses
Coverage E Perils
Dog bites and property destruction
Falling of diseased trees
Employee bodily injuries while on residence
Bodily injuries caused by employees of the residence
Negligent or accidental guest injuries (unless it was negligent supervision)**
Unintentional damage to another’s property
Inflicting of harm from drunk guests
* “Claimant” is the person claiming against the insurance provider. 
** “Negligent supervision” is defined differently by US states.

Not Included

Your average homeowner wouldn’t need coverage for more than $100,000.  However, a few common possessions such as a dog or a pool may be good reasons to increase your coverage. Typically, insurance providers don’t offer coverage for more than $500,000, so for incidents like pool failure or trampoline injury, you might consider umbrella coverages.

Medical Payments Coverage (Coverage F)

Included

Also known as MedPay coverage, Coverage F is meant to pay for small medical expenses for you and any houseguests who have suffered minor injuries while on your property. Coverage F is an addition to health insurance plans, which is why it is meant to cover small medical expenses such as X-ray exams, treatment costs, etc.  This option usually covers $1,000 to $5,000 under a standard policy.

Not Included

Because Coverage F is so small, it is meant to take care of routine bills, so it wouldn’t include lawsuits. Here’s a list of a few things to consider when researching what Coverage F doesn’t cover:

  • Communicable diseases
  • Controlled substances
  • Failure to render professional services when the injury occurred
  • Intentional or expected injuries
  • Physical or mental abuse
  • When the owned premises aren’t insured by you
  • War

Additional Coverages to Consider

  • Extra Contents Coverage
  • Replacement Cost
  • Personal Property Extensions of coverage
  • Additional Liability
  • Flood Insurance
  • Earthquake Insurance

8 Types of Homeowners Insurance Policies

There are eight forms of homeowners insurance policies, and we have listed out a few primary factors to know when shopping for home insurance and even renter’s insurance. Each HO (homeowners) form or policy is segmented into three groups:

  1. HO-1, HO-2, HO-3, HO-5, and HO-8, Single-family home insurance policy
  2. HO-6 and HO-4, Condominium (condo) or cooperative (co-op) insurance policy
  3. HO-7, Mobile home insurance policy

HO-1 Basic Form

While only 1.46% of US households are under HO-1, the coverage contains 10 basic, named perils, covering actual cash value. “Named perils” are hazards that the policy only covers  because they’re explicitly called on the policy:

  • Aircraft
  • Explosion
  • Civil commotion or riot
  • Falling objects
  • Fire or lightning
  • Hail or windstorm
  • Smoke
  • Theft
  • Vandalism
  • Vehicle

HO-2 Broad Form

The National Association of Insurance Commissioners (NAIC) reports that 5.37% of single-family homes are listed under an HO-2 broad form. An HO-2 policy includes everything under the HO-1 policy, plus six additional perils out of the ones listed below. It’s important to note that, although personal property will remain at actual cash value, the dwelling cost will be covered as a replacement cost

  • Accidental discharge of water or steam
  • Damage from aircrafts
  • Damage from vehicles
  • Explosions
  • Falling objects
  • Fire or lightning
  • Freezing of household systems
  • Hail or windstorms
  • Malicious mischief or vandalism
  • Riots or civil commotion
  • Smoke
  • Sudden and accidental damage from artificially generated electrical current
  • Sudden and accidental tearing apart, cracking, burning, or bulging of specific household systems
  • Theft
  • Volcanic eruptions
  • Weight of ice, snow, or sleet

HO-3 Special Form

We at Versured recommend this form for the average customer. The HO-3 special form is pretty popular, used in 79% of single-family homes, and it includes everything stated under a typical HO-2 policy but works a little differently.

HO-3s work differently. Rather than list off the perils, they do cover, many use the “open perils” route, which means they list the perils they don’t cover under their policy. Below is a list of common open perils within an HO-3 policy:

  • Actions by the government
  • Animals that are owned by the insured party
  • The collapse of the property
  • Damage by vermin, rodents, insects, or birds
  • Effects of smoke from agricultural smudging and industrial operations
  • Effects of smog, corrosion, and rust
  • Expansion, bulging, shrinkage, or settling of the house
  • Fungus, rot, or mold
  • Intentional damage or loss
  • Law or ordinance
  • Mechanical breakdown
  • Movements of the Earth
  • Neglect
  • Neglect of property
  • Nuclear hazard
  • Power failure
  • Seepage of pollutants or their discharge or dispersal
  • Theft (in the case of a house that is still under construction but insured)
  • Vandalism to a house that has been vacant for more than 60 days
  • War
  • Water damage
  • Wear and tear or deterioration

HO-4 Contents Broad Form

HO-4 is most commonly known as renter’s insurance but is also referred to as a content broad form or tenant’s form. 73% of condo residences are licensed under this type of form, and it contains coverage plans very similar to the HO-2.

Renter’s insurance is meant for the tenant of the condo, apartment, or home, to ensure either the replacement cost or actual cash value of their personal belongings. However, it does not cover dwellings or other buildings because this form is meant for the tenant.

HO-5 Comprehensive Form

Making up 13.59% of single-family home policies, the HO-5 comprehensive form is considered the most beneficial of all coverages. That said, a more comprehensive form requires a higher monthly premium. Everything stated within the HO-3 special form is included, with a few additional benefits:

  • Dwelling and personal property are insured at the replacement cost
  • An open-peril (also known as all-risk) coverage for both the home and personal belongings
  • Additional or higher coverage limitations for more expensive belongings, like furs and jewelry

Here’s a great article outlining how you’re in charge when it comes to HO-5 insurance.

HO-6 Unit-Owners Form 

Also known as a condo insurance policy, this form makes up 26.59% of condo or co-op policies across the United States. This policy’s purpose is meant for landlords or other property owners who may not be currently residing on their property but want their dwelling and personal properties to be insured if a tenant or other person lives there. 

Remember to check the homeowners association’s (HOA) insurance or “master policy” to see what coverage they have so you don’t pay for what the HOA is willing to cover!

HO-7 Mobile Home Form

Since this form doesn’t technically reside under a single-family home or condo, this is the only insurance form for mobile or manufactured homes sitting at a solid 100%. The HO-7 is typically identical to the HO-3 but is specifically designed for manufactured homes.

Remember that a typical HO-7 form only covers when the home is stationary, so if you plan on moving your home, we would recommend finding a particular transitory policy.

HO-8 Modified Coverage or Older Home Form

This policy is typically meant for registered landmarks or other types of historic homes. Sitting at 0.46% of single-family homes, not many use this policy because of the outdated structures, like the lack and absence of electrical or heating and air conditioning. According to Kin, the HO-8 modified coverage policy is home insurance for older buildings where the replacement costs potentially outweigh the market value. That means the HO-8 policy will cover your necessary (HO-1) policies from the list of 10 perils and only cover the home’s actual cash value.  

Key Elements to Look For When Buying Homeowners Insurance 

  • Many experts like Investopedia and Versured recommend comparing five different quotes when comparing insurance companies because it will give you a good sense of what people offer and offer leverage while negotiating.
  • Understand the six (A-F) types of coverages for basic home insurance
  • Familiarize yourself with the eight different insurance forms/policies, so you know which policy best fits your home insurance needs
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