With one in 20 insured homes filing a claim each year, it’s clear that homeowners insurance policies are crucial.
Unfortunately, homeowners insurance still gets a rap as a “necessary evil.”
Homeowners often find themselves persuaded into a policy as a requirement for their mortgage. They may feel unsure where to turn for unbiased information. And in the complicated world of insurance, they may not be clear on why they need a policy in the first place.
So what does homeowners insurance cover, anyway? We’re here to help you take control of your coverage and better understand how homeowners insurance protects you. Read on to learn how and when homeowners insurance can keep you safe.
What Does Homeowners Insurance Cover?
Also known as “hazard insurance” or “home insurance,” homeowners insurance is simply a way of protecting yourself and your property from the risk of injury, property damage, civil liability, and more. When you take out a policy, it will kick in anytime you see a loss caused by a specific peril covered by that policy.
In a nutshell, when we talk about homeowners insurance coverage, we mean that the policy protects you in several ways:
- Property: Homeowners insurance insures private homes against interior or exterior damage. Your policy may also protect other structures on your property.
- Belongings: Your policy covers you in the case of loss or damage to belongings within your home in the case of disaster or theft.
- Liability: Your insurance policy also protects you and your family from liability if an accident happens on your property. When someone not covered by the policy is injured on your property, or if any of their belongings are damaged, the policy provides liability coverage.
- Medical expenses: In the case above, when a guest is injured on your property, the policy will pay for their medical needs.
- Living expenses: In the case of the destruction of your home, homeowners insurance covers the cost of temporary lodging and food.
The best homeowners insurance will cover all the concerns above. However, it’s always important to be aware of policy exclusions, which we’ll discuss further below.
In addition, you should keep in mind that while all policies will cover you in the cases mentioned above, each policy will also have a coverage limit. In other words, the policy will only pay for a covered loss up to a certain amount.
What Types of Policy Types Are Available?
There are several different types of policies, and each policy offers different coverage. The one you choose depends on the kind of property you own, as well as your coverage needs.
- HO-1, or Basic Form. These very basic properties protect homeowners only from standard perils. Few insurance companies offer them nowadays.
- HO-2, or Broad Form. An upgrade from the policy above, HO-2s cover several additional perils beyond that of the HO-1.
- HO-3, or Special Form. Offering broader coverage than the policies above, HO-3 is by far the most common type of homeowners insurance. The difference is that it starts by protecting all risks, excluding any perils named in the policy document.
- HO-4, or Tenant’s Form. Also known as renters insurance, these cover personal belongings inside your rental property, and it covers your liability if your apartment is damaged.
- HO-5, or Comprehensive Form. The most comprehensive homeowners insurance policy, these policies are similar to HO-3s, except that they’re typically used to provide additional coverage to properties of higher net worth in high-risk areas.
- HO-6, or Unit-owners Form. Specifically for condo owners, these policies cover the structure of the condo building and unit as well as any common areas.
- HO-7, or Mobile Home Form. These policies offer coverage specifically for mobile or manufactured homes, which aren’t covered under other policies.
- HO-8, or Modified Coverage Form. This special type of coverage is for anyone whose home doesn’t meet the insurer standards. This includes older homes where the cost of rebuilding is greater than the home’s market value.
What Is Not Covered by Homeowners’ Insurance?
This depends from policy to policy. However, you’ll find that homeowners insurance doesn’t cover every possible peril, and there are some common exclusions to be aware of.
- Floods. Most standard policies will not cover damage from a flood. If you live in a flood-prone area, you’ll need a separate flood insurance policy. The majority of these policies are issued by the Federal Emergency Management Agency (FEMA).
- Damage from neglect. If you’ve failed to maintain your home properly, the resulting issues are not covered. This can include things like insect infestations or mold.
- Pet damage. Most policies won’t cover damage to a home by a pet, though they may cover damage from another person’s pet. And while dog bite claims are usually covered, owners of aggressive breeds like pit bulls may find themselves without coverage.
- Earth movement. Mudslides, sinkholes, and other earth-shattering perils aren’t usually covered. Like with flooding, you’ll need a separate policy if you live in an area more prone to these occurrences.
- Costly jewelry. Homeowners insurance usually covers all belongings within your home—but the reimbursement cap is often around $1,500.
Consider Your Coverage
Homeowners insurance is designed to protect you, your home, and your belongings from common perils—but it’s important to consider your coverage carefully. Finding the right policy type and coverage options is critical, and it’s just as important to know where the limitations of your policy lie.
Still wondering, “What does homeowners insurance cover for my home?” We’re here to help.