Author: Kimberlee | September 1, 2025
Edited by: Kimberlee and Reviewed: Kimberlee
A homeowners insurance policy is necessary to cover common perils such as fire and theft. But family members may question whether it covers other perils like flood and earthquake, and with good reason. If you don’t specifically buy flood and earthquake coverage, you probably don’t have protection from these perils. Let’s dig deeper into what a homeowners insurance policy covers.
When you buy a house and have a mortgage, you will be required to buy homeowners insurance. Even if you aren’t required to buy it, you should consider getting it to protect the house, any other structures on the property, and your personal belongings. Most homeowners insurance policies cover you for common perils such as fire, windstorm, and theft. It also provides liability protection in the event that you are responsible for a third-party loss, such as a tree falling on a neighbor’s fence or house.
Most homeowners insurance policies issued by popular insurance companies offer the same types of protection.
This is the basis of your policy. The dwelling coverage is the amount it would take to rebuild your home from the ground up. It is not a fair market value. It is the construction cost of the property that would make you whole in the event of a total loss. To be fully insured, you should have 100% of your rebuild costs insured, though some insurance companies will say you’re fully insured at 80% of the dwelling cost.
Other structure coverage is the amount it would take to rebuild sheds, guest houses, and patios. This is usually a percentage of the dwelling cost, but can be increased if the property has a lot of additional structures on it. You can figure out the rebuild cost of these structures to ensure you have full coverage.
Personal property coverage is the line item that protects all that you own in the house – your personal belongings. This includes furniture, appliances, housewares, clothing, and nominally valued jewelry. A policy will start with the personal property being a percentage of the dwelling value, but you can increase it if you do an inventory and find that your stuff is valued at more than that.
It is important to read the fine print and see if your home and belongings are protected by replacement cost or actual cash value. There is a big difference between the two. The replacement cost is what it costs to replace the item today, whereas the actual cash value is the depreciated value. A depreciated value will not be enough to replace the item fully, but these policies are often cheaper in premiums.
Personal liability is important in protecting your assets, including your savings, home equity, and investments. It pays for settlements and claims asserting that you are responsible for a third-party loss or injury. This could be something like your dog bit someone, or a tree branch from your property falls on someone’s car, leading to property damage. Most policies default to $100,000 in coverage that can be increased to a million or more.
If your home is uninhabitable due to a covered loss, you will need somewhere to stay. This could be a hotel, Airbnb, or rental property. Your home insurance policy will cover the costs of a place to stay until your home is ready to move back into. The additional living expenses coverage usually is for a specific dollar amount or up to two years in rental, giving you ample time to fix the home and get back into it.
While policies differ, most policies will cover the following perils:
If you are concerned about specific perils being covered, you should consult the insurance company to see if you can get an endorsement or additional policy.
Flood insurance is usually covered by a separate policy, though you may be able to get an endorsement with some insurance companies. This covers the rise in water from external sources and happens with heavy rains, hurricanes, and other significant water body breaches.
If you live in earthquake country, you probably want to have earthquake coverage to protect you against this specific peril, which is otherwise excluded from the policy. Often, this is a separate policy, but may be an endorsement for specific insurers.
A common endorsement to a home insurance policy is backup of sewer and drain. This isn’t automatically covered but can be added as an endorsement for as little as $20 per year.
Your high-end personal property is not automatically covered in a home policy. Things like jewelry and fine art may only be covered for as much as $1,500. This means you may need to schedule items with an appraisal and higher premium or get a personal articles policy for proper coverage.
For just a few dollars more, you can get identity theft protection on your home policy. This pays to restore your identity back to its rightful status.
Common exclusions to homeowners policies are:
The premium associated with your homeowners policy is determined by many variables, including:
Let’s look at some tips to help you choose the right homeowners insurance company.
Talk to your insurance agent to help determine how much coverage you need. There is no reason to overinsure. You won’t get a bigger house built through insurance just because you overinsured.
Shop among different insurance companies to see who has the best rates for the best coverage.
Make sure you understand what the policy covers and doesn’t cover. Knowing the exclusions is just as important as knowing the coverages.
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