Author: Kimberlee | September 3, 2025
Edited by: Kimberlee and Reviewed: Kimberlee
No homeowners should go without having a homeowners insurance policy. While home should be a safe place, you never know when something can go wrong. An insurance agent can help you review what a policy covers and how it protects you. This article will go over what a homeowners insurance policy is and why you need it.
Mortgage lenders will require you to get a homeowners insurance policy to protect their financial interest in the home. It covers dwelling, personal belongings, liability, and loss of use. Even if you don’t have a mortgage, getting a policy will protect your biggest investment from being completely lost if a peril hits. The typical types of perils covered are fire, windstorm, theft, vandalism, and water loss (but not flood).
If you don’t have homeowners insurance, you might not have a way to pay for tens of thousands (or more) of damages that can occur in a loss. Think about if your home burned to the ground. That could be hundreds of thousands of dollars in damages. Homeowners insurance pays for the rebuilding of your home.
One of the key coverages of a homeowners insurance policy is the dwelling coverage. This coverage amounts to the cost of rebuilding your home. If there is property damage to the structure itself, the policy will pay the costs to fix it and make you whole. You pay a deductible as your portion of the claim, and the insurance company pays the rest.
Accidents happen, and sometimes you’re on the hook for its costs. An insurance agent can explain to you how liability coverage works. Essentially, if you are at fault in an accident that leads to a third-party loss or injury, your insurance policy will pay for the loss. Common claims include a tree branch falling on a neighbor’s property or a dog biting someone in the neighborhood.
A homeowners insurance policy will cover some natural disasters, but not all. It covers windstorms such as a tornado, but not a hurricane, flood, or earthquake. To get coverage for these other natural disasters, you need separate policies that specifically cover the risk.
Having a homeowners insurance policy can give you the peace of mind and financial security of knowing that you don’t have to come up with tens of thousands of dollars, or more, to fix your house or replace your personal belongings. For a small monthly premium, you get full coverage of the house and belongings, ensuring you are protected against common losses.
Here are some of the common coverages of a homeowners insurance policy.
The dwelling coverage is the amount it would take to rebuild the house from the ground up. It is construction costs, not fair market value, that is often higher than the construction costs. If there is a kitchen fire, the insurance company would pay to remediate the loss, deal with the smoke damage, and pay for a new kitchen to be installed.
Personal property protection covers your personal belongings, everything you own, in your house. This includes furniture, appliances, housewares, clothing, and any other personal items you may have. If there is a theft, the personal property protection kicks in and pays to replace the items. While you can do an inventory of goods to ensure you have enough coverage, this line item is usually defaulted as a percentage of the dwelling coverage.
Liability protection pays for third-party losses or injuries. Your kid might break a neighbor’s window playing baseball, or your dog might bite someone in the neighborhood. These are instances where you are responsible for the cost of fixing the window or getting medical attention for the third party. Your homeowners insurance should automatically come with $100,000 in liability coverage that can be raised for more protection.
Another very important coverage of your homeowners insurance policy is the additional expenses coverage. This allows you a stipend to pay for another place to stay if your home is uninhabitable due to a covered loss. So, if there is a fire, and you can’t stay in your three-bedroom house until things are fixed, you can rent another three-bedroom house in a similar neighborhood while yours is being fixed.
Keep in mind that homeowners insurance doesn’t cover every type of loss. The most common exclusions are natural disasters such as hurricanes, earthquakes, and floods. To get coverage for these things, you need to get a specialty policy or an endorsement on your homeowners insurance.
There are also certain add-ons that are inexpensive and very common. For example, most policies don’t protect against backup of sewer and drain. For a small premium, you can get this covered. You can also opt for identity theft protection and schedule expensive items such as jewelry and fine art.
Here are some tips to help you choose the right homeowners insurance policy.
You should assess the coverage needs that you have by:
Take the time to shop around and compare quotes. Make sure you compare quotes with the same dwelling cost and personal belongings coverage to get a sense of which company offers the best rates.
Read through a policy’s details to understand coverages and exclusions. Ask your insurance agent how the company handles claims.
Let’s look at how to file an insurance claim.
After a loss, do what you can to mitigate the damage and financial loss by stopping the action of the peril. This means putting fires out as soon as possible, stopping the water flow if a pipe bursts, or securing the property after a break-in.
Provide the insurance company with documentation of the loss. This includes photos, receipts, appraisals, and anything you have to show the value of the items lost. An adjuster will likely tour the scene to list out the lost property.
The adjuster is there to help the insurance company determine the loss. Keep in mind that the insurance company wants to minimize financial losses and will likely underquote the loss. It may be wise to get your own contractor to run an estimate for repairs and do some window shopping to value the lost personal property and get a replacement value for it.
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