In this guide, we’ll explore what is and is not covered by a homeowners insurance policy, and address common coverage concerns. For example, you may wonder if a typical homeowners insurance policy covers damage from flooding, mold, termites, dog bites, or roof leaks. We’ll also explain the difference between a cash value policy and a replacement cost policy, what to expect when you make a claim, and how long you might wait for a payout from your homeowners insurance company.
What is Covered Under a Standard Homeowners Insurance Policy?
Standard homeowners insurance typically offers a range of protections for your property and personal belongings. An HO-3 is the standard homeowners insurance policy that covers damage to your home’s structure, personal belongings, and provides liability, medical payments, and additional living expense coverage.
As a homeowner, you’ll need to understand your policy’s details and how much coverage you can expect when you file a claim. Some lenders only require enough homeowners insurance coverage to pay off your mortgage, but in most cases, that won’t be nearly enough to rebuild your home and replace everything in it.
For this reason, you should familiarize yourself with the fine details of your policy and its associated limits so you can choose the right coverage for your needs.
Dwelling coverage
Dwelling insurance is the keystone of your homeowners insurance policy. It pays to repair, replace, or rebuild your home’s structure after a covered peril. This could include fire, theft, vandalism, or a weather event such as lightning, wind, or hail. It could also cover damage from external forces like a falling tree branch.
Personal property
Homeowners insurance covers the personal belongings within your home, including your heating and cooling systems, kitchen appliances, furniture, clothing, and other possessions. If you have high-value items, like jewelry or artwork, consider looking into additional coverage.
Other structures
Coverage for detached outbuildings on your property, such as a garage, barn, or shed, along with outdoor grills or fireplaces, swing sets, walls, or fences, is also included. A swimming pool, trampoline, or other recreational equipment may also be covered, but those higher-risk items may require additional liability coverage.
Loss of use
You’re typically covered for living expenses if you need to find alternate lodging while your home is rebuilt or repaired. Typical living expenses can include restaurant meals, parking, and hotel fees. Policies often have pre-set coverage limits and may only pay out for a finite period of time, so it’s important to read your terms carefully.
Personal liability protection
Liability coverage provides financial protection if a person is injured on your property. In the event that a guest is injured on your property, homeowners insurance will reimburse for medical expenses and legal fees if you are sued.
Medical payments
Medical payments coverage applies to individuals, not immediate household members, when they’re accidentally injured on your property. It is automatically included in homeowners insurance policies and will pay for reasonable and necessary treatment costs and copays within a year of the accident. Your policy likely has a pre-set limit, but you can expand this coverage if needed.
What Are Some Common Optional Homeowners Insurance Endorsements?
Optional homeowners insurance coverage, also known as an endorsement, is an addition to a standard policy that provides extra coverage or adjusts the terms for specific items or situations. Most commonly, endorsements increase coverage limits, extend protection to items not covered in the base policy, or add new coverage for particular risks.
Scheduled personal property
Scheduled personal property refers to valuable items that exceed the limits of your policy. With this endorsement, you can expand your policy to cover jewelry, watches, computers, collectibles, and other high-value items. Often, you’ll need to submit receipts or appraisals to obtain coverage.
Sewer/water backup
A sewer and water backup endorsement protects against losses caused by sewers or drains backing up and sump pump overflow. It will help pay for remediation inside your home and repairs to the sewer line within your property line.
Earthquake
While not commonly required by a lender, you might consider earthquake coverage if you live in an area prone to earthquakes. An earthquake endorsement covers structural damage from the initial quake and after-shocks, loss or damage to personal property, rebuilding costs, and temporary living expenses if your home is deemed unsafe. Coverage varies; some insurers offer earthquake coverage as an add-on, while others offer it as a separate policy.
Windstorm
Like earthquake coverage, a windstorm add-on covers structural damage, loss of personal property, rebuilding costs, and living expenses if you’re displaced after a hurricane or tornado. Windstorm coverage may be available as an add-on or separate policy.
Flood
You can purchase flood insurance through the National Flood Insurance Program or a private insurer, but it’s occasionally available as an add-on to existing homeowners’ policies.
There are two types of flood insurance coverage – dwelling and contents coverage. Dwelling coverage pays for damage to your home from a flood, including cabinetry, electrical and plumbing systems, furnaces, water heaters, blinds, installed carpeting, and built-in appliances. Contents coverage applies to personal property, such as clothing, furniture, portable appliances, AC units, and valuable items, like artwork or jewelry.
Identity theft
Many insurers offer an identity theft endorsement to protect you from financial losses and legal fees associated with identity fraud. When you sign up for this coverage, your insurer may monitor and alert you of activity on your credit report and reimburse you for expenses related to identity theft, including professional assistance recovering your identity, fees for replacing identification and social security cards, auditing, and costs associated with obtaining a civil judgment.
Law/ordinance coverage
Law or ordinance coverage provides financial protection if you need to upgrade your home to meet state or local codes. You may need this coverage in the event of a partial repair or a full rebuild of your home.
What Standard Homeowner Insurance Policies Don’t Cover
Standard insurance policies have limitations and exclusions that impact what and how much they’ll cover, commonly including:
- Flooding from weather-related events and outside sources
- Earthquakes and landslides
- War, nuclear hazards, and government actions
- Pest and mold damage
- Wear and tear or damage due to insufficient maintenance
- Power failure or related damage
- Home businesses
- Injuries caused by certain pets
- Valuable items above the sub-limit outlined in the policy
Replacement Cost vs Actual Cash Value Coverage
Most insurance companies offer two types of homeowners insurance policies — actual cash value (ACV) and replacement cost value (RCV).
“Know the difference between an actual cash value policy and a replacement cost policy,” says Lynne McChristian of the Insurance Information Institute (III). “The former pays the depreciated cost, so you get less at claim time. With replacement cost, you may pay 10 to 15% more for coverage, yet you get much more when you file a claim.”
For this reason, a replacement cost policy is usually a better bet, if your budget allows it. Replacement cost policies generally cost more than a comparable cash value policy, but the difference could be made up quickly if you have to make a claim.
“Depreciation is a big deal,” said Amy Bach of consumer advocacy group United Policyholders. “It’s much better to have replacement coverage because that’s what you need to rebuild your home. You need to balance price and value.”
Many things can increase rebuilding costs over time. Some factors include labor and material costs, housing demand, changes to zoning requirements and building codes, and inflation. Inflation ensures that most things cost more over time. A replacement cost policy helps ensure your homeowners insurance keeps up with those increases.
As an example, let’s say a falling tree damages your roof, which was last replaced 10 years ago. A replacement cost policy will pay to replace the roof at today’s cost for labor and materials. An actual cash value policy will deduct 10 years of depreciation. The same logic applies to your furnace, washing machine, and other possessions. Replacement cost coverage is more expensive, but industry experts say it is worth the added cost.
Estimating how much coverage you need
To estimate how much homeowners insurance coverage you need, multiply the home’s square footage by the local building costs per square foot in your area. For example, if your home is 2,200 square feet and local building costs average $80 per square foot, the cost to rebuild your home would be about $176,000. A local insurance agent can help determine costs in your area. You’ll calculate costs the same way for any detached structures.
Next, take an inventory of all your possessions with an estimated value. Take photos or videos to provide a visual record. Make a note of where and when you purchased things in your inventory, especially big-ticket items. This extra step will not only provide a record but also help determine how much coverage you need and what items might require additional coverage.
According to the III, most homeowners insurance policies typically cover your belongings at a rate of about 50% to 70% of what your home is insured for. If your home is insured for $400,000, you can expect to be reimbursed for around $200,000 to $280,000 for your furniture, clothing, and other possessions. If your inventory determines that isn’t sufficient for your needs, consider additional coverage.
When Does Homeowners Insurance Pay Out?
Depending on the complexity of your claim and the amount of damage, it can take anywhere from a few weeks to a few years before a claim is settled and you are paid.
Assuming you promptly file a claim with whatever documentation is required by your insurer and you’re satisfied with the settlement, you might see reimbursement for something like wind damage to your roof within weeks. A complicated claim can take longer.
“In the event of a catastrophe, most insurers pay within a few weeks to six months,” said Janet Ruiz of the III. Rebuilding a home after a total loss, however, can take 18 to 24 months, according to consumer advocacy group United Policyholders.
Any dispute between you and the insurer will lengthen the claim, whether that’s caused by the insurer denying the claim or you feel their initial offer is insufficient. If more than one insurer is involved, that could also lengthen the process. A hurricane might cause both wind and water damage, which are often insured by different companies. Most standard homeowners insurance policies provide coverage for wind damage but don’t include flood insurance, which can be purchased as an add-on from most major insurance companies. It can be difficult to tell what damage was caused by wind or water following a storm, and that can lead to a dispute between insurers, which can cause delays in payment.
You can’t do much to avoid certain types of delays, but there are things you can do to make sure the process goes as smoothly as possible. Make sure you ask your agent or insurer questions about anything you don’t understand as you file your claim, and make sure you understand and provide everything that is required.