What does homeowners insurance cover?

An extensive guide to homeowners insurance.

Are you looking for an overview of the different types of homeowners insurance policies? Have this post handy while you read the guide.

Well look no further- here are the different kinds of homeowners insurance policy forms, listed out and what they cover. You will find valuable information relevant to each form. 

Disclaimer: Every single insurance policy is unique to the policyholder. That goes for the policy form with its specific endorsements, coverage limits, and deductibles. You MUST take this article as a general idea of what is covered and what is not. I’m not your insurance adjuster, and only your specified insurance company and assigned insurance adjuster can determine coverage after they complete their claim investigation. Also, I’m not here to recommend what policy you should purchase. That’s your agent’s job! Whew, that’s a mouthful. I have another disclaimer here.

My goal is to make homeowners insurance as easy to understand as possible. View infographic.

YOUR HOUSE IS COVERED

Coverage A (Dwelling) is your house. From the roof to the ceiling, walls, and flooring, even those items such as electrical, plumbing, and A/C.  

Attached garages are considered under coverage A. Materials to be used to construct or repair your house are included; however, they must be on or next to the residence premises. 

YOUR SHED & FENCE ARE COVERED

Coverage B is your other structures such as detached sheds, detached garages, fencing, and mailbox. The coverage B limit is 10% of coverage A.  

Property that is not considered a building is settled on an actual cash value only; think fencing and mailboxes. Just because something is connected, let’s say by a utility line, doesn’t mean it’s a part of coverage A. In fact, it’s a part of coverage B. Detached structures that are used for business or rented out are usually not covered.

YOUR STUFF- CONTENTS – IS COVERED

Coverage C is your contents (personal property). Everything that you would pack up and move to another house like furniture, clothing, towels, and kitchenware. Read all about personal property here.

ADDITIONAL LIVING EXPENSES

Coverage D is additional living expenses (ALE). This coverage is available when your home is damaged due to a covered peril causing your living conditions to be unlivable.

When this happens, you may need to stay in a rental home, but you still would need to pay your mortgage. That’s two-house notes! That’s where ALE comes in. It pays for your rental during the shortest period it will take to make your house livable again. 

Just remember, a covered loss must occur to trigger this coverage. You must incur these expenses, and they must be reasonable. Each scenario is different, and your adjuster will likely determine what is fair and allowed depending on your situation.

YOU HAVE LIABILITY PROTECTION

Coverage E is personal liability coverage. Let’s say someone gets hurt on your property, or you damage their belongings because of your negligence. Well, your insurance company will investigate the claim and determine if you are liable. If they decide that you are, in fact, responsible, they will pay the person (third party) that was affected. 

Just remember, you must be negligent for coverage and the third party must not be an insured! This coverage is really on a case by case basis, so it’s hard to go into all the details.

Find your policy form by reading my article on declarations page here.

Side note: it’s unlikely that you probably would purchase a basic HO-1 form, but I wanted to include it so you will get an idea of what insurance does cover. The most common policy form, HO -3, covers everything listed on HO-1 & HO-2. 

HO -1 is a basic form policy.  

A simple coverage form that lists out the covered perils. If it’s not listed, then it’s not covered. 

Always check what endorsements are on your policy by viewing your handy declarations page! I feel like a broken record in all my posts about declarations pages, BUT it’s an essential piece of information you need!

Here are the ten named perils that HO -1 includes:

1. Fire & smoke
   1. Any type of fire like a total loss or kitchen fire except arson. Please don’t commit arson 😝
2. Explosions
3. Lightning
   1. I’ve had several claims where lightning has significantly damaged a home. During a lightning storm, check your Weather Channel App, and it will show you the lightning strikes in the area. There are also programs that adjusters can use to verify that lightning struck your property. My favorite program to use is CoreLogic’s Strike net. Find it here.
4. Hail & Windstorms
5. Theft
6. Vandalism
7. Damage from vehicles (a vehicle collides into your house)
8. Damage from aircrafts
9. Riots & Civil Commotion
10. Volcanic Eruption (volcanic eruption only; not a result from earthquake damage)

HO- 2 is a broad form policy and a named-peril policy.

It includes all perils listed under HO-1 plus the following:

1. Falling Objects (an object falls onto your house such as a utility pole, tree limb)
2. Weight of ice, snow, or sleet (damage to awnings and fencing are excluded)
3. Freezing of household systems like A/C or heating
4. Sudden and accidental tearing apart
5. Accidental discharge or overflow of water or steam
6. Sudden and accidental damage from artificially generated electrical current (power surge)

Important details:

• If your home is not insured to value, meaning that you must have a certain percentage (usually 80%) insurance coverage to the value of the house, then replacement cost is not considered. 
  •  The adjuster should perform a valuation during the inspection. 
  • Here’s an example if your insurance company requires 80%: If your home is valued at $100,000, then you must carry $80,000 worth of coverage A (dwelling coverage).

• There MUST be a storm created opening for interior damage to be covered. A storm created opening would be a tree limb falling through your roof, allowing water to enter or, for instance, strong winds tearing off shingles from your roof. 
  • A storm created opening is NOT just for any roof leaks. 
  • Water entering around a pipe jack that has not been maintained is not covered. 
  • Water simply leaking in, or around a valley is also not covered.
  •  Sorry, but if it’s just maintenance-related, it’s not covered.

• Has your home been vacant for more than 60 days? Well, vandalism may not be covered if you sustain a loss. Homes under construction are not considered vacant. If you plan to leave your house for more than 30 days, call and let your agent know.

I know it’s a lot, keep reading!

• If you do not have the HO 04 90 10 00 Endorsement or a similar endorsement that allows for replacement cost for personal property, then carpet, padding, awnings, outdoor antennas, outdoor equipment, and household appliances will be paid at ACV. You will need to review YOUR policy to see if this would apply. I’m only letting you know so YOU can investigate your coverage details and figure out what’s covered. It’s is a very common endorsement.

• For additional living expenses (ALE), it’s limited to 10% of Coverage A. 
  • For instance, if you have $100,000 dwelling coverage, then you have $10,000 ALE coverage.
  •  By using your ALE coverage, it will not reduce your dwelling limit.

• You have coverage for the removal of a tree from the premises IF it is a result of a named peril and damages a covered structure or blocks a driveway or handicapped ramps.  
  • For instance, lightning strikes your tree, and it snaps in half, landing on your roof; you will have coverage.  
  • Termites eat away at the interior trunk of your tree, which eventually causes it to fall onto your yard, NOT COVERED. 
    • One: termite damage is not a covered peril, so the insurance company would not cover it. 
    • Two: the tree did not cause damage to the home, so it’s not covered. 
    • Now, if the termite-infested tree fell onto your house, the ensuing damage MAY BE COVERED (again, disclaimer: all insurance companies vary), but the removal of the tree would NOT BE COVERED. 
    • Ensuing damage in this example is the damage sustained to your house like the roof, ceiling, walls from the fallen tree. 

Still, confused? Contact me.

• Removal of Tree Limit: There is a limit of $1,000 for any one loss with $500 for one tree. That’s not a lot of money. You must have your tree removal contractor specifically list the charge to remove the tree off the premises, and list disposal fee.

• Additional coverage includes debris removal, reasonable repairs to protect the property, trees, shrubs, and other plants, fire dept service charges, and collapse. Please read your entire policy for complete coverage information.

HO-3 is a special form policy and the most common homeowners insurance policy.

Coverage for the dwelling is on an all peril basis; however, contents are covered based on the named perils listed in the policy.  

So, if it’s not listed as excluded, then it’s PROBABLY covered. You must always check your endorsements and exclusions carefully.  View policy wording.

Replacement cost applies to the dwelling if the home is insured to value as described under HO -2.

Important details:

• There is no limit to remove the tree from a structure; however, removal from the premises is limited at $500 per tree up to $1,000 per loss. View policy wording.
• Special exclusions apply for theft and vandalism. Remember, under construction is not vacant. View policy wording.
• If you do not have the HO 04 90 10 00 Endorsement or a similar endorsement that allows for replacement cost for personal property, then carpet, padding, awnings, outdoor antennas, outdoor equipment, and household appliances will be paid at ACV. 
  • You will need to review YOUR policy to see if this would apply. I’m only letting you know so YOU can investigate your coverage details and figure out what’s covered. 
  • There are content limits on special items. See my blog post on personal property 101.
• For additional living expenses (ALE), it’s 10% of Coverage A. 
• You have additional coverage for debris removal. View policy wording.

HO -4 is a contents broad form and a named-peril policy that includes additional living expenses and personal liability.

An ideal policy for renters.

Here are some essential details:

• Named perils only, meaning if it’s not listed, it’s not covered.
• Settled on actual cash value
• There must be a storm created opening for interior damage to be covered. So even though this policy is for contents only, the building that houses your contents must sustain physical damage from a covered peril that causes a storm created opening to allow for coverage.
• There are limits on special items.

Ho-5 is the most comprehensive, broadest form you can get.

It is an open peril policy, meaning if it’s not excluded, then it’s covered. HO-5 policies often are offered to newer, more expensive homes.

One main difference between HO-3 and HO-5 is that HO -5 covers your contents on an all peril basis versus named peril.

HO -6 is a condo policy specifically for condo owners. 

It extends coverage to the ceiling, walls, and floors of the unit; however, you must read your policy and condo bylaws.

Important Information:

• Named perils only for coverage A and C.
• Actual cash value settlement
• Coverage B is allowed if you solely own it at your condo.
• You have coverage for additional living expenses. Must be incurred and limited to 10% of coverage A.
• You have coverage for removal of trees, limits apply.

ADDITIONAL POLICIES: HO -7 & HO – 8

There are two other policies, HO- 7, which is a mobile home form. It’s like the HO -3 except for mobile homes. There’s the HO-8 for older homes. I recommend reading the specific policy written by your homeowners insurance company for these two polices.  

So now we went over what’s typically covered, here is what is practically never covered:

• Flood
• Nuclear War
• Earth movements such as earthquakes; purchase a separate policy.
• Wear, tear, deterioration, & neglect (think maintenance items, putting off repairs)
• Off-premise power outage
  •  If your entire neighborhood loses power, then there’s no coverage for things such as food spoilage. 
  •  If you have a direct physical loss that causes you to lose power, then your food spoilage would be covered. (that would be on-premise & coverage would be allowed).
• Intentional acts are never covered. Example: Arson
• Pest damage
• Damage caused by animals
• Foundation issues from settling or shrinking
• Smog, rust, or other corrosion, dry rot
• Mechanical breakdown, latent defect, or any quality in the property that causes it to damage or destroy itself (ensuing damage is included for HO-3). 

Just remember that an insurance policy is NOT a home warranty.

The Curious Confidential: What confuses you the most about homeowners insurance? Comment below! 

CREDIT: All insurance policy snips are from Insurance Services Office, Inc., 1999.