Understanding a Standard Homeowners Insurance Policy

Homeowners insurance policies can have many components that seem confusing and intimidating. What does all that language mean? What do I really need for coverage? Understanding your policy is important. A standard homeowners insurance policy generally includes four types of coverage.


Coverage for the home's actual structure .
The pages in the policy that discuss coverage of a home's structure will most likely be referred to as Coverage A -- Dwelling Coverage. Unattached structures such as barns, garages, shed or gazebos will most likely be referred to as Coverage B -- Other Structures Coverage.
This part of the homeowners policy insures the structure of your home and other structures on your property such as barns, sheds and unattached garages. A partial list of perils that this insures your home against is damage from things such as:

Fire, lightning, explosions
Theft, vandalism and malicious mischief
Damage from vehicles
Sudden, accidental damage from smoke
Objects falling from the sky
Weight of snow, ice and sleet
Accidental discharge or overflow of water from your plumbing
Freezing of plumbing

When deciding how much coverage you should buy, you'll want to calculate how much it would cost to rebuild your home if it were lost completely.

Standard homeowners insurance policies do not cover earthquakes and floods. Depending on where you live, hurricanes may not be covered, either. If you need to insure your home against these risks, you may be able to buy a separate earthquake or flood insurance policy.

Coverage for Your Personal Property
The next section of the policy discusses coverage of your personal belongings. This will most likely be referred to as Coverage C -- Personal Property Coverage.
From clothing to dishes. From a sofa to your TV. A homeowners insurance policy typically protects your personal belongings against the same list of risks and perils as your home's structure. So what is included? Imagine taking your home and turning it upside down. Now give it a good shake. Everything that falls out would be included as your personal property.

However, this part of the policy has limits on the amount the insurance would pay out in the event of a loss. Coverage for personal property is usually limited from 50% to 75% of your home's structure coverage amount or Coverage A. For example, if your house were insured for $200,000, your personal property could be covered up to $150,000.

Unless otherwise specified, personal property coverage is for actual cash value at the time of loss, which is the original cost of the item, minus depreciation. Check your insurance declarations page for your policy's coverage specifics. Buying an extra Guaranteed Replacement Coverage endorsement can increase this coverage. And it's a good idea to do so because if you purchased most of your belongings a few years ago, their current depreciated value may be a lot less than what it would take to replace them.

Also, if you have personal property such as firearms, jewelry, furs, antiques, collectibles, fine artwork, musical instruments or office equipment, you may need additional coverage. These items may cost more to replace than your specific personal property coverage limits.

Coverage for temporary living expenses
While you repair or rebuild a damaged home, where would you live? The third type of coverage found in a homeowners insurance policy, Loss of Use Coverage, insures you for temporary housing expenses, restaurant meals, and even things like car and boat storage and pet kennel expenses, for a set period of time. This section is usually referred to as Coverage D -- Loss of Use Coverage
There are also limits to the amount that this coverage pays. Typically, it will pay up to 20% of the amount for which your home's structure is insured. For example, if your home is insured for $200,000, loss of use may be covered for $40,000.

Personal Liability Coverage
Lawsuits can be burdensome. Medical bills can be very high. The fourth type of coverage generally found in a standard homeowners insurance policy covers legal expenses and medical costs when you are legally responsible for certain types of damages or injuries to others that occur on your property.
The pages in the policy that discuss coverage of your personal belongings will most likely be referred to as Coverage E -- Personal Liability Coverage. Some insurance companies also include a small Medical Payment Coverage section in this portion of a homeowners insurance policy. If someone suffers a minor injury on your property, Coverage F--Medical Payments Coverage would pay for certain minor medical costs incurred by the injured person. Examples include the cost of exams and X-rays. Generally, this coverage is limited to $1,000.

Most homeowner policies include $100,000 of personal liability coverage for each occurrence -- the combined legal and medical expenses for a single accident or incident.

Insurance professionals generally recommend a personal liability minimum of $300,000 for each occurrence. Purchasing more liability coverage in the form of a personal umbrella liability policy may be a good idea, and the costs of these policies are typically very reasonable


Understanding your homeowners insurance policy and the protection provided is an important part of owning a home. A licensed insurance agent or other insurance professional is an excellent resource, and can help you understand your specific insurance needs. Never be afraid to ask your agent or your insurance company questions about the protection amounts and types of coverage you are buying when you purchase any type of insurance.