Homeowners Insurance: What It Actually Covers (And What It Doesn't)

Homeowners insurance costs $1,500-$3,000/year on average, but many homeowners don't understand what they're paying for. Knowing your coverage prevents surprises when you need to file a claim.

Standard coverage includes: dwelling (rebuilding your house), other structures (garage, shed, fence), personal property (belongings), loss of use (living expenses if displaced), personal liability (someone injured on your property), and medical payments.

Dwelling coverage should equal the cost to rebuild your home, not its market value. Land doesn't need to be insured. A $400,000 home might only need $300,000 in dwelling coverage if the land is worth $100,000.

Personal property is typically covered at 50-70% of dwelling coverage. A $300,000 dwelling policy gives you $150,000-$210,000 in personal property coverage. This covers theft, fire, and other covered perils even when items are away from home.

What standard policies DON'T cover: floods (requires separate flood insurance $500-$3,000/year), earthquakes (separate policy $200-$5,000/year), sewer backup (rider $50-$100/year), jewelry over $1,500-$2,500 (need a rider), home business equipment, and normal wear and tear.

Actual Cash Value (ACV) vs Replacement Cost Value (RCV): ACV pays the depreciated value of your belongings. RCV pays to replace them at current prices. RCV costs 10-15% more but is far better — a 5-year-old TV paid at ACV might get you $100 versus $500 for RCV.

Liability coverage protects you if someone is injured on your property or you cause damage to others. Standard policies include $100,000-$300,000. With today's lawsuit costs, consider increasing to $500,000 or adding an umbrella policy.

Umbrella policies ($200-$500/year) add $1-$5 million in additional liability coverage on top of your home and auto policies. If your net worth exceeds your base liability limits, an umbrella policy is essential asset protection.

File claims strategically. Small claims ($1,000-$2,000) may not be worth filing after your deductible. Multiple claims in 3-5 years can increase your rates 20-40% or even result in non-renewal. Save claims for significant losses.

Annual policy review is essential. Update your coverage after renovations, major purchases, and life changes. An $80,000 kitchen remodel that isn't reported could leave you underinsured for a total loss.