Insurance

What Homeowners Insurance Covers, and the Big Things It Doesn't

Flood and earthquake sit outside a standard policy, and gradual damage is excluded by design.

A standard homeowners policy in the United States covers a defined set of perils and excludes some of the ones people most expect it to handle. The exclusions are not fine print tricks. They are structural, and they exist because certain risks need separate markets.

The six coverages in a standard policy

Most of these scale off your dwelling limit, so setting the dwelling figure correctly sets almost everything else. Insure the rebuild too low and your contents and loss-of-use coverage shrink with it.

The two exclusions that matter most

Flood. No standard homeowners policy covers flood damage. Coverage comes through the National Flood Insurance Program or from private flood insurers, as a separate policy.

The dangerous assumption is that flood risk follows a flood zone map. A large share of flood claims come from properties outside high-risk zones, and heavy rainfall can flood a street that has never flooded before. Policies generally carry a waiting period before coverage starts, usually thirty days, so buying one as a storm approaches does not work.

Earthquake. Also excluded, also available separately. Deductibles on earthquake coverage are typically percentage-based and substantial.

Gradual damage is excluded by design

Insurance covers sudden and accidental events. It does not cover deterioration, and this is the most common reason a claim gets denied.

A pipe that bursts and floods your kitchen is sudden. A pipe that has leaked slowly behind a wall for eight months and produced rot and mould is gradual, and the resulting damage generally falls outside the policy. Roof failure from age, foundation settling, pest damage and mould are usually excluded on the same reasoning.

Insurers expect maintenance. The line they draw is between something breaking and something wearing out.

Other common gaps

• Home business activity. Inventory, equipment and liability tied to a business run from home usually need separate coverage.
• High-value items. Sub-limits cap payouts on jewelry, art, firearms and collections. Schedule them individually to insure them properly.
• Ordinance or law. If codes have changed since your home was built, rebuilding to current code can cost more than rebuilding as it was. Ordinance coverage handles the difference.
• Certain dog breeds, pools and trampolines. Some insurers exclude these from liability coverage or decline to write the policy at all.
• Vacant property. Homes left empty beyond a stated period, often thirty or sixty days, may lose coverage. Tell your insurer before a long absence.

Liability deserves more attention than it gets

Dwelling coverage is what people shop on, and liability is the coverage most likely to matter beyond a large sum. It covers injury to a visitor, damage you cause to someone else's property, and legal defence costs.

Standard limits often start around $100,000, which a serious injury claim can exceed. Raising the limit is usually inexpensive. An umbrella policy sits above your home and auto liability and adds a further layer, often a million dollars, for a few hundred dollars a year.

Documentation before you need it

Claims go better when you can show what you owned. Walk through the house with your phone, recording rooms, open closets and cupboards, and any serial numbers on major items. Keep receipts for expensive purchases and store the whole thing somewhere that survives the house: cloud storage, or a copy with a family member.

Do this before a claim. Reconstructing a contents list from memory after a fire produces a lower settlement than a video made on an ordinary afternoon.

This article is general information about how consumer finance products work in the United States. It is not financial, tax or legal advice and is not a recommendation of any specific product or provider. Rules and pricing vary by state and by institution.