What Does Home Insurance Actually Cover? Complete Guide 2026

Most homeowners have a vague understanding that their home insurance protects their house and belongings. But when disaster strikes, many discover costly gaps in their coverage that could have been avoided. Understanding exactly what your policy covers, and more importantly what it doesn't, is critical to adequate protection.

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The Four Core Coverage Types

Standard home insurance policies, also called HO-3 policies, include four main types of coverage. Let's break down each one and what it actually protects.

1. Dwelling Coverage (Coverage A)

This covers the physical structure of your home, including the walls, roof, foundation, attached structures like garages, and built-in appliances. If your home is damaged or destroyed by a covered peril, dwelling coverage pays to repair or rebuild it.

Critical detail: Dwelling coverage should equal your home's rebuild cost, not its market value. A $400,000 home might only cost $320,000 to rebuild. Conversely, in high-cost construction markets like California or New York, rebuild costs often exceed market value.

Average dwelling coverage amounts in 2026 range from $200,000 to $500,000, with premiums scaling proportionally. A $300,000 dwelling coverage typically costs $1,200-$1,600 annually depending on your location and home characteristics.

2. Personal Property Coverage (Coverage C)

This covers your belongings inside the home, including furniture, clothing, electronics, appliances, and more. Standard policies cover 50-70% of your dwelling coverage amount for personal property.

For example, if you have $300,000 in dwelling coverage, you automatically get $150,000-$210,000 in personal property coverage. Is this enough? The average American household owns $60,000-$100,000 in personal property, so for most people, yes.

However, personal property coverage has sublimits for certain valuable items. Most policies limit coverage to $1,500-$2,500 for jewelry, $2,000-$5,000 for electronics per item, and $200-$500 for cash. If you own valuables exceeding these limits, you need separate riders or endorsements.

Personal property is typically covered on a replacement cost basis if you pay for that upgrade, or actual cash value (depreciated) on standard policies. Learn more about this critical distinction in our article on replacement cost vs actual cash value coverage.

3. Liability Protection (Coverage E)

Liability coverage protects you if someone is injured on your property or if you damage someone else's property. It covers medical expenses, legal fees, and settlements if you're sued.

Standard policies typically include $100,000-$300,000 in liability coverage. However, given that the average slip-and-fall lawsuit settles for $50,000-$150,000, and serious injury lawsuits can exceed $500,000, many experts recommend carrying at least $500,000 or $1 million in liability protection.

The cost difference is minimal. Increasing from $300,000 to $1 million typically adds only $150-$300 per year to your premium, making it one of the best value upgrades you can buy. For a detailed analysis of liability amounts, read our guide on how much liability coverage you really need.

4. Additional Living Expenses (Coverage D)

If your home becomes uninhabitable due to a covered loss, this coverage pays for temporary housing, meals, and other living expenses while your home is being repaired. Coverage is typically 20-30% of your dwelling coverage.

For a $300,000 home, that means $60,000-$90,000 in additional living expense coverage. This can cover 6-12 months of hotel stays or temporary apartment rental, depending on your area's costs.

What Perils Are Covered?

Standard HO-3 policies cover your home on an "open perils" basis, meaning everything is covered except what's specifically excluded. Personal property is covered on a "named perils" basis, meaning only specifically listed events are covered.

Commonly covered perils include: Fire and smoke damage, lightning strikes, windstorms and hail, theft and vandalism, falling objects, weight of ice or snow, water damage from burst pipes, electrical surge damage, and volcanic eruption.

Major Exclusions You Need to Know

Understanding what's NOT covered is just as important as knowing what is. These exclusions surprise thousands of homeowners every year.

Floods (Separate Policy Required)

Standard home insurance does not cover flooding from external water sources. This includes river overflow, heavy rain runoff, storm surge, or groundwater seepage. If you live in a FEMA-designated flood zone, your mortgage lender will require separate flood insurance.

Even if you're not in a high-risk flood zone, consider flood insurance. According to FEMA, 20% of flood claims come from moderate-to-low risk areas. Flood insurance costs $700-$2,000 per year on average. For more details, see our comparison of flood insurance vs home insurance coverage.

Earthquakes

Earthquake damage requires separate earthquake insurance or an endorsement to your policy. This is particularly important in California, the Pacific Northwest, and parts of the central United States near fault lines.

Earthquake insurance is expensive, ranging from $800 to $5,000 annually in California, with deductibles typically 10-20% of your dwelling coverage (much higher than standard deductibles).

Maintenance and Wear-and-Tear

Insurance covers sudden and accidental damage, not gradual deterioration or lack of maintenance. A roof that fails after 25 years of age isn't covered. A pipe that bursts due to freezing is covered, but a pipe that leaks slowly due to corrosion isn't.

This is why regular home maintenance is critical. Insurers can deny claims if they determine damage resulted from neglect.

Sewer and Water Backup

Most policies exclude damage from water or sewage that backs up through drains. A sewer backup can cause $10,000-$30,000 in damage, yet it costs only $50-$100 per year to add this endorsement. This is one of the most valuable add-ons you can buy.

Mold

Mold damage is typically excluded unless it results from a covered peril. If your pipe bursts and causes mold within 48 hours, that's covered. If mold develops over months due to a slow leak you didn't fix, that's not covered.

Home Businesses

If you run a business from home, your business property and liability aren't covered under standard homeowners insurance. You need a home business endorsement or separate business insurance.

Common Add-Ons and Endorsements

Most insurers offer optional coverage additions for common gaps:

Water/Sewer Backup: $50-$100/year, covers damage from backed-up drains and sewers

Equipment Breakdown: $30-$80/year, covers mechanical failure of HVAC, appliances, and electronics

Jewelry and Valuables Rider: $75-$200/year, increases coverage for specific valuable items above sublimits

Home Business Coverage: $150-$400/year, covers business equipment and liability

Identity Theft Protection: $25-$50/year, covers costs related to identity theft recovery

Reading Your Declarations Page

Your declarations page (dec page) lists your exact coverage amounts and limits. Review this annually to ensure your coverage keeps pace with home improvements and property value changes.

Key numbers to check: Dwelling coverage amount (should equal rebuild cost plus 20% buffer), personal property coverage (50-70% of dwelling), liability limits (minimum $300,000, ideally $500,000+), and deductible amount.