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Last Updated: 10/25/2025

Issue: For many consumers, their home is their most valuable asset, making homeowners insurance essential. It protects both the structure and personal belongings, provides liability coverage for injuries or damages on the property, and often serves as the primary source of rebuilding funds after a total loss. Additionally, most mortgage lenders require homeowners’ coverage, with the homeowner listed as the mortgagor.

Overview: 

Coverage Types 
All homeowners insurance policies cover the structure of the home, including attached structures, fixtures and built-in appliances. Most policies also cover home contents and personal liability for covered accidents. Common optional add-ons include coverage for unattached structures, personal property, medical payments, additional living expenses, sewer backup, and umbrella liability. Separate polices for flood or earthquake coverage also may be purchased by those in areas prone to these perils. More on flood insurance and earthquake insurance can be found on their specific Center for Insurance Policy and Research (CIPR) topic pages.

A brief summary of common coverage types for homeowners policies follows:

• Dwelling: Pays for damage to the house and attached structures.
• Other Structures: Pays for damage to structures not attached to the house (fences, sheds).
• Personal Property: Pays the value of damaged or lost possessions (furniture, electronics, clothing).
• Loss of Use: Pays some additional living expenses during home repair.
• Personal Liability: Covers financial losses from property damage and personal injuries to others, if found legally responsible.
• Medical Payments: Pays medical bills for people hurt on the homeowner's property or by the homeowner's pets.
• Flood Insurance: Separate policy that pays for flood-related damages to the house and contents.
• Earthquake Insurance: An add-on or separate policy that pays for damages to the house and other covered items caused by an earthquake.
• Water Backup of Sewer: Pays for losses to the house from sewer or drain backup.
• Personal Umbrella Liability: Pays for losses from bodily injury, property damage and personal injury to others beyond the policy limits.

How Coverage is Applied
Homeowners policies pay for damages caused by perils listed in the terms of the contract, up to the policy limit. A peril is a cause of loss, such as fire or theft. Coverage can be for all perils, except those explicitly excluded, or for just those perils specifically named in the policy. Homeowners policies typically include coverage for fire, lightning and extended coverage. Extended coverage includes coverage for perils such as windstorm, hail, explosion, riot, civil commotion, aircraft, vehicles, smoke, vandalism, malicious mischief, theft and breakage of glass.

The limits of coverage on a policy represent the amount of insurance purchased. Dwelling coverage should be enough to cover the cost to fully rebuild the insured home. Coverage limits for personal liability and medical payments are chosen by the policyholder. The limits of coverage for the other coverages are typically calculated as percentages of the dwelling limit. You can insure based on replacement cost (cost to rebuild) or actual cash value (market value).

Before an insurer will pay a claim, the policyholder must pay the deductible. A deductible is the portion of financial loss on the home and/or personal property for which the policyholder is responsible. Insurers share in the losses beyond the dollar threshold set by the deductible. Thus, the lower the deductible amount, the higher the policy premium. 

The ÐÓ°ÉÊÓƵ developed several resources to help consumers better understand homeowners insurance and how to protect themselves. "A Consumer’s Guide to Home Insurance"  is a comprehensive resource that helps consumers understand, compare, and make informed decisions about homeowners insurance coverage, costs, responsibilities, and claims. The ÐÓ°ÉÊÓƵ also provides resources to help consumers prepare their family and property before and after a catastrophic event. Including a home inventory app that makes it easier for consumers to create a record of their belongings in case of a natural disaster. These documents are maintained by the ÐÓ°ÉÊÓƵ  Transparency and Readability of Consumer Information (C) Working Group.

The ÐÓ°ÉÊÓƵ produces the Homeowners Insurance Report, which provides data on market distribution and average cost by policy form and amount of insurance. It includes countrywide and state-specific premium and exposure information for non-commercial dwelling fire insurance and for homeowners insurance package policies. The report is maintained by the Casualty Actuarial and Statistical (C) Task Force and is updated annually.