What Is Homeowners Insurance?

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Contributor, Benzinga
April 8, 2024

You cannot buy a home without homeowners insurance. Even so, it is common for people to be confused about the answer to the question, “What is homeowners insurance?” 

We will explain what homeowners insurance is and what it covers in detail, and shed light on some less familiar types of homeowners insurance. 

What is Homeowners Insurance? 

Homeowners insurance is a contract between you and an insurance provider to compensate you for harm or loss in connection with your home. Depending on the type of policy, homeowners insurance policies have various components, and they cover different types of perils. 

The homeowner’s responsibility is to pay their premiums on time and maintain their homes well to avoid the potential for claims. In the event of a claim, the homeowner typically pays a deductible. 

Homeowners insurance policies are available for property owners of all kinds and tenants. 

Main Components of Home Insurance Coverage

There are four main components of home insurance coverage. These are:

  • Dwelling coverage
  • Personal property coverage
  • Liability coverage
  • Additional living expenses (ALE)

How Much Home Insurance Do I Need?

The dwelling, property, and liability portions of your homeowners insurance policy are the keys to determining how much insurance you need. The idea is to purchase enough home insurance to protect your home, everything in it, and those who come visit you in your home. 

80% Rule for Home Insurance

The 80% rule for home insurance is standard in the insurance industry. It is designed to ensure policyholders purchase enough insurance. According to this rule, insurance providers will only pay claims for those who purchased policies that are equal to at least 80% of a home’s total cost to replace it. If the dwelling limit is below 80%, the insurance provider will only pay a portion of the required minimum coverage a homeowner should have purchased. 

Dwelling Coverage 

The dwelling coverage covers the structure of a home. It may also provide coverage for certain items that are attached to it, such as a garage, deck, porch, or built-in bookcases or appliances. 

Recommended coverage: equal to home’s replacement cost

Personal Property Coverage 

Personal property coverage covers all belongings inside a home. This includes clothing, furniture, dishes, etc. It encompasses everything someone would pack up and put into boxes if they were moving. 

Recommended coverage: equal to the total replacement cost of all of your personal belongings

Liability Coverage 

Liability coverage, also called personal liability, pays for accidental losses that occur when a visitor gets injured in your home. This coverage includes payments for medical bills, pain and suffering, lost wages, death benefits, and legal costs. 

Recommended coverage: equal to the total replacement cost of all of your personal belongings

Additional Living Expenses Coverage 

Additional living expense coverage (ALE) pays for expenses related to being displaced from your home due to a covered loss such as fire or wind. Common expenses under ALE are storage costs, furniture rental, moving costs, pet boarding, meals, and laundry. 

Recommended coverage: roughly 10% to 30% of the total amount of your dwelling coverage

Important Homeowners Insurance Terms To Know

Insurance policies are legal contracts, and some of the industry language can be confusing and difficult to understand. The following explanations of important homeowners insurance terms will help you get a better understanding of your policy. 

Homeowners Insurance Premium 

A homeowners insurance premium is the amount you pay for your home insurance. If your mortgage company uses an escrow, it will be collected as part of your mortgage payment. If they do not, you are responsible for paying it annually, monthly, or according to some other schedule. 

Standard Deductible for Homeowners Insurance

A standard deductible is the amount of money that you pay before the insurance provider pays a claim for a covered loss. Deductibles usually start at $500 and go up from there. Deductibles may also be a percentage of your dwelling coverage. The deductible you choose has a bearing on your premium. 

Actual Cash Value and Replacement?

Actual cash value, whether it refers to coverage on your home or your personal property, means the insurance provider will pay for a loss while accounting for depreciation. Replacement cost coverage refers to replacing your dwelling or property at the current value without factoring in depreciation. In other words, if your TV is ten years old, with actual cash value, you would only get compensation for the value of a 10-year-old TV. With replacement cost coverage, you would get a new TV of a similar kind and quality. 

Additional Living Expense

A major loss to your home could render it uninhabitable. If that occurs, you would need money to live somewhere else while it is being repaired or rebuilt. It can cost more to live in a temporary location because you may have to eat out more and you will not have all the conveniences you had in your home. 


Coinsurance is a clause in your homeowners insurance policy that outlines how insurance companies share the cost of a claim with policyholders. Policyholders are required to purchase enough insurance coverage to 80% of the property value to get full compensation for a covered loss. This provision prevents policyholders from underinsured properties. 

Covered Peril 

A peril is a risk or cause of a loss that your insurance provider agrees to cover. Your insurance policy will specify which perils it does and does not cover. Common perils include fire, wind, lightning, explosion, vandalism, theft, falling objects, and the weight of ice/snow/sleet. Homeowners insurance policies also cover water damage under certain circumstances. 

Common Home Insurance Riders and Endorsements 

An insurance rider is also known as a floater or endorsement. Riders refer to coverages that can be added to any form of homeowners insurance policy. The purpose of insurance riders is to amend a homeowners insurance policy to increase coverage limits, expand coverage for certain types of property, or extend insurance coverage to cover additional perils. 

Homeowners insurance policies typically limit or exclude coverage for certain types of property or losses. Riders allow homeowners to customize coverage according to the type of property they own and the types of risks they are most concerned about. 

Buried Utilities Coverage

Buried utilities coverage (BU) is an optional coverage that pays to repair underground utility lines that are the homeowner’s responsibility. The endorsement will pay for damage from a leak, break, tear, or collapse due to a mechanical breakdown, artificially generated electrical current, freezing, wear and tear, or weight of people, animals, or equipment. 

Appliance/Mechanical Breakdown Coverage

Appliance and mechanical breakdown coverage will pay for repairs or replacement due to a mechanical breakdown or electrical breakdown of heating systems, air conditioning systems, refrigerators, riding lawn mowers, home security systems, boilers, and pressure systems. 

Extra Coverage for Valuables

Jewelry and other valuables can be very expensive to replace, and that is why homeowners insurance companies put maximum coverage limits on them. Homeowners who have valuables can purchase higher limits on specific items or categories of items. The cost of riders for valuables is minimal, making them a good value. 

Jewelry Rider

A basic homeowners insurance policy may limit coverage to $1,0000. The advantages of adding a jewelry rider are more coverage per piece and additional perils such as misplacing and mysterious disappearances. Some riders will also cover replacing gems. 

Art, Antiques, and Collectible Riders

One of the main issues with arts, antiques, and collectibles is they cannot be repaired or replaced. Also, such items appreciate rather than depreciate with time. A rider gives policyholders the benefit of getting an agreed value or replacement value for items. 

Silverware and Furs

Some homeowners have real silverware or furs, or they have been given these items by an inheritance. Silverware and furs tend to have values that fluctuate over time, and a rider ensures policyholders will receive a fair value. 


Many homeowner policies limit insurance coverage for oriental rugs due to their high value. A rider ensures homeowners will get the full value of their oriental rugs if they are damaged due to a covered loss. 

How to Get Homeowners Insurance

Getting a homeowners insurance policy is simply a matter of applying for it. A licensed insurance agent will advise you on the best type of insurance policy for your needs. An agent will also review options and additional coverages that are available to you. 

When comparing insurance policies, consider the following:

  • Replacement cost coverage or ACV for the dwelling
  • Replacement cost coverage or ACV for personal property
  • Limits of liability
  • Deductibles
  • Available discounts
  • Premium amount

Compare Home Insurance

Protect Your Home With the Right Homeowners Insurance

When considering all that goes into answering the question, “What is homeowners insurance,” it all comes down to protecting your home and personal property. It is important not to purchase too little or too much homeowners insurance. Insurance experts are happy to answer your questions and provide you with a homeowners insurance policy that truly gives you peace of mind.

Frequently Asked Questions 


Does home insurance cover a garage door?


Typically, yes. Your home insurance policy will likely include a certain amount of dwelling coverage that extends to your house and other structures, which would include your garage. It depends on how the garage door was damaged and if the damage resulted from a covered peril or event.


Is my hot water heater covered under my home insurance?


Often, no. If it is covered, it’s for damage or loss resulting from a named peril, like a fire or theft. It typically won’t cover you for loss related to normal wear and tear. Your policy may offer coverage for loss or damage resulting FROM your hot water heater, though. Be sure to know the ins and outs of your policy before you sign on.


What is the difference between mortgage insurance and homeowners insurance?


Mortgage insurance is essentially a type of life insurance that pays your mortgage in the event of your death. By contrast, homeowners insurance protects your dwelling and personal property against certain perils. A homeowners policy also protects policyholders from liability lawsuits and offers additional living expenses.



What type of water damage is covered by homeowners insurance?


Water damage is typically only covered when there is an accidental loss that is covered by a homeowners insurance policy. A homeowners insurance policy will not pay for a maintenance-related item, but it will pay for insuring water damage that was accidental in nature.


Is home insurance tax-deductible?


Home insurance policies are not tax-deductible. However, homeowners who itemize deductions may be able to deduct certain other types of homeowner expenses. 



Are guns covered by homeowners insurance?


Liability losses due to gun accidents are typically covered under homeowners insurance policies. Guns are covered under homeowners insurance policies, but there may be a maximum limit for them.