Home Insurance: Most Everything you Need to Know

Nearly half of all homeowners don't know how to calculate the coverage limit on their homeowner's insurance. That's a finding from a 2020 survey. The same survey also concludes that most homeowners don't realize standard homeowners policies offer no protection against floods and earthquakes. 

Imagine your home crumbles in a big earthquake and you have no financial help to fix the damage. You're temporarily homeless and, possibly, penniless. Worse, you're angry at your insurance provider because you didn't know your coverage paused temporarily when the ground started shaking. 

Insurance is a critical financial protection when you own a home. The thing is, it's equally critical to know how homeowners insurance works. Specifically, you should know what's covered, and what's not covered, how much insurance you need, how to get lower premiums, and how to customize your coverage with riders. 

Read on for an overview of each of these topics, along with links where you can learn more. 

Homeowner coverages overview 

Did you know a typical homeowners policy has up to six types of coverage built in? It's true. Homeowners insurance does more than protect against damage to your home.

Insurers designate these coverage types with letters -- specifically, A through F. Coverage A is the protection most people associate with their homeowner's policy. This is what pays to repair or replace your home after a covered loss. Your coverage here will have a dollar limit, which should represent the cost to rebuild your home in a total loss. 

Coverage B applies to the other structures on your property. Examples are sheds, detached garages, and fencing. The maximum payout on Coverage B is usually 10% of the cap on your dwelling coverage.

Coverage C protects your personal property. The rules for using Coverage C can be complex and, frankly, disappointing. Expect to see caps on what your insurer will pay for expensive items like jewelry and tools. 

Coverage D reimburses you for some of the extra living expenses you incur after a covered loss. Say your home is so badly damaged that you must move out. Your homeowner's insurance may help with extra expenses like rent and pet boarding. There will be limits on how long you qualify for these reimbursements and the cumulative dollar amount per incident.

Coverage E is your personal liability coverage. Personal liability is essentially a shield against lawsuits. Someone might get hurt in your home or you might cause an accident that results in property damage or injury, for example. If either incident results in a lawsuit, you can tap your homeowner's insurance for help.

Personal liability is one of those protections you don't know you need until someone comes after you.

Lastly, Coverage F pays for medical expenses that result when someone gets hurt either at your home or because of something you did. The policy will cap the coverage amount per incident, and there will be exclusions. 

For a deeper dive into each of these coverages, see our article Standard Homeowners Coverages A through F: What You Need to Know.

What does homeowners insurance not cover? 

Knowing what your homeowner's insurance does for you is a good starting point. But you should also understand where your homeowner's insurance falls short.

The Policygenius survey referenced above underscores this point: Too many homeowners don't know about the exclusions on standard homeowners insurance. The big ones are earthquakes, floods, mudslides, and wear and tear. You also won't have protection on buildings you use for business or any horse facilities. 

Our article, What Does Homeowners Insurance Not Cover? outlines more than 10 additional exclusions you're likely to see on your homeowner's insurance. 

How many homeowners insurance do you need? 

Your lender will have an opinion on the minimum insurance you should carry on your home. Unfortunately, your lender mostly cares about your loan balance, not your ongoing financial health. For that reason, you're smart to validate your lender's requirements. 

In our article How Much Homeowners Insurance Do You Need? we walk you through the thought process for setting appropriate coverage limits for all sections of your homeowner's policy. If your ideal coverage levels don't match with an insurer's or lender's recommendations, don't panic. You may need to shop around for an insurer that will provide the exact coverages you want.

Insurance riders for homeowners, condo, and renters insurance

Insurance riders, also known as endorsements, are policy add-ons that extend or enhance your coverage. Remember the list of exclusions that are standard on most homeowners' policies? You can use riders to fill in those holes if you need to. As an example, you probably want a flood rider if you live in a flood zone. 

Other riders can protect your home business assets, your fine jewelry, and your fur coat collection, among other things. Learn more in our article, Insurance Riders for Homeowners, Condo, and Renters Insurance. 

Get lower premiums with homeowners insurance discounts

You want sufficient protection and you want it at a good price. So, in addition to knowing how to optimize your coverage, you must also know how to pay less for it. That's where discounts come in. 

Some discounts have qualifications that are part of the insurer's application. For those, the insurer generally offers you those rate cuts automatically. But there are also discounts you may have to request, such as rate reductions for smart homes and safety equipment. 

Get the full scoop on premium discounts in our article Get Lower Premiums with These 14 Homeowners Insurance Discounts.

Find quick answers to your questions 

If you still have questions about how homeowners insurance works, check out our Homeowners FAQs. It covers whether you need to tell your insurer about new residents in the home and how your insurance handles roof damage, foundation problems, dog bites, and more. 

Manage your homeowner's insurance, manage your finances 

Learning the ins and outs of homeowners insurance probably isn't on anyone's list of fun things to do. But think of it this way: Optimizing your insurance protects your finances, and a solid financial position can unlock more fun in your life. So, in a roundabout way, insurance is fun. That's the stance we're taking, and we hope you agree.