Homeowners insurance: What it covers and how it works

If you have a mortgage, you’re typically required to have it. Even without a loan, it’s a good idea. (iStock)

For many people, their home is their most valuable asset, so it makes sense for them to want to protect it from disaster. Homeowner’s insurance provides financial protection if you experience a loss to your property, home, or possessions due to a covered event.

Homeowners insurance is popular despite no legal requirement to have it. According to the Insurance Information Institute, 95% of homeowners have it.

Homeowners insurance offers financial protection if your property, home, or anything inside it is damaged due to a covered event, plus events where you might be liable for someone else’s injuries sustained on your property. More specifically, benefits include repairs to your home and property, repair or replacement of your personal possessions, and coverage for liability if someone else is injured on your property and sues you for damages.

What does homeowners insurance cover?

Homeowners insurance not the same as private mortgage insurance, which protects your lender, not you. There are several different types of home insurance coverage you can get, depending on the type of coverage you want, the type of structure and whether you rent or own — each with a designation that ranges from HO-1 to HO-8.

Credible can walk you through each homeowner's insurance policy and coverage. Plus, they can tell you how to save hundreds on homeowners insurance each year. In general, each policy covers common perils and liabilities that could result in financial damage to you.

Here’s a quick rundown of six things that are typically covered:

Dwelling: Cover the cost of damage to your home and attached structures, such as a garage or porch. It’s usually enough to rebuild your house.

Other structures: If you have other structures on your property that aren’t attached to your home, such as a fence or a shed, you’ll typically get 10% of your dwelling coverage to pay for repairs or replacement.

Personal property: If your personal belongings have been damaged or stolen in a covered event, you’ll often receive between 50% and 70% of your dwelling coverage to repair or replace them.

Additional living expenses: If your home needs repair, you’ll likely need to relocate temporarily. With this coverage, you’ll typically get 20% of your dwelling coverage amount to cover the cost of your living expenses.

Medical payments: If someone is injured on your property, you’ll usually have between $1,000 and $5,000 in coverage to pay their medical bills.

Liability: If someone is injured on your property or experiences property damage caused by you or a family member (or due to neglect), you can often purchase between $100,000 and $500,000 in coverage.

With different coverage amounts, it’s important to shop around to find the right home insurance plan that fits your needs. Visit Credible to start the process and maximize the value you gain from your homeowner’s policy.


How does homeowners insurance work?

Each type of homeowners insurance can vary in when it kicks in and how to file a claim. With the most popular form of coverage -- HO-3 or special form coverage -- you’ll be covered if you suffer a financial loss due to any of the following:

Fire or smoke


Windstorms or hail



Damage caused by a vehicle or aircraft

Theft or vandalism

Falling objects

Weight of ice, sleet or snow

Volcanic eruptions

Water overflow, discharge or freezing from plumbing, air conditioning and appliances

Power surges

Tearing, cracking or bulging of air conditioning or a hot water system, fire protection system or steam system

Notably, most homeowner’s insurance policies, including this one, won’t cover damage caused by earthquakes, flooding, landslides, sinkholes, infestations, wear and tear, power failure or acts of war. That said, you can purchase coverage for some of these, which can be especially beneficial in some areas of the country.

Head to Credible to get a better understanding of the different types of home insurance coverage and what the coverage amount is. Click on Credible's home insurance partners to get a free home insurance quote.


How to get and use your homeowners insurance policy

The process of shopping around for a policy involves getting home insurance quotes from multiple insurers, preferably at least three to five. You can typically request a quote online or work with an insurance agent in person. Make sure you’re comparing the same coverage amounts so you know which policy offers the most value.

If you need to file a claim on your homeowner’s insurance policy, you’ll need to document everything and contact your insurance agency.

In some cases, you may need to pay insurance deductibles before your coverage kicks in, and if something occurred that could cause more damage if neglected, you might need to make repairs on your own while you work through the claims process. If you’re filing a claim due to vandalism or theft, you may also need to file a police report.

The insurer will provide an adjuster to assess the damage and determine how much coverage you qualify for. If you agree, it will begin the repairs or replacement process.

If you dispute the adjuster’s estimate, you can hire a third-party adjuster to provide a second opinion — keep in mind, though, that you’ll typically need to pay a percentage of the claim amount, so it might not make sense if the difference between what you’re getting and what you think you should get is small.


The bottom line

Again, it’s not legally required to get homeowner’s insurance like it is to get auto insurance in most states. But if you’re buying a home with a mortgage, your lender will require it, primarily because it technically owns the home until you pay off your mortgage, and it may lose its investment if it’s damaged.

Even if you own your home outright, though, it’s a wise decision to get something that protects your home and protects you from potential liability claims.

Homeowner’s insurance is a smart investment, and in many cases, it’s required. It’s important to make sure that you’re not overpaying for coverage. You can compare homeowner’s insurance quotes for free via an online marketplace like Credible to make sure you have the right fit for you and save on insurance premiums.