What Does Homeowners Insurance Cover? Coverage A to F Explained

Your mortgage lender made you buy homeowners insurance, but do you know what it actually pays for? This guide answers the question “what does homeowners insurance cover?” in plain English: the common policy forms, the six standard coverages (A to F), how claims are valued, what is excluded and how deductibles work. Policies differ by insurer and state, so use this as a map for reading your own policy.

What does homeowners insurance cover in a standard policy?

A standard homeowners policy has two halves. Section I covers property: your house, other structures, your belongings and extra living costs after a covered loss. Section II covers liability: lawsuits if you are responsible for someone’s injury or damage, and medical bills for guests hurt at your home. The California Department of Insurance labels these Coverages A through F (California Department of Insurance).

The percentages above come from California’s consumer guide, which notes they are normal or general guidelines, not rules (California Department of Insurance). Your declarations page, the first page of your policy, lists your actual limits and deductibles (Texas Department of Insurance).

What is an HO-3 policy, and how does it compare with other forms?

An HO-3, or “special form,” is the most common homeowners policy. It covers your house against all risks of physical loss except those the policy specifically excludes, such as flood and earthquake. Your belongings, however, are covered only for perils the policy names, according to the New York Department of Financial Services.

These descriptions follow consumer guides from the Florida Department of Financial Services and the New York Department of Financial Services. Insurers can use their own versions, so read your policy’s coverage section.

Replacement cost vs. actual cash value: how will a claim be paid?

Replacement cost pays what it takes to repair or replace damaged property with similar materials, without subtracting depreciation. Actual cash value (ACV) subtracts depreciation, so you get less for older items. The National Association of Insurance Commissioners explains the difference in its policy guide (NAIC).

Hypothetical example. A storm destroys a 10-year-old sofa that would cost $2,000 to replace today. With replacement cost coverage, the claim is based on $2,000. With ACV, the insurer might value it at $1,000 after depreciation. Your deductible is subtracted in either case.

The 80% rule

Many policies require you to insure your house for at least a set share of its replacement cost, often 80%, to get full replacement cost on a partial loss. The Texas Department of Insurance says most companies require at least 80% and some require 100% (Texas Department of Insurance). If you are underinsured, a claim can be paid at a reduced amount. New York’s consumer guide walks through an example of how an underinsured roof claim gets paid less (New York Department of Financial Services).

Extended or guaranteed replacement cost

Some policies pay a set percentage above your dwelling limit if rebuilding costs more than expected. A “guaranteed replacement cost” policy pays to rebuild regardless of the limit. California also warns that some policies do not include “ordinance or law” coverage, which pays extra costs to meet current building codes when you rebuild (California Department of Insurance).

What does homeowners insurance not cover?

Every policy has an exclusions section. The NAIC says flood and earthquake are typically excluded (NAIC). California’s guide lists other common exclusions, including mold, wear and tear, neglect, termites and other pests, and water damage from seepage or slow leaks (California Department of Insurance).

Common gaps and how people fill them:

• Flood. Standard homeowners policies do not cover flood. FEMA’s National Flood Insurance Program offers building coverage up to $250,000 and contents coverage up to $100,000 for homeowners (FloodSmart). Our guide on whether you need flood insurance explains how to decide.
• Earthquake. Usually a separate policy or endorsement. In California, insurers must offer earthquake coverage for an extra premium.
• Wear, tear and maintenance. Insurance is for sudden, accidental damage, not a roof or water heater that simply wore out. Regular upkeep is your job; our seasonal home maintenance checklist helps you stay ahead of it.
• Sewer and drain backup. Many policies exclude it. Some insurers sell a water backup endorsement, including sump pump failure, up to a limit you choose (New York Department of Financial Services).
• Breakdown of systems and appliances. A worn-out furnace is a maintenance issue, not an insured loss. Some owners consider a home warranty for this; see home warranty vs. homeowners insurance.

Common endorsements worth asking about

The Texas Department of Insurance lists add-ons many companies offer (Texas Department of Insurance):

• Extra coverage for jewelry, fine art or electronics.
• Backup of sewers or drains.
• Foundation or slab damage.
• Extra costs to meet local building codes.
• Extra construction costs if your limit is not enough to rebuild.
• Mold removal.
• Earthquake damage.

How do homeowners insurance deductibles work?

A deductible is the part of a covered loss you pay yourself before insurance pays. It can be a flat dollar amount or a percentage of your dwelling coverage. A higher deductible usually lowers your premium. The Texas Department of Insurance notes that, unlike health insurance, a home deductible applies to each claim, not once a year (Texas Department of Insurance).

Hurricane and named storm deductibles

In coastal states, policies often have a separate deductible for hurricanes or named storms, usually set as a percentage of the home’s insured value. The NAIC says these typically range from 1% to 10%, and 19 states plus the District of Columbia have some form of hurricane or named storm deductible (NAIC). Read whether yours applies per storm, per season or per calendar year.

Florida, for example, requires insurers to offer hurricane deductible options of $500, 2%, 5% and 10% of the dwelling limit, with some exceptions for higher-value homes. The deductible applies once per calendar year for hurricane losses under the same insurer or group (Florida Department of Financial Services).

Hypothetical example. Your dwelling coverage is $300,000 and your hurricane deductible is 5%. You pay the first $15,000 of hurricane damage. With a 2% deductible, you would pay $6,000.

Some policies use separate deductibles for other perils too, and in parts of the Texas coast a regular home policy may not include wind and hail coverage at all (Texas Department of Insurance). Check your declarations page so the number is not a surprise.

How much dwelling coverage do you need?

Insure your house for what it would cost to rebuild it, not for the price you paid. The NAIC says dwelling coverage should be enough to fully rebuild your home (NAIC). Rebuilding cost depends on size, materials, features and local labor prices, and it does not include land, which is not covered.

Steps to check your number:

1. Ask how the estimate was made. California suggests getting your agent’s advice in writing and reviewing the limit when you buy and at each renewal.
2. Gather the facts. Square footage, construction type, roof type, number of bathrooms, finished basement, built-in features and recent upgrades.
3. Update after renovations. A new kitchen or addition raises rebuilding cost.
4. Ask about inflation protection. An inflation guard can raise your limit over time, and a building code upgrade endorsement can help with code costs.
5. Size your other coverages. Make a home inventory to see whether Coverage C is enough, and pick liability limits that fit what you own. An umbrella policy can add liability coverage above your home policy’s limit.

After a loss, how you document damage matters as much as your limits. Our guide to filing a home insurance claim walks through it step by step.

This article is general information, not insurance advice. Your policy’s wording controls, and a licensed agent or your state insurance department can answer questions about your coverage.