Quick answer: A standard homeowners insurance policy (HO-3) covers six things: your dwelling, other structures, personal property, loss of use (extra living expenses), personal liability, and medical payments to others. It does not cover flood, earthquake, normal wear and tear, or pest damage. Those need separate policies or are excluded.
Key Takeaways
- HO-3 is the most common homeowners policy in the US.
- Your dwelling is usually covered on an “open perils” basis, while belongings are covered for named perils.
- Insure your home for its replacement cost, not its market value.
- Flood insurance is separate, available through the NFIP or private insurers.
- Liability limits of $300,000 to $500,000 are common recommendations.
The 6 Parts of a Homeowners Policy
| Coverage | What It Protects | Typical Limit |
|---|---|---|
| A – Dwelling | The structure of your house | Replacement cost of the home |
| B – Other Structures | Fences, detached garage, shed | About 10% of Coverage A |
| C – Personal Property | Furniture, clothes, electronics | 50% to 70% of Coverage A |
| D – Loss of Use | Hotel, meals and extra costs if you cannot live at home | About 20% to 30% of Coverage A |
| E – Personal Liability | Lawsuits if you injure someone or damage their property | $100,000 to $500,000 |
| F – Medical Payments | Small medical bills for guests injured on your property | $1,000 to $5,000 |
What Perils Are Covered?
Common covered perils include fire and smoke, lightning, windstorm and hail, theft and vandalism, explosions, falling objects, weight of ice and snow, and sudden accidental water discharge from plumbing or appliances.
In some coastal states, wind or hurricane damage may have a separate, higher deductible.
What Homeowners Insurance Does Not Cover
- Floods: Need a separate flood policy.
- Earthquakes: Need an endorsement or separate policy.
- Wear and tear and poor maintenance
- Mould (often limited or excluded)
- Termites, rodents and other pests
- Sewer backup (available as an add-on)
- High-value items above sub-limits such as jewellery, art or collectibles
Replacement Cost vs Actual Cash Value
Replacement cost pays to repair or replace with new items of similar quality. Actual cash value pays replacement cost minus depreciation, which can leave you with far less. For both the dwelling and belongings, replacement cost coverage is usually worth the higher premium.
How Much Homeowners Insurance Do You Need?
- Dwelling: Enough to rebuild your home at today’s construction costs. Ask your insurer for a replacement cost estimate.
- Belongings: Make a home inventory with photos or video to estimate value.
- Liability: At least enough to protect your net worth. If you have significant assets, add an umbrella policy.
Other Types of Home Policies
- HO-5: Open perils cover for both the house and belongings. More expensive.
- HO-4: Renters insurance for belongings and liability.
- HO-6: Condo insurance for the interior and belongings.
- HO-8: For older homes where replacement cost exceeds market value.
How to Lower Your Home Insurance Premium
- Raise your deductible.
- Bundle with car insurance.
- Install smoke detectors, security systems and water leak sensors.
- Update the roof, wiring and plumbing.
- Compare quotes every year or two.
Bottom Line
An HO-3 policy protects your home, belongings and finances from most common disasters. Check your limits, confirm replacement cost coverage, and add flood or earthquake protection if you live in a risk area.
This article is for general information only. Coverage varies by insurer and state, so read your policy documents carefully.
Related Insurance Guides
- Renters Insurance: What It Covers, How Much It Costs and Why You Need It
- Umbrella Insurance Explained: What It Covers and Do You Need It?
- 15 Proven Ways to Lower Your Car Insurance Premium in 2026
Frequently Asked Questions
What does a standard homeowners policy cover?
A standard HO-3 policy covers the dwelling, other structures, personal property, loss of use, personal liability and medical payments to others.
Does homeowners insurance cover flooding?
No. Flood damage requires a separate flood insurance policy from the NFIP or a private insurer.
What is the difference between HO-3 and HO-5?
HO-3 covers your house on an open perils basis but belongings on a named perils basis. HO-5 covers both the house and belongings on an open perils basis.
Should I insure my home for market value?
No. Insure for the cost to rebuild (replacement cost), which can be higher or lower than market value.
How much liability coverage do I need?
Many experts recommend $300,000 to $500,000, plus an umbrella policy if your assets are higher.