What Is Homeowners Insurance And What Does It Cover?

Your home is likely your largest asset. Your home is also likely your largest liability as well. Given the financial weighting your home takes in your net worth, it is imperative that you get homeowners insurance.

One of the best places to get homeowners insurance is through PolicyGenius. Qualified insurance carriers will compete for your business and offer the right homeowners insurance plan for you. It's much more efficient than applying one by one and comparing prices.

Homeowners insurance is made up of coverages that may help pay to repair or replace your home and belongings if they are damaged by certain perils, such as fire, hail, lightning strikes, windstorms and theft. It may also help cover costs if you accidentally damage another person's property or if a visitor is injured at your home.

Just know that earthquakes and floods are not typically covered by homeowners insurance. You need to purchase separate insurance policies for such things if so desired.

Where I live in San Francisco, earthquake insurance is not required. But if you do get earthquake insurance, expect a large deductible before insurance kicks in. If you live near a body of water, you may want to get flood insurance as well.

The whole point of having homeowner’s insurance is to safeguard your possessions and your overall home from certain environmental hazards and vandalism so that if something were to happen, you aren’t held liable for replacing everything at full value.

What Does Homeowners Insurance Cover?

Homeowners insurance typically helps cover:

  • Your dwelling
  • Other structures on your property
  • Personal property
  • Liability

Here's a great homeowners insurance infographic.

What does homeowners insurance cover

Let's look into dwelling coverage, personal property coverage, other structures coverage, and liability coverage one by one.

Dwelling Coverage

Dwelling coverage covers the structure of the home in which you live, as well as other structures that are attached to it, such as a garage or a deck, against certain risks.

I built a wonderful 300 square foot deck off my master bedroom that cost me roughly $25,000, including installing a large structural beam and installing large sliding doors. It is the favorite part of my house when the weather is good because I have panoramic ocean views. Dwelling coverage will cover the cost of this deck rebuild.

Home much to spend on remodeling for maximum profits
Cutting a big hole in the wall and installing a new header for support
Financial Samurai Deck

If you have a nicely remodeled home or plan to remodel your home, getting more dwelling coverage is probably a good idea.

I bought a $1,750,000 fixer and am going to end up spending roughly $280,000 in remodeling and expansion costs. You better believe I'm going to get my new home covered!

Related article: How Much Should You Spend Remodeling A Home For Maximum Profit?

Other Structures Protection

Most homeowners insurance policies also include coverage for other structures that are on your property but separate from your home, like a detached garage, tool shed or fence.

These items shouldn't cost too much, but it's good to know they are covered just in case something happens.

Personal Property Protection

Personal property protection is huge if you have a lot of valuables in your house such as electronics, nice furniture, memorabilia, and art. Some couches alone can cost $10,000!

It's worth making a detailed list of your variables with estimated replacement cost in case you need to make a complain. Go around your house and take pictures of each item with your phone as well to record the condition. A list and pictures will be very helpful when filing a claim.

Suppose your electronics are stolen from your home or your furniture is damaged by a fire. Personal property protection may help pay to repair or replace your belongings if they are damaged or destroyed by a covered risk.

It's not a guarantee your homeowners insurance will cover items such as a wedding ring, luxury watches, and furs. Best to double check for optional personal property coverage.

When in doubt, ask for clarification.

Liability Protection

A typical homeowners insurance policy provides liability coverage when someone not living with you is injured while on your property.

For example, suppose a visitor trips over an uneven driveway or slips on an icy front step and breaks his leg. Bodily injury liability coverage may help pay for your resulting legal expenses or the visitor's associated medical bills if you are found at fault.

I had a friend's uncle break his leg during winter one time when he came to pick his nephew up from my house. Luckily, he did not sue!

You may be able to increase your liability coverage limits by adding a personal umbrella policy. Your agent can explain what options are available to you.

What Is Homeowners Insurance And What Does It Cover?

There Are Limits To Homeowners Insurance Coverage

Make sure you go through the various coverage limits for the four main categories above. Also ask about the deductibles. You can get a lower deductible and higher coverage limits if you pay more monthly premiums. You just need to figure out how much risk you're willing to take based on your existing cash flow and financial situation.

You will almost always have to pay a deductible if you are to file a claim and want your insurance to kick in. The insurance companies have figured out through their actuarial calculations what is the option amount they should charge per plan and still be profitable. In other words, getting homeowners insurance will more than likely not pay out. But if it does, you'll be glad you have it.

Always read your policy thoroughly and contact your agent with all the questions you have. When it comes to your home, it's worth getting the best homeowners insurance policy that fits your budget.


If you're looking to compare multiple homeowners insurance policies in one place, I recommend PolicyGenius. I've met the founders multiple times and they have the best homeowners insurance policy platform today. It's free to sign up and get competing rates.

For those of you looking to invest in real estate, take a look at Fundrise, my favorite real estate crowdfunding platform today. You can invest as little as $500 and diversify your real estate investments across the country.

Given I own property in expensive San Francisco and love real estate, I've diversified into 18 different commercial properties mainly in the heartland of America where valuations are lower and net rental yields are higher.

It feels good earning income 100% passively and having less concentrated exposure. Further, I believe in a multi-decade demographic trend towards lower cost areas of the country thanks to technology.

Fundrise Real Estate Crowdfunding Properties

Related post: Your Homeowners Insurance Policy Needs to Be Increased Due To A Bull Market

About the Author: Sam worked in investing banking at Goldman Sachs and Credit Suisse for 13 years. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $250,000 a year in passive income. He spends time playing tennis, taking care of his family, and writing online to help others achieve financial freedom too.