Homeowners Insurance: What It Covers, What It Doesn't, and How to Shop
The short answer
- Standard policies cover structure, belongings, liability, and temporary housing costs
- Floods and earthquakes are not covered by standard policies, and sewer backup usually needs an add-on
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Why this matters
Your lender will require homeowners insurance before closing. But not all policies are equal, and the cheapest option is not always the best value.
What Standard Policies Cover
A standard HO-3 policy covers your home's structure against any cause of damage the policy does not exclude (open perils), and your belongings against the specific perils it lists, such as fire, theft, windstorm, and hail. It also covers liability if someone is injured on your property and additional living expenses if a covered loss makes your home unlivable. The structure is usually covered at replacement cost (what it costs to rebuild) and belongings at actual cash value (replacement cost minus depreciation) unless you upgrade.
Common Exclusions
Standard policies do not cover flood damage, earthquake damage, normal wear and tear, or pest damage, and most exclude sewer backup unless you add it. If you are in a high-risk flood zone with a federally backed mortgage, you need separate flood insurance. Earthquake coverage is a separate policy; California insurers must offer it, often through the California Earthquake Authority.
California: Wildfire and the FAIR Plan
In California wildfire areas, coverage can be hard to find, so get a firm quote early in escrow, before your contingencies expire. If no regular insurer will write a policy, the California FAIR Plan is the insurer of last resort. It offers a more limited fire policy than a standard homeowners policy, so buyers usually add a separate difference-in-conditions policy for theft, water damage, and liability.
How to Shop Smart
Get quotes from at least 3 companies. Bundle with your auto insurance for a discount. Raise your deductible from $500 to $1,000 or $2,500 to lower your premium — but make sure you can afford the deductible in an emergency. Ask about discounts for security systems, new roofs, wildfire mitigation, or being claims-free. Review your policy annually.
Homeowners Insurance vs. a Home Warranty
Homeowners insurance pays for damage from sudden events like fire, theft, or a storm, plus liability if someone is hurt on your property. Your lender requires it. It does not pay when something wears out from age or normal use. A home warranty is an optional service contract that covers repair or replacement of systems and appliances that break from normal wear — a furnace, water heater, or dishwasher, for example. Read the contract first, because caps and exclusions vary widely. A warranty can make sense for the first year in an older home, especially when the seller pays for it as part of the deal. After that, compare its cost with simply adding the same money to your home emergency fund.
Everything to remember
- Standard policies cover structure, belongings, liability, and temporary housing costs
- Floods and earthquakes are not covered by standard policies, and sewer backup usually needs an add-on
- In California wildfire areas, shop early in escrow; the FAIR Plan is the fallback and is usually paired with a second policy
- Get at least 3 quotes and ask about bundling discounts
- Raising your deductible lowers your premium — if you can afford the out-of-pocket risk
- Homeowners insurance covers sudden damage and is required; a home warranty covers wear-and-tear breakdowns and is optional
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