What Does Homeowners Insurance Actually Cover? (2025 Guide)

My friend Lisa called me last month absolutely losing it because her basement had two feet of water in it. Like actual standing water. Washer ruined. Dryer ruined. Her husband’s entire home gym setup, all those weights and the treadmill they bought during covid. Boxes of stuff they’d been meaning to go through for years.

She was weirdly calm about losing the stuff but completely panicking about the insurance part.

“I have homeowners insurance,” she kept saying. “This is covered right? This HAS to be covered.”

It wasn’t.

I had to be the one to tell her. Her policy—like basically every homeowners policy—doesn’t cover flooding. At all. Not even a little bit. And she had absolutely no idea until she was standing in her basement watching her stuff float by.

This is the thing that made me crazy when I was adjusting claims. I did auto not home, but I sat next to the property team and we talked constantly. The number of people who assume “I have home insurance” means “everything is fine if something bad happens”… it’s most people. Almost everyone. They don’t find out about the exclusions and limitations and weird gaps until they’re filing a claim and someone has to tell them actually no, that’s not covered, sorry.

Okay so the basic structure

Most homeowners policies are set up the same way. They’ve got these different “coverages” and each one protects different stuff. The standard policy—it’s called an HO-3 if you want to sound like you know what you’re talking about at parties, which why would you—anyway it includes:

Dwelling coverage. That’s the actual house. Walls, roof, foundation, built-in appliances, attached garage. If a fire burns your house down this is what pays to rebuild it.

Other structures. Stuff on your property that isn’t attached to the house. Detached garage. Shed. Fence. That weird gazebo the previous owners built.

Personal property. Your stuff. Furniture, clothes, electronics, kitchen things. Someone breaks in and steals your TV? Personal property. Fire destroys everything you own? Personal property.

Loss of use. If you can’t live in your house because of something covered you get money to live somewhere else. Hotel, rental, sometimes restaurant meals.

Liability. Someone gets hurt at your house and sues you. Neighbor’s kid breaks their arm on your trampoline and the parents sue. That’s liability.

Medical payments. Small coverage for minor injuries, doesn’t matter whose fault. Usually $1,000-5,000. Handles small stuff without lawsuits.

The stuff that’s NOT covered and this is where people get screwed

Flooding. I cannot stress this enough. Flooding from outside—rising water, storm surge, rivers overflowing, heavy rain coming through the foundation—NOT COVERED. You need separate flood insurance. According to Insurance Information Institute only about 4% of homeowners have flood insurance. Four percent. And floods are the most common natural disaster.

Lisa’s basement? Heavy rain overwhelmed drainage, water came through foundation. Flooding. Not covered. She’s out like $15,000.

Earthquakes aren’t covered either. Maintenance problems—roof leaks because you never replaced worn shingles, foundation cracks from settling over decades—not covered. Sewer backup usually not covered unless you add it. Pest damage not covered.

I could keep going but you get the idea. There’s a lot of stuff people assume is covered that isn’t.

Limits and sublimits (this trips people up)

Even for stuff that IS covered there are limits. Your policy has overall limits for each coverage type. But also sublimits. Caps within the larger limit.

Jewelry usually capped at $1,000-2,500 total. Got a $10,000 engagement ring? Standard coverage won’t come close. Cash capped at $200 which is wild. Firearms often $2,500-5,000. Business equipment usually $2,500 which is nothing if you work from home with actual equipment.

If you have expensive stuff over these sublimits you need to schedule it separately. List items, get them appraised, pay extra premium.

Replacement cost vs actual cash value

Replacement cost pays to replace stuff with new stuff. Actual cash value pays depreciated value—what your stuff was worth accounting for age and wear.

5-year-old TV stolen. Replacement cost: new TV. Actual cash value: what a 5-year-old TV is worth. Way less.

Most policies default to actual cash value. Check yours.

Liability might actually be the most important part

Someone slips on your icy steps, breaks hip, needs surgery, misses work three months, sues for medical bills plus lost wages plus pain and suffering. That’s easily $200,000-500,000. Most policies default to $100,000 liability coverage. That’s not enough.

Get at least $300,000. If you have real assets get an umbrella policy policy. Weirdly cheap—$150-300 a year for $1 million extra coverage.

What to actually do

Find your declarations page. Check dwelling coverage—is it enough to rebuild at current construction costs? Check personal property—replacement cost or actual cash value? Check liability limit.

Then figure out what’s not covered. Flood insurance maybe. Earthquake. Sewer backup. Scheduled items for expensive stuff.

Comprehensive escaped again—neighbor just yelled about her garden—but seriously. Your policy has gaps. Find them before you’re standing in two feet of water like Lisa.