I'm Gigi M. Knudtson. Over my years in risk management and financial advising, I've reviewed hundreds of homeowners insurance policies and guided clients through the aftermath of devastating losses. The single most common point of confusion—and heartbreak—I encounter is the gap between what people assume their policy covers and what it actually covers. A policy is a legal contract, not a promise of universal protection. Understanding its structure is the first step to ensuring you aren't left financially vulnerable after a disaster.
This guide will dissect a standard HO-3 policy, which is the most common form of homeowners insurance in the United States. We'll move beyond the basic categories to explore the critical details, common exclusions, and optional coverages that can make all the difference. My goal is to empower you to read your own policy with confidence and have informed conversations with your agent.
Think of your policy as a bundle of six distinct coverages, each with its own limit and purpose. Understanding these parts is key to knowing what is covered.
[VISUAL: Infographic: "The 6 Parts of a Homeowners Insurance Policy"]
A house icon split into six sections: 1. Dwelling, 2. Other Structures, 3. Personal Property, 4. Loss of Use, 5. Personal Liability, 6. Medical Payments. Each with a brief definition and typical percentage of Coverage A.
This is the cornerstone of your policy, covering the physical structure of your home (walls, roof, built-in appliances, foundation).
A critical lesson I've learned is to never insure your home for its market value. I've seen clients in high-cost areas underinsured because land value inflated the price, and clients in low-cost areas overinsured. Work with your agent to conduct a formal replacement cost assessment annually, especially with today's construction inflation.
By Gigi M. Knudtson, Founder
This covers structures on your property that are not attached to your main dwelling.
This covers the contents of your home—your belongings.
If a covered peril makes your home temporarily uninhabitable, this coverage pays for you to live elsewhere.
This protects you if you are found legally responsible for injuring someone or damaging their property.
This is a small, no-fault coverage for minor medical bills if someone is injured on your property.
This is the most important technical concept in your policy. It defines how a loss must occur to be covered.
Under a standard HO-3 policy, your dwelling (Coverage A) has "open perils" or "all-risk" coverage, meaning it's covered for everything except what's specifically listed as excluded. However, your personal property (Coverage C) is only covered for "named perils." These 16 perils are:
If your personal property is damaged by a cause not on this list (e.g., accidental breakage of a valuable vase, mysterious disappearance), it is not covered unless you have added special endorsements.
Exclusions are where policies truly differ. Assuming these are covered is the most common and costly mistake.
While the HO-3 form is standard, state laws and regional risks lead to important variations in what must be offered or is commonly excluded. The table below highlights key differences.