Home Insurance Basics: What Your Policy Covers, What It Skips and What to Check

What does homeowners insurance actually pay for?

Think of a homeowners policy as six small policies in one envelope. Each pays for a different kind of problem, and each has its own dollar limit. Insurance departments label them A to F. You will find those letters on the first page of your policy, called the declarations page.

• A. Dwelling: the house itself, including an attached garage or deck.
• B. Other structures: a detached garage, shed or fence.
• C. Personal property: furniture, clothes and electronics.
• D. Loss of use: hotel and extra food costs while a covered loss makes your home unlivable.
• E. Personal liability: lawyers and damages if you are sued over an injury or damage you caused. Car accidents are not included.
• F. Medical payments: small medical bills for a guest hurt at your home, no matter who was at fault.

You pick the house limit (A). The limits for B, C and D are usually a percentage of it. Published defaults vary. Wisconsin’s regulator calls 10%, 50% and 20% typical for B, C and D. Texas uses 20% for belongings in its example and says living costs may be capped at 10% to 20%.

Here is why that matters. On a $300,000 house, belongings coverage could be $150,000 or $60,000 depending on which default your policy follows. That is an example, not a quote. Your declarations page has the real figures.

Liability and medical payments work differently. You choose them, they are not tied to the value of your house, and liability has no deductible. A basic limit of $100,000 for liability and $1,000 for medical payments is common.

What does a homeowners policy not cover?

Mostly flood and earthquake. A standard policy leaves out both.

Flood is a separate policy, mostly from the federal program or a private insurer. FEMA says a new federal policy typically starts after a 30-day wait. You cannot buy it when water is already rising. Texas says more than half of the homes flooded by Hurricane Harvey were outside the mapped flood zones. Our flood insurance guide covers the details.

Other common gaps, from regulators in Texas, Wisconsin, Iowa and Utah:

• Sewer or drain backup. An add-on may exist, but you often have to ask for it.
• Wear and tear, pests and slow leaks. These are maintenance, not insurance.
• Mold. Covered only to repair damage from something the policy does cover.
• A long vacancy. Coverage can stop after the number of empty days your policy sets.
• Short-term rentals and home businesses. Usually excluded or sharply limited.
• Expensive jewelry, art and collectibles. Policies cap these. A scheduled item add-on raises the cap.

Does homeowners insurance cover wind and hail?

Usually yes, but not everywhere. On the Texas Gulf Coast and in Harris County along Galveston Bay, a regular policy might leave wind and hail out. You then buy it from the state’s windstorm association. North Carolina warns that some insurers leave out wind or hail, and often flood, from the base policy. Ask your agent directly, and ask whether wind and hail carry their own deductible. Our wind and hail deductible guide explains how those work.

Should I choose replacement cost or actual cash value?

If you can afford it, replacement cost. This single setting can change a claim check by thousands of dollars.

Replacement cost pays today’s price to repair or rebuild. Actual cash value (ACV) pays that same price minus depreciation, which is the value your item lost with age. Texas published an example with a $10,000 roof and a $4,000 deductible:

• Roof is 5 years old: an ACV policy pays $4,500. Replacement cost pays $6,000.
• Roof is 10 years old: ACV pays $3,000. Replacement cost pays $6,000.
• Roof is 20 years old: ACV pays $0. Replacement cost pays $6,000.

So the older your roof, the more replacement cost matters.

How do replacement cost claims get paid?

In two checks, according to Texas. The first covers the repair estimate minus depreciation and your deductible. The second, the held-back depreciation, arrives after you send the final bill. You usually have a deadline to finish the work. Belongings work the same way: a depreciated check first, the rest after you replace the item. If you have a mortgage, repair checks usually carry your lender’s name too.

Defaults differ by company and state. Washington and Wisconsin say the house is usually covered at replacement cost while belongings default to ACV unless you pay for more. Mississippi describes belongings as replacement cost, paid at ACV until you replace them. A few sources also use “actual cash value” to mean market value instead. Your policy’s loss settlement section decides which it is, so read it.

How much dwelling coverage do I need?

Enough to rebuild your house at today’s building prices. That is not what you paid, and it is not what the house would sell for. Market value includes the land, and a fire does not destroy the land.

Rebuild cost can run well above your purchase price, according to Mississippi. A real appraisal is expensive, so agents often use estimating charts. Ask for one every year, because construction prices move. Tell your insurer about remodels, since Mississippi says to report additions worth $5,000 or more.

Why does it matter so much? Most insurers want you to carry at least 80% of the rebuild cost. Some want 100%, and Wisconsin says 80% to 90%. If you fall below, the insurer can pay only part of even a small loss.

Example (invented numbers): your house would cost $400,000 to rebuild, so 80% is $320,000. You carry $240,000, which is 75% of what was required. A kitchen fire causes $40,000 of damage. The insurer pays 75% of that, which is $30,000, and you cover the other $10,000. Your own policy’s formula may differ, and this ignores the deductible.

Ask whether your policy has an inflation guard. It raises the limit as building costs rise. Wisconsin says most policies include one, while Mississippi says only some companies offer it.

What about belongings and liability?

Make a home inventory before you need one. Film every room with closets and drawers open. Write down serial numbers and keep a copy off site or in the cloud. Keep receipts too, because Wisconsin cautions that a written list alone may not satisfy an insurer. Then compare the total with your belongings limit.

For liability, $100,000 is a starting point. If you own a lot or earn well, a judgment could be bigger. Texas says umbrella policies usually pay $1 million or more. Wisconsin adds that insurers may require $200,000 to $300,000 of liability on your home and auto policies first.

How does a home insurance deductible work?

The deductible is the part of each loss you pay before the insurer pays anything. In Texas it applies to every claim, not once a year.

Percentage deductibles deserve a quick calculation. On a $150,000 home, a 5% deductible is $7,500. A $6,500 roof repair would produce no payment at all. A $500 deductible would pay $6,000.

A higher deductible lowers your premium, but sources disagree on how much. Texas says moving from $500 to $1,000 can cut it by as much as 20%. Wisconsin says $250 to $500 may save about 5% to 10%. They start from different deductibles, so ask each quote to show two levels.

Will filing a claim raise my rate?

It can. Texas says premiums may rise after most claims and you may lose discounts. Texas insurers cannot charge you more for claims they did not pay, for questions you ask, or for weather damage.

Your claims stay on file for a long time. A CLUE report lists seven years of claims on a house, even before you owned it. Buyers can ask the seller for one. You can also get a free copy of your own each year.

Too many claims can cost you the policy. A Texas insurer may decline to renew after three or more non-weather claims in three years, but it must warn you after the second. Washington suggests two moves for small losses. Ask whether a loss is covered without filing a claim. If repairs cost only slightly more than your deductible, consider paying yourself.

If insurers turn you away, state backstops exist. The Texas FAIR Plan requires two refusals first, and Texas says it costs more than a standard policy. Wisconsin has a similar plan.

How do I file a home insurance claim?

Regulators give the same core advice, and it is worth following in order.

1. Report quickly. Some policies set a one-year deadline (Texas). Florida bars a claim if you give notice more than a year after the loss.
2. Make only temporary repairs. Tarp the roof or board the window. Keep every receipt. Wait for the adjuster before permanent work.
3. Document before you fix. Photograph the damage and list damaged items. Keep receipts for extra living costs.
4. Be there for the inspection, ideally with your contractor.
5. Know your options if you disagree. Texas describes appraisal. Each side hires an appraiser, an umpire settles it, and you pay yours plus half the umpire. You can also complain to your state regulator.

Two warnings. In Washington, an assignment-of-benefits form can let a contractor settle the claim without you, so read before you sign. In California, an insurer cannot require a specific repair business.

How long does an insurer have to respond?

The clock depends on your state. In the four states in the table at the bottom of this page, the insurer has one to two weeks to acknowledge your claim and about three weeks to two months to decide. Texas adds 15 days to its deadlines after a weather catastrophe or major disaster.

What to do next

1. Find your declarations page. Write down the six limits and your deductible, in dollars and in percent.
2. Check how you get paid. Look for replacement cost or ACV on the house and on belongings. If your roof is old and you have ACV, ask what replacement cost would add.
3. Ask for a rebuild estimate. Compare it with your house limit, not with your home’s market price. Aim for at least 80%, and ideally close to 100%.
4. Ask what is left out where you live. Flood, water backup, wind, hail and earthquake. Buy flood early because of the 30-day wait.
5. Make a home inventory. Film each room this week. Store the video off site.
6. Compare quotes properly. Use the same limits and two deductible levels for each. Our home and auto bundling guide covers pairing policies.
7. Save your claim steps. Put the claim phone number and the five claim steps above somewhere you can find in a hurry.

What does a real claim look like?

Example (invented numbers). A hailstorm wrecks your 15-year-old roof. The adjuster says a new roof costs $12,000. The roof has lost $6,000 to age, and your deductible is $2,000.

With an ACV policy, you get $6,000 minus $2,000. That is $4,000, and you pay the other $8,000.

With a replacement cost policy, your first check is $12,000 minus $6,000 minus $2,000, which is $4,000. You hire a roofer and send the final bill. The insurer then releases the held-back $6,000. In total you collect $10,000 and pay your $2,000 deductible.

The storm was the same and so was the roof. The policy setting decided who paid for the age of the roof.

Details: how fast insurers must act, by state

Waiting for a check is stressful, so here is what four states require. Days are calendar days unless marked.

Washington’s consumer page still shows the older timing, so use the rule dates above. Starting Oct. 18, Washington also lets you ask which database an insurer used to price your claim.

A few more state differences worth knowing:

• Texas: a company must give 60 days’ notice before it declines to renew a policy bought or renewed in 2024. For 2023 or earlier, it is 30 days. It cannot decline to renew over a claim your policy does not cover.
• Florida: insurers must offer replacement cost and an add-on for the extra cost of rebuilding to today’s building rules, at 25% or 50% of your house limit. You get 25% unless you refuse in writing. A roof under 15 years old cannot be the only reason to refuse you. Hurricane deductibles come as $500, 2%, 5% or 10%, and they apply once per calendar year.
• California: you have at least 12 months from the first ACV payment to collect the rest of a replacement cost claim, and at least 36 months after a state of emergency. Insurers cannot subtract depreciation on labor. Washington has the same rule.
• Wisconsin: a company must give 60 days’ notice and a reason before declining to renew. There is no grace period for a late property premium, so do not let one slide.

For your state, see Texas, Florida, California or Wisconsin. Renters have a different policy, covered in our renters insurance basics.

Bottom line

If your roof is old and your policy pays actual cash value, ask what replacement cost would add to your premium. That one setting changed the payout most in the published example. If your house limit is below 80% of rebuild cost, raise it before anything else. If your home sits near water or in a storm zone, buy flood coverage early. If a loss is barely above your deductible, ask your insurer whether it is covered, or pay it yourself.

This guide is general information, not legal or financial advice. Your state insurance department can confirm local rules and takes complaints. The NAIC directory lists them all, and our home insurance hub links state pages. Our methodology explains how we use published sources.