Homeowners insurance is mandatory for mortgaged properties and essential for all homeowners — yet most people don't know what their policy covers until they file a claim and discover the gaps.
What standard HO-3 policies cover
| Coverage type | What it covers | Typical limit |
|---|---|---|
| Dwelling | Physical structure of home | Replacement cost of home |
| Other structures | Detached garage, fence, shed | 10% of dwelling coverage |
| Personal property | Belongings inside the home | 50–70% of dwelling |
| Loss of use | Temporary housing if uninhabitable | 20–30% of dwelling |
| Liability | Injuries on property, personal liability | $100,000–$300,000 |
| Medical payments | Minor injuries to guests | $1,000–$5,000 |
What standard policies DON'T cover
- Floods: Zero coverage. Requires separate NFIP or private flood policy. 90% of US natural disasters involve flooding. Average flood claim: $52,000.
- Earthquakes: Not included in standard policies. California, Pacific Northwest, New Madrid fault zone residents need separate earthquake coverage.
- Sewer backup: Usually excluded unless you add a rider ($50–$100/year).
- Home business equipment: Coverage for business property typically capped at $2,500.
- High-value items: Jewelry, art, collectibles usually capped at $1,500–$2,500 total — need separate scheduled personal property endorsement.
Replacement cost vs actual cash value
Actual cash value (ACV): pays depreciated value of items. A 5-year-old couch destroyed in a fire pays $200 (current market). Replacement cost value (RCV): pays to replace at current market price. The $200 ACV couch gets $800 replacement cost coverage. Always buy RCV — the premium difference ($50–$150/year) is trivial vs the payout difference in a claim.
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