Homeowners Insurance: Coverage, Cost and Claims

What a standard HO-3 policy covers

The standard policy has four parts: dwelling coverage for the structure, other structures for fences and detached garages, personal property for contents, and loss of use for hotel and food costs while you are displaced. Liability and medical payments to others sit alongside them, covering injuries and damage you cause.

An HO-3 insures the structure against all perils except the ones listed as excluded, while contents are covered only for named perils. That asymmetry surprises people: a mishap that damages the house is covered, but the same event damaging your belongings may not be.

Dwelling coverage should equal rebuild cost

Rebuild cost is the price of materials and labour to reconstruct the same house on the same lot today. It excludes the land, which is why a home selling for $600,000 in an expensive metro might only need $350,000 of dwelling coverage — and why a rural home selling for $180,000 can cost $300,000 to rebuild.

Ask for extended replacement cost, which pays a percentage above your dwelling limit when construction prices spike after a regional disaster, and inflation guard, which raises the limit each year automatically. Both are cheap relative to the shortfall they prevent.

What homeowners insurance does not cover

Standard policies exclude flood and earth movement entirely. Flood cover comes from the NFIP through FEMA or from private insurers; earthquake cover is a separate policy or endorsement. Damage from long-term seepage, wear and tear, pests, and neglected maintenance is never covered, because insurance pays for sudden and accidental events.

• Flood — separate NFIP or private policy, with a 30-day waiting period in most cases.
• Earthquake and sinkhole — endorsement or standalone policy, state dependent.
• Sewer and drain backup — a cheap endorsement most owners should add.
• High-value jewellery, art and collectibles — sub-limited unless scheduled individually.

Deductibles, including the percentage kind

Most policies carry a flat deductible for everyday claims, but hurricane, wind and hail deductibles are often a percentage of the dwelling limit rather than a dollar amount. On a $400,000 dwelling limit, a 2% wind deductible is $8,000 out of pocket before the insurer pays anything.

Check both numbers on your declarations page before you shop on price. A quote that looks $300 cheaper often carries a percentage wind deductible where the current policy has a flat one.

Should you file a small claim?

Claims stay on your CLUE report for around seven years and insurers price on frequency, not just severity. Two small claims can move you out of preferred pricing entirely or trigger a non-renewal in a hard market. As a rule, self-pay anything close to the deductible and reserve the policy for losses that would genuinely hurt.

Always report liability incidents, even minor ones, because the claim may arrive years later. Document the property with dated photos and keep receipts for major items — a contents claim without evidence is settled on the adjuster's estimate, not yours.