Key takeaways
- Dwelling coverage should reflect rebuild cost, not market value or purchase price.
- Replacement cost is materially better than actual cash value, which deducts depreciation.
- Flood and earthquake are excluded from standard policies and require separate coverage.
- Separate percentage deductibles for wind, hail, and hurricane are increasingly common.
The coverage structure
Coverage A insures the dwelling. Coverage B covers other structures such as detached garages and fences, typically at 10% of A. Coverage C covers personal property, often 50% to 70% of A. Coverage D pays additional living expenses if the home is uninhabitable. Coverage E is personal liability and Coverage F is medical payments to others.
Coverage A should equal the cost to rebuild, which is unrelated to market value and often differs substantially from purchase price. In areas with high land value, rebuild cost is far below price. After periods of construction cost inflation, many policies are underinsured — request a replacement cost estimate rather than accepting a rollover renewal.
Replacement cost versus actual cash value
Replacement cost pays to replace damaged property with new property of like kind and quality. Actual cash value subtracts depreciation, which on a fifteen-year-old roof can mean paying a small fraction of replacement cost.
Many policies in hail-prone regions now apply actual cash value specifically to roofs, or a roof surfacing payment schedule based on age. Read your declarations page for that endorsement — it is the single most consequential coverage change of the past decade for many homeowners.
Exclusions and deductible structures
Standard policies exclude flood, earthquake, earth movement, ordinary wear and tear, neglect, intentional acts, and typically mold beyond a limited sublimit. Sewer and drain backup usually requires an endorsement. Flood requires a separate policy through the NFIP or private market.
Deductibles have grown more complex: a flat all-peril deductible plus a separate percentage deductible for wind, hail, hurricane, or named storms. A 2% hurricane deductible on a $500,000 dwelling is $10,000 out of pocket before the insurer pays anything. Know both numbers before you need them.
Frequently asked questions
Does homeowners insurance cover flooding?
No. Water damage from a burst pipe is covered; rising water from outside is not. Flood coverage is separate, and roughly a quarter of NFIP claims come from outside high-risk zones.
How do I lower my premium?
Raise the deductible, bundle policies, improve wind and fire mitigation features, maintain the roof, and shop at renewal. Do not lower dwelling coverage below rebuild cost.
Will filing a claim raise my rate?
Frequently. Claims history follows you through industry databases. Small claims below or near your deductible are usually not worth filing.
Sources & further reading
- Insurance Information Institute, Homeowners insurance basics
- National Association of Insurance Commissioners consumer guidance
- ISO homeowners policy forms HO-3 and HO-5
Figures and rules change. Verify current requirements with the issuing agency or a licensed professional before acting.