Getting Started
Last updated: Jan 20256 min readHomeowner's Insurance Explained
What it covers, what it doesn't, and how to get the right coverage without overpaying
Homeowner's insurance is required by virtually every lender. Most buyers pick the cheapest policy without understanding what they're actually buying — until they file a claim. Here's what matters.
1What a Standard Policy Covers (HO-3)
Most buyers get an HO-3 (Special Form) policy. It covers:
Dwelling coverage (Coverage A)Rebuilds or repairs your home's structure. Should equal the full replacement cost, not market value. In high-inflation markets, these diverge significantly.
Other structures (Coverage B)Detached garages, fences, sheds — typically 10% of dwelling coverage.
Personal property (Coverage C)Your belongings, typically at actual cash value (ACV) unless you pay for replacement cost value (RCV). ACV deducts depreciation — your 5-year-old laptop is worth much less than you paid.
Liability (Coverage E)If someone is injured on your property and sues. Standard policies provide $100K–$300K. Many advisors recommend a $1M umbrella policy on top.
Additional living expenses (Coverage D)Pays for hotel and meals if you can't live in the home during repairs.
Dwelling coverage (Coverage A)Rebuilds or repairs your home's structure. Should equal the full replacement cost, not market value. In high-inflation markets, these diverge significantly.
Other structures (Coverage B)Detached garages, fences, sheds — typically 10% of dwelling coverage.
Personal property (Coverage C)Your belongings, typically at actual cash value (ACV) unless you pay for replacement cost value (RCV). ACV deducts depreciation — your 5-year-old laptop is worth much less than you paid.
Liability (Coverage E)If someone is injured on your property and sues. Standard policies provide $100K–$300K. Many advisors recommend a $1M umbrella policy on top.
Additional living expenses (Coverage D)Pays for hotel and meals if you can't live in the home during repairs.
2What Is NOT Covered (The Surprises)
Most claims disputes come from gaps buyers didn't know about:
Floods — NOT covered. Requires a separate NFIP or private flood policy. If you're in a FEMA flood zone, your lender will require this.
Earthquakes — NOT covered in standard policies. Requires a separate endorsement or policy, critical in California, Pacific Northwest, and parts of the Midwest.
Sewer backup — Often NOT covered. A ~$50/year endorsement adds this critical protection.
Mold — Only covered if caused by a covered peril (burst pipe). Pre-existing mold is excluded.
Routine maintenance and wear — Insurance is for sudden, unexpected events. A leaky roof that's been neglected for years: excluded.
Jewelry and high-value items — Standard policies limit jewelry to ~$1,500. Riders or floaters add coverage for specific items.
Floods — NOT covered. Requires a separate NFIP or private flood policy. If you're in a FEMA flood zone, your lender will require this.
Earthquakes — NOT covered in standard policies. Requires a separate endorsement or policy, critical in California, Pacific Northwest, and parts of the Midwest.
Sewer backup — Often NOT covered. A ~$50/year endorsement adds this critical protection.
Mold — Only covered if caused by a covered peril (burst pipe). Pre-existing mold is excluded.
Routine maintenance and wear — Insurance is for sudden, unexpected events. A leaky roof that's been neglected for years: excluded.
Jewelry and high-value items — Standard policies limit jewelry to ~$1,500. Riders or floaters add coverage for specific items.
3How to Get Better Coverage for Less
Shop multiple carriers — Rates vary 30–50% for identical coverage. Shop every 2–3 years.
Raise your deductible — Going from $500 to $1,000 or $2,500 deductible can cut premiums 15–25%. Only do this if you have the emergency fund to cover it.
Bundle home + auto — Most carriers offer 10–20% discounts.
Ask about discounts:
Avoid underinsuring: The biggest mistake is Coverage A below replacement cost. After a total loss, you'll be left paying out of pocket for the gap. Get a replacement cost estimator from your insurer.
Raise your deductible — Going from $500 to $1,000 or $2,500 deductible can cut premiums 15–25%. Only do this if you have the emergency fund to cover it.
Bundle home + auto — Most carriers offer 10–20% discounts.
Ask about discounts:
- New construction or recently renovated
- Installed monitored security system or smoke detectors
- Claims-free history
- Hail-resistant roofing materials
Avoid underinsuring: The biggest mistake is Coverage A below replacement cost. After a total loss, you'll be left paying out of pocket for the gap. Get a replacement cost estimator from your insurer.
Pro Tips
- Insure to replacement cost, not market value — in a hot market these diverge significantly
- Document your personal property with photos or video — store the record off-site or in the cloud
- If you're in a flood zone, the NFIP 30-day waiting period means you can't buy flood insurance the day before a storm
- Review your policy annually — most standard policies don't automatically adjust for inflation or improvements