The six parts of a homeowners policy

Standard U.S. homeowners forms are lettered, and every quote you receive maps to these sections.

  • Coverage A — Dwelling. The structure itself. This limit should reflect the cost to rebuild, which has little to do with market value or what you paid.
  • Coverage B — Other structures. Detached garage, fence, shed. Typically defaults to 10% of Coverage A.
  • Coverage C — Personal property. Your belongings. Typically 50–70% of Coverage A, with internal sublimits for jewelry, firearms, cash and collectibles.
  • Coverage D — Loss of use. Hotel, meals and extra living costs while the home is uninhabitable.
  • Coverage E — Personal liability. Injuries to others and damage you cause. Often defaults to $100,000, which is low for most households.
  • Coverage F — Medical payments to others. Small no-fault medical coverage for guests.

The most common form, HO-3, insures the structure on an open-perils basis — everything is covered except what is explicitly excluded — while insuring personal property on a named-perils basis. HO-5 broadens personal property to open perils as well.

Replacement cost versus actual cash value

This single setting changes claim outcomes more than any other.

Replacement cost value (RCV) pays what it costs to replace the item today with one of like kind and quality. Actual cash value (ACV) pays replacement cost minus depreciation. A fifteen-year-old roof destroyed by hail might have a $30,000 replacement cost and a $9,000 actual cash value. Same storm, same policy limit, wildly different check.

Two things to check on your declarations page. First, whether personal property is written RCV or ACV — many policies default to ACV unless you pay for an RCV endorsement. Second, whether your roof is on a separate schedule. Insurers in hail- and wind-prone states increasingly apply ACV or a roof-age schedule specifically to roof surfaces even when the rest of the policy is RCV.

Also look for extended replacement cost, an endorsement that pays a percentage above your dwelling limit — commonly 20% to 50% — if rebuilding costs exceed it. After a widespread catastrophe, local labor and materials prices spike, and that endorsement is what closes the gap.

What homeowners claims actually look like

The Insurance Information Institute, drawing on industry claim data for 2018–2022, reports that wind and hail were the most frequent claims at 2.82 per 100 policies, followed by water damage and freezing at 1.61 per 100. Fire and lightning were the rarest at 0.24 per 100.

Severity inverts that order. Fire and lightning losses averaged $83,991 per claim, while water damage and freezing averaged $13,954 and wind and hail $13,511.

Looking at a single year, property damage accounted for 97.8% of homeowners claims in 2022, with wind and hail the largest share at 40.7%, water damage at 27.6% and fire at 21.9%.

The practical reading: water damage is the claim you are most likely to file that you are least likely to have prepared for, and fire is the claim most likely to test whether your dwelling limit was ever accurate.

What it costs, and why it has moved

NAIC's homeowners insurance report for 2022 — published in May 2025 and the most recent full dataset — found that average premiums across dwelling fire and owner-occupied homeowners policies rose 10.5% year over year, with HO-3 premiums up 11.26%. HO-3 policies represent about 79% of owner-occupied exposures, so that figure describes the typical American homeowner.

For scale on the base, III reporting of NAIC data put the average HO-3 premium at $1,411 in 2021, after a 7.6% rise from 2020.

Three forces are behind the increases: construction cost inflation on labor and materials, a run of severe convective storm and wildfire losses, and rising reinsurance costs that insurers pass through. In the most exposed markets some carriers have narrowed underwriting or withdrawn entirely, which is why state FAIR plans have grown.

The exclusions that surprise people

Flood is not covered. Ever, under a standard homeowners policy. Flood coverage comes from the NFIP through FEMA or from a private flood insurer, and NFIP policies generally carry a 30-day waiting period. Buying the week a storm is named does not work.

Earthquake is not covered. It requires a separate policy or endorsement, usually with a percentage deductible rather than a flat one.

Wind and hurricane deductibles are often percentage-based. In coastal states, a separate hurricane deductible of 2% to 5% of the dwelling limit is common. On a $500,000 dwelling limit, 5% is $25,000 out of pocket before the policy pays.

Maintenance and gradual damage are excluded. A pipe that bursts is generally covered; a pipe that has been seeping behind a wall for two years generally is not. Mold is typically sublimited or excluded.

Sewer and drain backup requires an endorsement. It is usually inexpensive and frequently omitted.

Frequently asked questions

No. Market value includes land, location and market conditions. Your dwelling limit should reflect local rebuilding cost — materials plus labor plus debris removal plus code upgrades. In some markets rebuild cost exceeds market value; in others it is far below.
It can, and claim history follows you between insurers through industry loss databases. For losses close to your deductible, the long-run premium effect and the risk of non-renewal often outweigh the payout. Many homeowners deliberately carry a higher deductible and self-insure small losses.
Only minimally. Standard policies carry very low sublimits for business property and generally exclude business liability. A home-business endorsement or a separate commercial policy is the correct fix.
A state-established insurer of last resort for property owners who cannot obtain coverage in the standard market, typically in high-wildfire or high-wind areas. Coverage is usually narrower and more expensive, and many owners pair it with a separate policy for the perils it excludes.

Sources

Every figure above is drawn from the following publications. Links open on the publisher's own site.

IW

InsureWiseHub editorial team

We write plain-language explainers about U.S. insurance and cite a primary source for every number. We do not sell insurance and we are not paid by insurers. Read our editorial policy.

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