Home insurance basics start with a surprise: there is no single “standard policy” that covers everything, and the policy most owners buy, the HO-3 special form, is standard only in its shape. It packages six kinds of cover together, it covers the house itself against almost anything except what it lists as excluded, and it leaves out two of the disasters owners most assume are covered: flood and earthquake. Understanding that shape, before a claim, is worth more than any premium saving, because the gaps are discovered at the worst possible moment, after the damage.
This guide walks through the six parts, the exclusions, the endorsements that fill common gaps, and the two numbers that matter most: your dwelling limit and your deductible.
Home Insurance Basics: The Six Parts of an HO-3 Policy
The most common United States homeowners policy is the HO-3, sometimes called the special form. Its key feature is a split: the dwelling is covered on an open-perils basis, meaning all risks except those specifically excluded, while personal property is covered on a named-perils basis, meaning only the perils the policy lists. That split is the first thing to grasp, because a peril that damages the house may not be a peril that covers the contents inside it.
The six parts, usually labelled A to F, are: A, dwelling, which pays to repair or rebuild the house itself and attached structures, including fixtures such as plumbing, wiring and heating; B, other structures, which covers detached buildings such as a fence, shed or detached garage, often set as a percentage of the dwelling limit; C, personal property, which covers belongings such as furniture, electronics and clothing, including some belongings away from home, for example in storage or with a child at college; D, loss of use, also called additional living expenses, which pays the extra cost of living elsewhere while a covered loss makes the home uninhabitable; E, personal liability, which covers your legal responsibility if someone is injured or their property is damaged and you are found liable; and F, medical payments to others, which pays smaller medical bills for people hurt on your property, regardless of fault.
Personal property has sublimits that catch people out: jewellery, firearms, computers, cash and collectibles are often capped at a few hundred to a few thousand dollars unless you schedule them separately, as explained below.
Dwelling Limit and Deductible: The Two Numbers That Matter
Your dwelling limit should match what it would cost to rebuild your home, not what you paid for it and not its market value. Land is not rebuilt, and market value includes location, which insurance does not replace. The National Association of Insurance Commissioners’ guidance is a useful check here: it notes that replacement cost, the amount to rebuild with similar materials without deducting for depreciation, is the broader basis, and that insuring for at least 80 percent of replacement value is commonly important for full recovery.
Your deductible is the amount you pay out of pocket on each claim, and it applies to property damage, not to liability. A higher deductible lowers the premium, but it must be an amount you can actually pay at short notice after a disaster. Read the declarations page, the one-page summary at the front of the policy, for both numbers before renewing: it lists your limits, deductibles and endorsements in one place.
If you are buying your first home, the insurance question arrives alongside the mortgage, and lenders usually require cover for as long as the loan lasts. Our guide on closing costs buyers actually pay sets out where insurance sits among the cash needed at the table, at the point where the first premium payment becomes due. That post is scheduled for 2 November 2026, so it will be live before this article publishes.
What a Standard Policy Does Not Cover
The exclusions are where most unpleasant surprises live. A standard HO-3 policy does not cover flood, meaning water damage from ground water, rain run-off or snow-melt rising from outside, although water damage from a burst pipe or a leaking roof is typically covered. It does not cover earthquake or other earth movement, including landslides in many forms. It does not cover wear and tear, gradual deterioration, mould in many circumstances, or damage from neglect and poor maintenance. It does not cover intentional damage, war, nuclear hazard, or damage from pests such as termites and rats. Government action and ordinance changes, the cost of bringing a rebuilt home up to new building codes, are also commonly excluded unless you add ordinance cover.
Flood deserves its own paragraph, because it is the most important exclusion and the most misunderstood. Flooding is a risk everywhere, not only near rivers or coasts, and a standard policy will not pay for it. Separate flood cover is available through the National Flood Insurance Program or private insurers, and the NAIC’s own homeowners guidance stresses exactly this point: if you live in a flood-prone community, do not risk going without it, and talk to an agent about the options. Earthquake cover, by contrast, is usually offered as an endorsement to the homeowners policy or as a standalone policy, and in some areas it is inexpensive enough to be worth considering even where earthquakes feel unlikely.
Endorsements Worth Checking, and Claims Basics
Endorsements, also called riders, fill the gaps above. The most commonly useful are: water and sewer backup, which covers damage when a drain or sewer backs up into the home, a peril the standard policy usually excludes; scheduled personal property, which raises the sublimits on jewellery, art, firearms and similar valuables to their appraised value; ordinance or law cover, which pays the extra cost of rebuilding to current building codes; and replacement-cost cover for personal property, which pays what new items cost rather than their depreciated actual cash value. Business property kept at home, such as inventory for a home business, usually needs its own discussion with the insurer, and failing to disclose a home business can risk cancellation.
Keep a home inventory, with photos, receipts, model and serial numbers, stored somewhere other than the home itself, so you can prove what you owned. Review the policy every year, especially after a renovation, an extension or a large purchase, because all three raise replacement cost and may leave the dwelling limit short. If health cover is the other policy you are reviewing at the same time, our guide on how to choose a health insurance plan uses the same total-yearly-cost method, at the point where a second policy’s trade-offs need the same discipline. That post is scheduled for 1 November 2026, so it will be live before this article publishes.
Frequently Asked Questions
Does home insurance cover flood damage?
No, not under a standard policy. Flood damage from ground water, run-off or snow-melt needs separate flood cover through the National Flood Insurance Program or a private insurer.
Is my home covered for its market value or its rebuilding cost?
Rebuilding cost is the right measure. Market value includes land and location, which insurance does not replace, and construction costs can exceed what you paid.
What is the difference between replacement cost and actual cash value?
Replacement cost pays what it costs to rebuild or replace with similar materials, without deducting for depreciation. Actual cash value deducts depreciation, so it pays less for older items.
Do I need separate cover for jewellery or art?
Often, yes. Standard policies cap valuables at low sublimits. A scheduled personal property endorsement raises cover for specific items to their appraised value.
What should I do after damage to my home?
Make the home safe, photograph the damage before clearing up, keep receipts for emergency repairs and temporary living, and report the claim promptly. The NAIC’s consumer homeowners guidance sets out what homeowners insurance covers and what it does not, including the flood and earthquake exclusions and the inventory habits that make a claim easier.
Disclaimer: This article is for general educational purposes only, not personalised financial, insurance, tax, or legal advice. Policy terms, limits, exclusions and availability vary by insurer, state and policy form and can change. Read your declarations page and full policy, and confirm cover with your insurer or agent, before relying on it.
