The Basics of Your Policy
A standard homeowners policy is a package deal. It protects your house and the things inside it. It also protects your bank account if someone gets hurt on your property. Your mortgage lender requires you to have it. You usually pay for it through an escrow account tied to your monthly payment. You can read more about how escrow works in our guide to property taxes and home finances.
A good policy covers four main areas. Dwelling coverage pays to rebuild the physical structure of your house. Personal property coverage pays to replace your furniture, clothes, and electronics. Liability coverage pays for lawyers and medical bills if a guest slips on your icy driveway and sues you. Loss of use coverage pays for your hotel and food if a fire forces you to move out during repairs.
What Your Policy Actually Covers
Insurance pays for sudden and accidental damage. If a kitchen fire ruins your cabinets, your policy pays to rebuild them. If a heavy storm blows a tree onto your garage, you are covered. Standard policies cover damage from fire, wind, hail, lightning, theft, and vandalism.
Insurance also covers sudden water damage. If a pipe bursts in the wall and floods your living room, your policy steps in to pay for the drywall and flooring repairs. You can learn how to prevent these messy disasters in our plumbing guide.
What Your Policy Will Never Cover
Home insurance is not a maintenance contract. It will never pay for normal wear and tear. If your roof is 25 years old and starts leaking, insurance will deny the claim. You are responsible for replacing old materials before they fail. You can check typical replacement timelines in our roofing section.
Standard policies also ignore damage from floods and earthquakes. You have to buy separate, specific policies for those natural disasters. Insurance also excludes damage from insects and rodents. If termites eat your wall framing, the repair bill is entirely yours. Keep a close eye out for bugs and read our pest control advice to stop them early.
Understanding Your Deductible
Your deductible is the amount of money you pay out of pocket before your insurance pays a single dime. If a storm causes 15,000 dollars in damage and your deductible is 1,000 dollars, the insurance company writes you a check for 14,000 dollars.
Choosing a higher deductible lowers your monthly premium. Choosing a lower deductible raises your premium. Most homeowners choose a flat deductible between 1,000 and 2,500 dollars. Keep in mind that all construction costs and insurance premiums vary widely based on your region, the scope of the damage, and the age of your home.
The Math of Filing a Claim
Filing a claim is a business decision. You should only file when the damage is catastrophic. Every time you file a claim, your insurance company takes note. A single claim can raise your yearly premium by 10 to 20 percent for up to five years.
Before you call your agent, get a repair estimate from a local contractor. Compare the repair cost to your deductible. Then factor in the premium hike. The table below shows why filing small claims is a bad idea.
| Repair Cost | Your Deductible | Insurance Payout | Premium Hike (5 Years) | The Verdict |
|---|---|---|---|---|
| $1,500 | $1,000 | $500 | $1,200 total | You lose $700. Do not file. |
| $3,500 | $1,000 | $2,500 | $1,200 total | You gain $1,300. Borderline choice. |
| $25,000 | $1,000 | $24,000 | $1,200 total | You gain $22,800. File the claim immediately. |
When You Should Keep Insurance Out of It
Never file a claim if the repair cost is close to your deductible. If a tree branch breaks a window and costs 1,200 dollars to fix, just pay for it yourself. If you have a 1,000 dollar deductible, the insurance company only gives you 200 dollars. In return, they will raise your rates for years. You will end up losing money over time.
If you file two claims in a three year period, your company might drop you entirely. Finding a new insurance policy after being dropped is very difficult and very expensive. Save your insurance for massive bills like a total roof loss or a major house fire.
How to Make a Claim Go Smoothly
If you have a massive disaster, you need to act fast. Stop the damage from getting worse. Turn off your main water valve or put a tarp over a broken window. If you ignore a leak and let mold grow, the insurance company will not pay for the mold cleanup. Read our guide to handling home emergencies so you know exactly what to do in the first few hours.
Call your insurance company as soon as the area is safe. They will send an adjuster to look at the damage. Be polite but firm with the adjuster. Keep all your receipts for emergency repairs and hotel stays so you can be fully reimbursed.