What Does Home Insurance Cover? HO-3 Policy Guide (2026)
The standard homeowners policy (HO-3) contains six coverage types labeled A through F. Each protects a different aspect of your home and finances. Here is what each covers, what it excludes, and what the recommended limits are.
Common Exclusions: What Standard Insurance Does NOT Cover
These are the most frequently misunderstood gaps in standard homeowners insurance. Knowing them before you have a claim is critical.
✕ Flood Damage
Standard HO-3 never covers flood damage from any source including storm surge, river overflow, or heavy rain. Requires a separate NFIP or private flood policy.
Flood insurance costs →✕ Earthquake Damage
Completely excluded from all standard homeowners policies. Requires a separate earthquake policy or endorsement. Critical in California, the Pacific Northwest, and New Madrid zone states.
Earthquake insurance costs →✕ Sewer Backup
Water damage from a backed-up sewer or drain is typically excluded. An affordable endorsement (usually $50-150/year) can add this coverage.
✕ Mould from Neglect
Mould resulting from a covered water loss is usually covered. Mould from ongoing neglect, leaks the homeowner should have noticed, or humidity issues is excluded.
✕ Normal Wear and Tear
Insurance covers sudden, accidental damage. It does not cover gradual deterioration, aging systems, or appliances that break down from normal use. That is what home warranties cover.
Insurance vs warranty →✕ High-Value Items Above Sub-Limits
Jewelry typically has a $1,500 sub-limit. Silverware, art, instruments, and furs have their own sub-limits. Items above these limits need scheduled endorsements.
Actual Cash Value vs Replacement Cost Value
This is one of the most important coverage decisions you make. ACV policies are cheaper but pay significantly less when you have a claim. RCV policies cost 10 to 15% more in premium but can save tens of thousands when disaster strikes.
Actual Cash Value (ACV)
Pays the depreciated value of your property at the time of loss. A 10-year-old roof that cost $15,000 new might have a depreciated value of $7,500. That is all ACV pays.
Replacement Cost Value (RCV)
Pays what it costs to replace the damaged item with new equivalent materials. That same 10-year-old roof: you get $15,000 (or whatever the current replacement cost is). Covers the full repair.
Recommended Limits Reference Table
| Coverage Type | Typical Default | Recommended | Common Mistake |
|---|---|---|---|
| Coverage A: Dwelling | Full replacement cost | Full replacement cost (review annually) | Under-insuring to save on premium |
| Coverage B: Other Structures | 10% of Coverage A | 10% unless high-value outbuildings | Not increasing for detached garage/pool |
| Coverage C: Personal Property | 50% of Coverage A | 50-70%; schedule high-value items | No home inventory documentation |
| Coverage D: Living Expenses | 20% of Coverage A | 20-30%; more in high-rent markets | Forgetting this covers hotel costs |
| Coverage E: Personal Liability | $100,000 | $300,000-500,000 minimum | Keeping the default $100k limit |
| Coverage F: Medical Payments | $1,000 | $5,000 | N/A - increase is minimal cost |