5 Things Nearly Everyone Gets Wrong About Their Home Insurance Policy

Hurricane Helene swept a deadly path of destruction across the South, from Florida to Virginia. As the death toll mounts and thousands remain missing, the storm is expected to have caused at least $35 billion in damages.

As residents start returning to find their homes badly damaged or fully annihilated, many might also be contacting their insurance companies about getting some financial help with repairs. Some will no doubt discover that their policy won’t cover as much as they’d thought.

It’s a grim reminder that while it can be easy to gloss over the details of a home insurance policy, this ignorance can cost homeowners dearly the day disaster hits. Here are some things nearly everyone gets wrong about their home insurance policy so you can check your own and know how to prepare.

As residents start returning to find their homes badly damaged or fully annihilated, many might also be contacting their insurance companies about getting some financial help with repairs. Some will no doubt discover that their policy won’t cover as much as they’d thought.

It’s a grim reminder that while it can be easy to gloss over the details of a home insurance policy, this ignorance can cost homeowners dearly the day disaster hits. Here are some things nearly everyone gets wrong about their home insurance policy so you can check your own and know how to prepare.

1. Homeowners assume their policy covers every type of disaster—when it doesn’t

“It’s the most commonly misunderstood aspect of homeowners, property, and casualty insurance,” says Gregg Barrett, CEO of software company WaterStreet, based in Kalispell, MI.

“Standard policies typically don’t cover flood damage, which can be a devastating realization after the fact, and we’re going to see that play out in the aftermath of Helene,” he adds. “Many of those impacted may discover that they’re not covered and must rebuild at their own cost.”

That’s why experts suggest that you check your policy with a fine-toothed comb.

“It’s important to read the fine print and understand exclusions, especially for natural disasters like floods, earthquakes, or even certain types of water damage from plumbing issues,” says Barrett. “If you have any questions, ask your insurer to go into detail about what your policy does and doesn’t cover, and adjust your policy accordingly.”

You should “be prepared for anything” given today’s unpredictable extreme weather, Barrett says.

“Carefully read through your policy documents … and check coverage limits for different categories such as dwelling and personal property,” Sebastian Hov, CEO of 18 Insurance in Los Angeles, previously told Realtor.com®.

2. Homeowners assume they don’t need flood insurance since they aren’t in a flood zone

Around 22 million homes are situated in areas vulnerable to coastal storms like hurricanes, yet many fail to protect themselves with flood insurance, according to the Insurance Information Institute.

Although 22% of homeowners believe they’re at risk of a flood, only 78% of those homeowners have flood insurance, a 2023 survey from III reports.

Traditionally, floods have occurred in areas close to the coasts. But as climate change ratchets up the frequency of natural disasters, more places that haven’t traditionally been hit with extreme weather events are finding themselves underwater.

It’s important to check whether you’re in a flood zone, but just because you aren’t in one doesn’t mean you’re safe.

Hotter weather and heat waves have caused soil beds to dry out, leaving them less able to absorb water when heavy rain comes. The rain, instead, sits on the surface of the ground and can lead to flooding just about everywhere.

3. Homeowners aren’t aware that they have to pay their deductible before insurance kicks in

A deductible is the amount of money a homeowner must shell out before their insurance kicks in. Typically deductibles are between $1,000 and $5,000. The higher the deductible, the less you’ll need to pay in monthly insurance premiums.

Because of the increase in natural disasters in recent years, many insurance companies will require a higher deductible before picking up the tab for damage or repairs.

A 2024 survey from Bank rate found that 15% of homeowners say they’d need to go into debt if they had to pay their deductible, and 13% weren’t sure of what their deductible was. As you’re considering home insurance, make sure to factor the cost of a deductible in your budget.

4. Homeowners don’t understand the difference between ‘actual’ and ‘replacement’ value

A 2024 survey of 2,000 homeowners from home improvement company Leaf Home found that 60% of homeowners faced significant out-of-pocket expenses following a disaster, with many paying $5,000 or more to repair their homes.

Part of that might be because they overestimate the money they’ll actually get from a claim. Homeowners should understand the difference between replacement cash value and actual cash value: Replacement cash value means that your insurance covers the cost of repairing the damage to your home. (It often doesn’t cover items lost inside the home.)

Actual cash value is the value of your home minus the depreciation in value it’s incurred over time.

“I am not sure if the agents do a good job in explaining that ‘actual’ is the lesser of the coverage and will be subject to a reduced value based on age,” says Morris Armstrong, founder of Morris Armstrong EA in Cheshire, CT. “They read ‘actual’ and think it means ‘current,’ which is the replacement.”

“I have had people shocked when they receive only 50% of the replacement value,” he adds.

“Under-insuring is common, where people only think about their mortgage balance, not the true cost of rebuilding their entire property from scratch and replacing everything in it,” Barrett says. “Consider doing a property assessment every few years to make sure your policy accurately reflects the true value.”

5. Homeowners don’t realize they should review their policy once a year

Because insurance premiums become part of the mortgage payments through escrow, many homeowners forget about these costs and don’t realize they can comparison shop, says Shmuel Shayowitz with Approved Funding Corp. in River Edge, NJ.

“As insurance premiums go up and the escrow portion of the mortgage payments go up, they just assume it’s normal. It’s not a given,” Shayowitz says. “Homeowners have the right, and should, check their insurance policies annually and even shop it around to make sure it suits their current needs and that the premium is competitively priced.”