Policy diagnostic
How to tell if your homeowners insurance is actually good.
Most homeowners buy on price and discover the fine print mid-claim. Here are the 10 red flags and 6 loopholes we see most often after reviewing thousands of declarations pages — and exactly what each one costs when something goes wrong.
30-second self-check
- You can name your Coverage A number and it's within 10% of current local rebuild cost
- Personal property and roof both settle at RCV (not ACV)
- Your deductible is a flat dollar amount — no surprise percentage for wind, hail, or named storms
- Water backup and ordinance & law endorsements are both on the dec page
- Liability is at least $300k and your carrier is AM Best A- or better
Miss any? Keep reading — that's where the money leaks.
The 10 red flags
- 1
Your Coverage A hasn't moved in 3+ years
$30k–$100k+ exposureRebuild costs are up 40%+ since 2019. If your dwelling limit hasn't been re-evaluated, a total loss will leave you tens of thousands short — plus a coinsurance penalty on partial losses. Compare your number to current rebuild cost per square foot in your zip.
- 2
Personal property is settled at ACV, not RCV
$5k–$30k per claimActual cash value pays depreciated value. A 10-year-old TV pays out at $180 instead of $500. Across a kitchen fire, ACV typically pays 50–70% less than replacement cost. Upgrade is usually $30–$80/year.
- 3
Roof has been quietly downgraded to ACV or a cosmetic exclusion
$8k–$20k per claimLook for any endorsement mentioning 'roof settlement schedule,' 'roof age,' 'cosmetic loss,' or 'wind/hail cosmetic damage.' On a 15-year-old roof, a $18k replacement claim might only pay $7k. This is the single most common quiet downgrade at renewal.
- 4
A percentage wind/hail or named-storm deductible you didn't realize you had
$5k–$25k per stormIf your deductible reads '2%' or '5%' instead of '$1,000,' it's a percentage of your dwelling limit — not your loss. On a $500k home, that's $10k–$25k out of pocket before the carrier pays a dollar. And it resets per storm.
- 5
No water backup endorsement
$5k–$25kSewer or sump-pump backup is excluded from standard HO-3 policies. The endorsement costs $50–$100/year and covers thousands in damage that's otherwise 100% on you. If you have a finished basement, you should have it.
- 6
No ordinance & law coverage (or only the default 10%)
$10k–$50kAfter a major loss, current building codes apply — electrical, sprinklers, energy code, sometimes a full tear-down. Pre-1980 homes need at least 25%; pre-1960 homes need 50%. The default 10% rarely covers it.
- 7
Liability limit is still at $100k
$200k–$1M+Default liability is $100k. One dog bite, pool incident, or auto-related claim can easily blow past that — and the difference is your house and savings. Raise to $300k–$500k, then layer an umbrella for ~$200/year per $1M.
- 8
Loss-of-use is time-capped at 12 months
$10k–$40kA major rebuild takes 18–24 months. A 12-month cap on hotel and food coverage runs out during the slowest part of the rebuild. Look for 24-month or uncapped 'fair rental value' wording.
- 9
Sub-limits on jewelry, electronics, firearms, and cash were never raised
$2k–$15k per categoryDefaults: $1,500 on jewelry, $2,500 on firearms, $200 on cash. Lose more in a theft and the policy stops paying. Scheduling individual items (or raising the blanket limit) is cheap.
- 10
Carrier financial strength rating is below A- (AM Best)
Total loss exposureWhen a carrier is downgraded or goes insolvent, claims slow or fail. AM Best A- or better is the floor most lenders require for a reason. Your dec page doesn't tell you this — look up your carrier on ambest.com.
Hidden endorsements & policy loopholes
Red flags live on the dec page in plain sight. Loopholes live in the policy form — the language that decides how a claim is interpreted. These are the six that bite hardest.
Anti-concurrent causation clause
If a covered peril (wind) and an excluded peril (flood) both contribute to a loss, the entire loss can be denied — even the portion clearly caused by the covered peril. Famous from Hurricane Katrina denials.
Matching language watered down
Some carriers will replace 10 damaged siding planks on one wall without matching the other three walls. Your house ends up two-toned. State 'matching laws' vary; the policy language matters.
Vacancy clause
If your home is vacant for 30–60 days (vacation, renovation, sale), most policies suspend coverage for vandalism, theft, water damage, and glass breakage — often without telling you.
Form swap from HO-3 to HO-8
Older homes get pushed to HO-8 'modified replacement' or even ACV-only forms at renewal. The cover page looks the same; the settlement basis is much worse.
Business-use exclusion
Running anything more than a hobby out of the home — Etsy, daycare, freelance with client visits — can void liability and property coverage on a standard policy.
Roof age cutoffs
Carriers increasingly refuse to renew, or downgrade to ACV, on roofs over 15–20 years old. The first you hear about it is often the renewal letter.
Why cheap policies are usually cheap
Insurance is mostly a pass-through business. Carriers price to expected claim cost plus expenses plus a target margin. When one carrier is dramatically cheaper than the rest, they've cut something — and almost always it's coverage, not profit.
The common cuts: ACV instead of RCV (saves the carrier roughly half on contents claims), percentage wind/hail deductibles (shifts $5k–$25k per storm to you), high flat deductibles, low or default liability limits, missing endorsements (water backup, ordinance & law, service line), and roof endorsements that downgrade older roofs.
A $300/year “savings” on a cheap policy commonly costs $5k–$30k at the first real claim. Compare policies on coverage, then on price — not the other way.
Good policy vs bad policy at a glance
Good policy
- RCV on dwelling and contents
- Coverage A within 10% of rebuild cost
- Flat deductible
- $300k+ liability + umbrella
- Water backup + ordinance & law
- Carrier rated A- or better
Bad policy
- ACV on contents or roof
- Stale Coverage A from 2019
- 2–5% wind/hail or named-storm deductible
- $100k liability, no umbrella
- Default endorsements only
- Carrier rated B+ or worse
Frequently asked
How do I know if my homeowners insurance is good?
Pull your declarations page and check ten things: (1) Coverage A vs current local rebuild cost, (2) personal property settlement (RCV beats ACV), (3) roof settlement basis, (4) deductible structure including any percentage wind/hail deductible, (5) water backup endorsement, (6) ordinance & law coverage, (7) liability limit (at least $300k), (8) loss-of-use time cap, (9) sub-limits on valuables, (10) carrier AM Best rating (A- or better). If any of these are wrong, your policy has a known gap before a claim ever happens.
What are red flags in a homeowners insurance policy?
The biggest red flags are a Coverage A limit that hasn't been updated in 3+ years, personal property on ACV instead of RCV, a roof endorsement (any line mentioning 'roof settlement,' 'cosmetic loss,' or 'roof age'), a percentage deductible for wind/hail or named storms, missing water backup or ordinance & law endorsements, a $100k liability cap, and a carrier with an AM Best rating below A-.
What's the difference between a good and a bad homeowners policy?
A good policy pays what it costs to rebuild your house and replace your stuff at today's prices, with enough liability to protect your savings, and a financially strong carrier behind it. A bad policy looks similar on the cover page but has quiet downgrades — ACV settlements, percentage deductibles, low sub-limits, missing endorsements — that only show up when you file a claim.
Are cheap homeowners insurance policies worth it?
Sometimes, but usually not for the reason buyers think. Cheap policies are usually cheap because the carrier has cut coverage somewhere: ACV instead of RCV, low liability, high or percentage-based deductibles, missing endorsements, or a financially weaker carrier. The $300/year you save costs $5k–$30k at the first real claim. Compare on coverage, not price.
What should I look for in a homeowners insurance policy?
Replacement-cost settlement on both dwelling and personal property, a Coverage A limit that matches current rebuild cost, a flat (not percentage) deductible you can actually afford, water backup and ordinance & law endorsements, a liability limit of at least $300k, sub-limits raised on anything valuable, and a carrier with an AM Best rating of A- or better.
What are common insurance policy loopholes?
Anti-concurrent causation (one excluded peril can deny the whole claim), watered-down matching language (mismatched siding/roof after a partial loss), vacancy clauses that suspend coverage after 30–60 days unoccupied, silent form swaps from HO-3 to HO-8, business-use exclusions that void coverage for home-based work, and roof age cutoffs at 15–20 years.
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