Homeowners Think Insurance Covers These Losses. They’re Often Shocked to Learn It Doesn’t.

Earlier this year, Utah-based insurance agent Haydn Sessions helped a homeowner switch insurance companies, a decision that ended up saving the homeowner tens of thousands of dollars.

Just two months later, a forgotten hose flooded the basement, causing more than $60,000 in damage. Under the old policy, the insurer would have capped coverage at $25,000, leaving the homeowner responsible for the rest.

Sessions pointed out that this claim highlights a common mistake: Homeowners often check whether their policy covers a certain loss but overlook the actual coverage limits.

“Insurance policies aren’t always just about what the policy covers and excludes, but what the limits are for a claim,” Sessions told Insurify.

Misunderstandings can be expensive. Homeowners may believe their policy covers any damage, added Sessions. But actual coverage depends on the cause of loss, exclusions, deductibles, how insurers determine value, and policy limits.

About 1 in 18 insured homes file a claim each year, according to an Insurance Information Institute analysis of ISO and Verisk data. Between 2018 and 2022, the average cost of a water and freezing damage claim was $13,954, based on Triple-I’s analysis.

“Homeowners insurance can feel complex,” Launey Jason, vice president of agency/sales at State Farm Insurance in Bloomington, Illinois, wrote on a company blog. “I always encourage homeowners to understand your coverage options and make informed choices. When you need it most, that knowledge can protect you from costly surprises.”

Water damage remains the biggest surprise

If there’s one misconception nearly every expert highlights, it’s confusion about water damage.

Standard homeowners insurance usually covers sudden and accidental water damage, like a burst pipe or an overflowing washing machine. But home insurance usually doesn’t cover flood damage, which is water entering a home from rising water outside. Flood insurance, a separate policy, covers that type of damage.

“Anytime water hits the ground, whether an overflow from a lake or retaining pond, excess rain on the street, or tidal surge, your standard homeowners policy does not cover water hitting the ground,” said Stacey Giulianti, chief legal officer at Windward Risk Managers. “Homeowners need to purchase an additional flood insurance policy.”

This distinction can catch homeowners off guard, especially after hurricanes and major storms.

FEMA defines flooding as excess water covering land that is normally dry, typically affecting at least two properties or two acres. Standard homeowners insurance doesn’t cover these losses, so you often need a separate flood policy to pay for repairs and replace damaged belongings.

Almost one-third of NFIP claims happen outside high-risk flood areas, even though homeowners there may not have to buy flood insurance for their mortgage. The losses can be substantial.

FEMA says NFIP policyholders received an average claim payment of about $69,000 over the past five years. In 2024, flooding caused more than $8 billion in damage to homes and businesses nationwide, including approximately $3.8 billion in communities that FEMA didn’t classify as high-risk.

Water damage and freezing accounted for 22.6% of homeowners insurance losses in 2023. Yearly, roughly 1 in 60 insured homes file a claim for water or freezing damage, according to Triple-I.

Coverage doesn’t always guarantee full reimbursement

Another common misunderstanding centers on how insurers determine the value of damaged property.

Many homeowners assume that if a loss is covered, the insurer will pay whatever it takes to replace damaged property with new materials. That’s not always true.

Some policies pay claims based on actual cash value, subtracting depreciation. Others offer replacement cost coverage, paying the full cost to rebuild or replace without deducting for depreciation, as long as the loss meets policy terms.

David Barron, a strategic insurance adviser with Real Estate Bees, said many consumers don’t realize the distinction until they file a claim.

“Very often, homeowners enter into ‘cheap’ insurance policy agreements that agree to value the building under actual cash value, as opposed to replacement cost,” Barron said, adding that policyholders should understand those limitations before buying coverage.

For example, a policy covering a 10-year-old couch at actual cash value would reimburse the homeowner for the furniture’s depreciated value. But replacement cost coverage would generally pay the cost of a comparable new couch, subject to the deductible and policy terms.

Older roofs are getting more attention

Roof claims are another area where homeowner expectations and actual policy coverage often diverge.

Insurers increasingly scrutinize a roof’s condition when reviewing policies, using aerial images, satellite photos, and other technology to assess properties before renewal.

Insurers can also write roof coverage on either a replacement cost or actual cash value basis. Under replacement cost coverage, the insurer pays covered repair or replacement costs without deducting depreciation. An actual cash value policy subtracts depreciation based on factors such as the roof’s age, condition, replacement cost, and expected useful life.

Experts emphasize another key point: Insurance is designed to cover sudden, accidental losses, not ongoing maintenance issues.

Water damage provides a good example.

“The cause of the leak and how long it has been occurring can affect the status of a claim since it could have been a maintenance problem,” said Cameron Figgins, owner of Absolute Maintenance and Consulting.

Similarly, Alex Adekola, founder of ReadyAdjuster, said homeowners sometimes assume their policy will cover every repair their contractor recommends after a storm.

“Your policy may cover the storm damage, but that does not mean the policy covers any repair your contractor recommends,” he said.

Even flood insurance has limits. NFIP coverage excludes mold damage. It also won’t cover moisture, mildew, or mold damage that the property owner could have prevented, strengthening the distinction between an insured event and damage that worsens because of delayed maintenance or mitigation.

Read the policy, not just the premium

Experts that Insurify spoke to consistently offer one piece of advice: Don’t just consider the premium. Review your policy before disaster strikes — its limits, replacement cost provisions, deductibles, endorsements, and exclusions.

The national average cost of homeowners insurance has risen by more than $900 since 2021, according to an Insurify report. At the end of 2025, the national average was $2,948 per year.

As Anthony Guerriero, managing partner at Manhattan Miami Real Estate, put it: “People read the premium and not the policy.”

The NAIC recommends comparing more than premiums. Consumers should examine deductibles, determine whether their policy insures their home and belongings at replacement cost or actual cash value, and make sure they can afford the amount they would have to pay out of pocket after a claim.

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